Preparing to buy or sell - Buying or selling a smallholding? John Sones looks at some of the things to consider (From Smallholder)

Preparing to buy or sell - Buying or selling a smallholding? John Sones looks at some of the things to consider

3:49pm Friday 10th October 2008

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WE decided that the time had come to sell and move on. Not an easy decision as the holding had been in my family since 1942 and I had grown up there. However as we did not live there, there were the practicalities to consider of the regular trips every week.

We were also restricted in what we could do by the distance from where we now live, so for example we could not keep animals as we were unable to keep a proper check on them. After inheriting it in a run down state in 2002, I have worked steadily to improve it and learnt a lot in the process some of which has been the subject of my previous articles in 'Smallholder'. However after over six years, I also had to consider what could be further achieved that was worth me doing as opposed to a new owner with their own plans and ideas.

In this article I will be considering many of the things that I did to prepare for the sale including the new recent requirement for a HIP (House Information Pack). Selling a holding can be more complicated that just selling a standard domestic property and I would suggest that if you are looking to buy a holding, you ought to be checking out the same things but of course from a different perspective. Also be prepared for some stress whichever side of the agreement you are on!

In effect our property can be considered in four sections: the land, the outbuildings, the surroundings and the dwelling, in our case a chalet bungalow built in the 1920's. There is to a certain extent a crossover but I feel that this is a simple way of looking at it.

The land
Any sale of land with or without a dwelling must now be registered with the Land Registry. Our property had been registered previously which in my view simplified matters. As a seller, if registration is necessary then there will be a fee. A check against the title to the property with Land Registry will reveal information such as any ties on the property or land and who may have rights over it. Whether registered or not, the multitude of forms now required during the selling process ask questions that cover such issues anyway. A failure to answer these honestly could result in a court action for misrepresentation.

In our case, a gas pipeline had been installed below ground level across a corner of the field in the 1960's and my father had signed an agreement with the then 'Gas Council' which gave them certain rights to enter that strip of the land if the need arose. He had received a one off payment for something over which he had no real choice and which has prevented any building in the future on that section (not that planning permission is likely to be granted). There is a partial restriction on the use of that strip of land in that for the same reason you cannot build a shed across it but otherwise it can be used in the normal way. The situation is different for the electricity poles which cross the field. These are the subject of wayleave agreements (see 'Smallholder' November 2006) for which a small sum is paid each year for the inconvenience. We also had a wayleave agreement with the neighbouring property permitting them to discharge water into our ditch.

Some months before finally deciding to sell, on checking through the many documents some of which went back to the 1920's, I realised that I did not have the original or a copy of one of the electricity pole wayleaves. For the records and also knowing that the buyer would want to see exactly what was involved, I did manage to obtain a copy from the current electricity company responsible for them but it took quite a while and some persistence. If I had had to do this when the property was under offer, it may have held up or lost us the sale. The moral here is for the seller to make sure all required documents are easily available before putting the property on the market and for the buyer to check what the restrictions or benefits if any are.

In particular, if a mobile phone mast is involved, I suggest that the agreement is studied very carefully.

The land amounted to about 9.5acres and I had signed up to the Entry Level Stewardship Scheme (ELS) which pays £30 per hectare. This is a legal agreement which you cannot take with you as it applies in specific terms to that holding. I had two choices: either to pay back the money that I had received or transfer the agreement at no cost to our buyers. The scheme was about half way through the five year period and our buyers after looking into it agreed to take it on. In general, Natural England provides the paperwork and whoever takes it on has a choice of keeping the original options or changing them for the remainder of the period of the original contract.

Single Payment Scheme
I am also in the Single Payment Scheme (SPS). I have deliberately used the present tense here as unlike the ELS scheme, the entitlements under the SPS are attached to the person and not the land although you must have land to claim against. I took the decision to retain the entitlements for the time being not knowing where we will be finally living. I now have the options of using them against other land in my control, selling them on the open market as they have a value or offering to sell them to our buyers at a later date bearing in mind that any such transfer should be done by April next year in order for the transferee to be able to make a claim. As I wrote recently in 'Smallholder' in May 2008, the rules have changed so that to claim for that year, you now only need to be in control of the land on the 15th May.

In order to be in either scheme, it is necessary for the holding to be registered with Defra by being recorded on the Rural Land Register and given a holding number (see 'Smallholder' January 2008). For our property this was already done but our buyers will still need to register their details with the Rural Payment Agency (RPA) in order to receive the ELS payments. If you are looking to buy a property that has land but is not a registered smallholding, you will need to register it if you intend keeping animals or entering the Entry Level Stewardship scheme.

I had also registered exemptions for disposing of agricultural waste such as burning hedge cuttings with the Environment Agency (see 'Smallholder' Special 2006) and notified them that I was no longer the owner. Again, a new owner will need to register any exemptions that are appropriate to their use of the land.

We could not claim to be organic but no farmyard manure (FYM) or fertilisers (or in fact anything) had been put on the land during our ownership since 2002. We were also in a Nitrate Vulnerable Zone (NVZ) as is 55% of England so the restrictions this imposes need to be considered.

In particular, especially if you are intending to keep horses, inspect the field and surroundings for ragwort. Depending on the time of year, this may not be easy to spot. Several of our prospective buyers walked the field enabling them to check among other things its condition and the state of the hedges. If there are fences, I suggest that these also be examined - you do not want surprise bills after purchase!

The outbuildings
I had done a lot of remedial work particularly on one building. This and work on other buildings plus the remains of old buildings meant that I had had to dispose of many tons of Cement Asbestos via an approved waste contractor. This can be very expensive and a buyer should consider whether they are purchasing a property where such costs might be incurred.

I had also installed new electric and water supplies independent from the bungalow. This meant that all of the plumbing and much of the electrical system was quite new and up to modern standards. I had also kept a record of where the new pipes and cables were laid. A buyer is recommended to request all records that are available even if the systems have been in place for some time.

It is unlikely that outbuildings will be surveyed. I suggest that a buyer looks closely at the condition of the structure of the buildings including the plumbing and electrics. If in doubt, have anything checked out by an expert. At the end of the day, from the buyer's perspective it is a matter of what is acceptable for the price. With the electrics, check out if three phase is available if that is important to you. We had installed a three phase electricity supply from the pole into the meter box as the additional cost at the time of installation was not huge and then used single phase from that point. This meant that three phase was available on site at relatively low cost if required at a later date. The cost of installing a totally new three phase supply from the supply pole is likely to cost thousands of pounds.

Bear in mind that if you are considering alterations to the buildings or new buildings, this may require planning permission. The type of permission that is required to a certain extent relates to the size of the holding (see 'Smallholder' April 2008).

A buyer is recommended to check out the current planning status of the holding not only in respect of the buildings but also their permitted use and the permitted use of the land. For example, horses are not generally deemed to be within 'agriculture' unless used on the land so if you wish to keep them, you may need to apply for 'change of use'. If in doubt, a visit to the local authority and a chat with the duty planning officer may resolve your queries.

Some of our prospective buyers had ideas in mind like using the buildings for storage or running a nursery. Despite their making an offer to buy, we were not prepared to wait whilst they investigated the planning situation - something which could easily result in them withdrawing their offer and us having to start all over again. Similarly anyone who required a mortgage but had not had an offer of one was also not a good prospect as a buyer.

The surroundings
The surroundings: By this I mean property that adjoins the smallholding. We had a variety. Some residential, a garage, fields owned by a large farm, a large piece of old road used as a lay-by and a piece of land that had returned to nature owned by the Church but technically the 'poor of the parish'. The latter had been a large open field rented many years ago by my father and used to make hay.

A buyer may wish to consider how any of these might impact on them or not affect them as the case may be. In particular, a prospective buyer may wish in the future to increase the size of their holding by buying or renting additional land and now is the time to consider if such a prospect might be achievable. Current and alternative access may also be important particularly if machinery is likely to be involved.

The bungalow
Most of the preceding considerations would not apply to the normal domestic property sale. Everything in this section will be standard for most properties. The only additional consideration might be if the property had an agricultural restriction meaning that the occupiers had to use the land themselves for agricultural purposes. This often means that the property is cheaper but also means that it is likely that at some stage in your life you will have to move out when running the smallholding becomes no longer physically possible. Agricultural ties can sometimes be removed but this is a specialist area and by no means guaranteed.

Home Information Packs
The requirement for a HIP was created through the Home Information Pack (No2) Regulations 2007 and applies to England and Wales. One might wonder why they were deemed to be necessary bearing in mind the controversy leading up to their introduction. The government claim they are successful with Housing Minister Caroline Flint being quoted in March as saying that "search costs are falling as a result of the increased transparency in the market, energy ratings can help people to reduce fuel bills and first time buyers are receiving important information about their home for free." So what is in a HIP? Compulsory documents include Index of documents
Energy Performance Certificate (EPC)

• Sales Statement identifying the property, tenure and ownership etc
  
• Evidence of Title plus Title Plan
  
• Local Authority Searches plus drainage/water searches
  
• Leaseholds - copy of the lease
  Other documents are optional such as a Home Condition Report (HCR) and a Home Contents Form listing fixtures and fittings included in the sale. The latter will be covered through the seller's solicitor. In our case, we had the basic pack for a cost of under £300. This did necessitate a visit by an assessor to produce the Energy Performance Certificate which gives an Energy Efficiency Rating and an Environmental Impact Rating. Both are on a scale of A to G with A being very good and G very poor. The ratings are shown as both current and potential, the potential being what can be achieve by some expenditure on the areas highlighted in the report. An average rating is D -E for both. Our property achieved an Energy Efficiency Rating of E with some recommendations for improvements but which would still not have rated it above the E band.

Having spoken to other people, the way in which a visit is carried out to calculate the ratings varies. Our visit was a quick walk through and some questions. Things which will help to give a higher rating include double glazing, cavity wall insulation, low energy lighting, good loft insulation and a modern very efficient boiler with the appropriate controls. I was surprised when I was told that only certain rooms count. The bathroom and kitchen do not. Apparently, a conservatory does not count if there are doors to shut if off from the house. Because we had a room in the loft space it being a chalet bungalow, that was deemed "very poor" with no interest being shown in the lagging in the large loft space surrounding it. Because no physical examination is carried out and assumptions are made, my personal view is that these surveys particularly on older properties have a limited value. I am also not convinced that a buyer will be put off by the results of the energy survey alone.

The responsibility for obtaining a HIP is the seller's unless they are using the services of an agent when it becomes theirs. Currently as an introductory measure, the property can be put on the market as soon as a HIP has been commissioned. I believe that this has now been extended to the end of the year. There are also exemptions to requiring a HIP under regulations 26 and 27. Of particular interest is the one for properties over 5 hectares (about 12.4acres) where the land is used for 'horticulture or cultivation, or breeding/keeping of animals/livestock, or grazing or woodland'. So assuming your smallholding fits this definition, how small it is will determine the need for a HIP or not.

I would also always recommend that the property has a survey or Home Condition Report which generally will still be carried out for the buyer at their expense. If the buyer needs a mortgage, this is usually a requirement of the mortgage company.

There are all sorts of tips around to help achieve a sale - you only have to watch the property programmes. Personally, I think an important factor is that the property is furnished when viewed as this gives the prospective buyer an idea of space. Fortunately, our tenants were still there when the viewings were carried out and we had several comments on how good it looked. Internal and external decorations are also important unless you are willing to allow for the cost of work in the asking price.

Because of changes in Building Regulations, make sure that if you have had double glazing or a new gas boiler fitted recently or the electrics updated, you have all the required certificates. In general, double glazing will have a FENSA certificate and a gas boiler will be registered with CORGI. Both will provide the customer with the required certificates. Our new electric consumer unit also required certification, one supplied on fitting by the electrician and one after the electrician registered the work. In this case, there are more than one body that electricians use unlike gas. I know of several people who have had work done and not received the appropriate certificate despite asking. The moral here is choose carefully who does your work and check out that he/she is qualified to do what you are asking.

Some general thoughts: Someone buying a smallholding for the first time may need to consider going on courses for what they intend to do. I think that before buying, it is very useful to go on one of the two day introductory courses advertised in 'Smallholder' as this will then help when deciding on what property to buy. Joining an organisation like the National Farmers Union (NFU), the Country Land and Business Association (CLA) and/or a local smallholder group will also help plus of course reading 'Smallholder' regularly!

Insurance is also important. I suggest that you insure with a company that understands smallholder requirements as you may need additional insurance to cover items such as animals, outbuildings, product liability and public liability.

For a seller, I think it is very important to choose the agent, if you are using one, carefully. Some agents specialise in properties with land and understand that section of the market very well. A wide marketing base is also important. Another factor is deciding when to market the property. I felt that spring presented it at its best with colourful flowers and everything starting to grow. To see our field in June particularly this year would never give a true impression of its size because of the very tall grass waiting to be cut.

The future
Our future: Now that the door has literally closed for us at our holding for the last time, I look back and will remember many things like the pheasants strutting around - one in particular used to be very bold. I will miss the variety of flowers in and around the hay meadow some I believe quite rare. Also the cooking apples, damsons, the abundance of blackberries and the field in winter soon to grow once more for the annual hay crop. My tractor will not be called on again to top the field in the autumn. However, we can look ahead to buying a property that suits our needs and have now become prospective buyers.

As one door closes, so another opens.