‘Thrings is an independent, award-winning law firm with more than three centuries of legal heritage and seven offices across the country. As one of the UK’s leading agricultural law firms, we are at the forefront of natural capital. We help farmers unlock new commercial opportunities from environmental change, advising on innovative projects that have delivered positive environmental outcomes alongside strong commercial results.
“Sponsoring EFG is a reflection of our shared values on a long-term, responsible outlook towards supporting the rural sector and ensuring farmers realise proper commercial rewards for protecting and enhancing the natural environment. This aligns very much with our work providing expert, trusted advice to farmers that understands both the commercial realities they face and the environmental ambitions they hold.”
Selling land for natural capital – should you rely on overage?
For landowners considering a sale, overage has long been a useful way to share in future value. Traditionally associated with development land, it allows sellers to receive additional payments as a result of the increase in value due to obtaining planning permission.
As natural capital markets continue to evolve, the same approach is increasingly being considered for the sale of land with environmental potential. The challenge, however, is that natural capital opportunities don’t always fit neatly into frameworks designed for development.
With development land, overage payment triggers are often clearly defined and transparent. However, in natural capital projects, value is generated very differently through the establishment of an environmental scheme with long-term land management obligations which are funded by the sale of credits/units rather than by the sale of land.
There are significant challenges around the scoping of the environmental overage which are reflected in the drafting and negotiation of the overage. Natural capital markets are constantly evolving, making it harder to identify simple overage triggers and monitor compliance (especially where ownership doesn’t change).
Furthermore, while it may be the intention of parties to include particular schemes within the scope of the overage, it’s unlikely that intentions are the same for land management schemes under the Agriculture Act 2020 (such as the SFI or Countryside Stewardship). Drafting the overage broadly to try and capture future natural capital projects risks creating difficulties for the land purchaser, while limiting its scope risks omitting potentially lucrative opportunities.
Negotiating an environmental overage can cause transaction costs to escalate and there are also tax issues to consider.
So, what’s the solution?
While environmental overages will, at times, be appropriate, landowners may achieve better outcomes by focusing on how land is presented to the market in the first place.
By ensuring land is marketed not only to traditional farming purchasers or developers, but also to the growing range of participants in the natural capital sector, sellers are more likely to attract competitive interest from those willing to pay a premium as well as avoiding costly and complex negotiations.
As natural capital markets develop, overage will undoubtedly remain part of the conversation, but getting legal advice early in the process will enable you to make informed decisions that deliver positive environmental outcomes while achieving strong commercial results.’
To find out more, visit www.thrings.com.