Introducing the Journal's special feature, an overview explaining how rural property has become an area of complex transactions in a changing legal environment

At the time this writer started his first job as a rural property lawyer, almost 20 years ago, it was perceived by many as the less glamorous area of practice for young lawyers wishing to have a career in property law. Commercial and residential were normally the first ports of call; rural property was the home for those “born to it”, or perhaps those looking for a less hectic pace of life!

Whether those perceptions were based on fact is doubtful, but today nothing could be further from the truth. While the rural property sector has been affected by the crunch, it has not been hit as hard as the residential and commercial property sectors. Nationally and on average, agricultural land values have continued to increase, although the curve may now have turned. However, the figures are based on low volumes of acres being transacted and one large transaction can have a disproportionate impact on the figures. In fact this lack of supply has been a complaint for those involved in this sector for many years, and predates the crunch.

The banks appear comfortable with their exposure to the rural sector. Having said that, while in the past they may have been happy for facilities to be unsecured, they are now looking to take security, no doubt in part due to their wish to increase their own capital base. The rural residential property market reflects its urban counterpart, with those properties which have in the past depended on bank/building society finance remaining challenged, perhaps more so in the remoter parts of the country and islands where there would appear to be fewer lenders willing to lend.

The estate market is relatively small in terms of transaction numbers, which on average are in the low tens annually. These properties do not rely in the main on borrowed money and therefore the return of city bonuses will hopefully continue to support this sector.

Across the spectrum

What type of transactions are likely to cross the rural property lawyer’s desk? At one end of the spectrum there will be the residential property requiring the creation of servitude rights for the first time in respect of private services, or the purchase of bare land where the only potential difficulty is being satisfied that the plan is sufficiently accurate for the purposes of first registration. The transaction may involve woodlands, salmon fishings, whether river or coastal, including syndicate arrangements, and the purchase of farms.

With commercial farms the land element may, in terms of complexity, be lower down the scale than having to deal with the various subsidy schemes that may be involved, including SFP and LFASS, which required to be transferred to the satisfaction of both buyer and seller. Transactions involving land which is subject to the agricultural holdings or crofting legislation throw up their own peculiarities, including statutory rights to buy, and are not areas for the uninitiated to dabble in.

The ultimate transaction for the rural property lawyer to get involved in is the purchase or sale of one of the large estates, which can include elements of all of the foregoing and more, including the rights of employees and tenants of residential properties of one type or another. Depending on the nature of the property and the activities that are being carried on, transactions which on the face of it appear to be land transactions are probably more accurately described as business acquisitions/sales (whether profitable or not), where the land element is but part of a much larger transaction involving several different disciplines. The most obvious example of this is where the estate is owned by a company, possibly a trading company, and the transaction revolves round a share purchase rather than a land purchase.

Due to the nature of the property and the individuals who may be behind its acquisition, tax considerations frequently come into play and this may have an impact on how an acquisition is structured, including taking title in the name of offshore entities.

Constant change

It would be impossible to write about rural property without mentioning the increasing commercialisation of the countryside, where the rural property practitioner finds him or herself dealing with more mainstream commercial type transactions, for example mineral extraction, waste disposal sites, and sale of land for development whether residential or commercial. More recently the practitioner has had to come to terms with the modern gold rush that is renewables, in particular, wind and hydro developments, whether for a landowner who wishes to go it alone and carry out the development themselves, or involving a third party developer either on the basis of a ground lease or joint venture type arrangement.

The variety of work that crosses the rural property practitioner’s desk in any one year is what keeps the job interesting. However, the flip side to this is the challenge in keeping up to date with the volume of legislation emanating from both Westminster and Holyrood, particularly the latter, and the ever expanding body of case law which is developing on the back of that legislation.

Having said that, there is no doubt that devolution has been a good source of business for the rural property practitioner. One of the first Acts of Holyrood was the Abolition of Feudal Tenure etc (Scotland) Act 2000, large parts of which had to be rewritten in terms of the Title Conditions (Scotland) Act 2003. Since 1998, we have had two Crofting Acts, 2007 and 2010, one Agricultural Holdings Act in 2003 which has already been amended by the Public Services Reform (Agricultural Holdings) (Scotland) Order 2011, and a new bill to carry out further amendments which could not be dealt with in terms of the 2011 Order, introduced shortly before the 2011 elections. With the re-election of the SNP, there may be scope for amending this bill further. The Land Reform (Scotland) Act 2003 introduced the right to roam and the community and crofting community rights to buy. More recently, the Wildlife and Natural Environment (Scotland) Act 2011, once it comes into force, will have significant impact on how certain rural properties are looked after and managed.

The rural property market may not be the largest property market in terms of value and transaction volume and it is becoming more complex by the day. However, its variety and therefore interest results in an area of practice which is rewarding for those who wish to develop an expertise in it.

Market view: healthy demand

“There is steady demand for rural properties, but there is still a great deal of nervousness in the market”, says Malcolm Taylor, director in the Forfar office of Bell Ingram.

“Farm land and good quality farms are in short supply, but from what we are seeing there is still a strong demand for land. We are about to bring to the market a good sized block of bare land in Angus and are expecting strong interest from neighbours.

“We have recently been involved in the purchase of three farms for sitting tenants, and are aware of a number of private farm sales. With high forward-sold commodity prices, e.g. spring barley and wheat, there appears to be a degree of optimism in the arable farming sector.

“Residential and sporting estates are still in demand, but quality of sport is becoming an important issue. The early signs are encouraging for a good grouse hatch this year.

“Residential prices are in our view falling slightly, but unique properties and those carefully priced and marketed are finding buyers at slightly over asking price or home report value. Some sellers are going to have to be more realistic in their expectations. Rural houses with a field or pony paddock are still in great demand, with small fields adding in excess of £20,000 to the value of a property.

“There appears to be a boom in forestry prices with many woodlands selling for far in excess of asking prices, partly through demand for small round wood for bio-fuel. There is a concern creeping into the market that there will be a shortage of home grown timber in the not too distant future.”

The Author
Kenneth Mackay is a partner with Morton Fraser LLP and convener of the Update seminar on buying and selling rural property being held in Perth on 21 June.
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