Rising rural land values require deeper environmental due diligence

The rising price of farm and agricultural land has increased the pressure on commercial lawyers to identify the environmental risks and opportunities associated with it. What are the factors behind this and what information can help reveal the secrets of the land?

Agricultural land has attracted plenty of interest from investors over the last couple of years, with prices rising dramatically as available high quality land becomes harder to come by. Growth rates have been similar to prime residential property in central London with an increase of 12.3% in 2012 over the previous year. Estate agents Chesterton Humberts’ forecasts that farmland values will increase by 30% over the next five years as the fundamentals driving growth become stronger.

Its attraction has also grown due to serious buyers looking at the tax benefits from commercial agricultural holdings. There are a number of exemptions on paying inheritance tax for example, on property including farmhouses and outbuildings, if the farm produces commercial crops for sale. Celebrities have got in on this act – most famously Industrialist and Inventor James Dyson, who bought 17,000 acres of prime fruit and arable land in Lincolnshire this year.

Despite the adverse weather conditions of recent years, there is strong long term case for investing in farmland as the attractions of the sector with regard to scarcity value, rising food demand and tax advantages are set to continue for the foreseeable future

So, with substantial growth rates and significant capital being directed at this sector, it is essential that given the high financial stakes involved the most rigorous due diligence is undertaken on these sites. By their very nature, farms and agricultural land have had a long history with frequent changes of ownership, farm outbuildings with numerous tenants and different industrial practices, all of which leave a footprint on the land.

For example, your client may be looking to purchase several thousand acres of mixed quality land and buildings with assorted woodland and water courses. The outbuildings were tenanted at some point and included storage of chemicals, dyes and oil drums. How well were they stored? Could the material have leached into the farmyard, churned by vehicles on site and leached into the soil? What is the relationship between that past use and the lie of the land? Could those contaminants have entered water courses off the land and potentially create a pathway to a nearby population centre?

Understanding this risk in the context of the Environmental protection Act and the Law Society Warning Card on Contaminated land well ahead of exchange will ensure that your client does not fall into any potential liabilities should the original polluter not be identified. Equally, you need to ensure that a liability for failure to advise does not land at your firm’s door.

The cost of remediating the land of contamination is substantially more than the purchase price and the scale of clean up could be far greater than in a residential setting. These costs can double, triple or worse if contaminated land that has not been remediated by the previous occupier produces run-off into other sites. 

What about environmental liabilities on adjacent land? Is there a potential nuisance from contaminative practices that could enter water courses your client would inherit? Standard searches will not identify issues over wide distances and, crucially if sites are irregular in shape, you need to search out to the widest possible area in case any neighbouring issues can be caught and analysed.

In response to the increased risks associated with land purchases, TM offers a report that delivers specialist due-diligence tailored for the purchase, refinancing or redevelopment of agricultural land and farms. GroundSure Agricultural contains a full contaminated land risk assessment and professional opinion covering essential Part IIA Environmental Protection Act requirements and provides insight on relevant past and current use of the land and site layout. The opinion on site suitability provides support for banking security and valuation purposes, together with a more tailored wide area search than standard commercial searches.

Uniquely, the report also identifies the Agricultural Land Classification, indicating the potential productivity of the land. It also screens for flood risks, including local hydrogeology and identifies non-coal mining and subsidence risks that could affect the productive space available.

Planning restrictions could affect the return on investment and these are covered in the report. Your client needs to understand whether limitations on use exist through accommodating historic rights of way, sites of ancient or protected woodland and archaeological sites of interest.

High Speed 2 (HS2) is set to cut a swath through the rural heart of England to Birmingham, Manchester and Leeds over the next 25 years. What are the commercial opportunities from compulsory purchase and compensation and also the degree of disruption from construction and live running – the noise, visual impact, and adaptions to the site – that could result from its presence?

Each commercial rural site is unique and there can be no generalisations. It is essential that you and your client can access information specifically a tailored for agricultural land transactions to get the fullest possible view of issues around the total perimeter of their proposed land. Supporting professional opinion, offering full reliance, means you have peace of mind from experts that have reviewed all the factors. With the stakes so high on all sides, it makes sense to go that one step further.

For more details of GroundSure Agricultural or any of the reports provided by TM, please visit www.tmgroup.co.uk/commercial-conveyancing