Tag Archive: Valuation

Restrictive Covenants: how well do you know what you own?

We sat down with Andrew Entwistle, Partner and Head of Valuations at George F. White, to discuss his approach to buying property and the advice that he would give to others in regards to restrictive covenants.

restrictive covenants

I frequently joke with a friend who happens to be hopeless with anything technical or mechanical on his attitude to paperwork and instructions. I maintain his first step, when buying anything new, is to immediately locate the instructions in the box and then throw them away. He then proceeds to try to get the item to work on pure luck and guesswork. He usually fails and then asks me for help.

I can relate this to my work. When giving advice to clients for the first time, I usually ask, where are your deeds? The reason I ask is because I typically find that most clients don’t know what is in their deeds. I am looking for restrictions in how their property can be used as the client usually has a proposal to consider, perhaps a sale, a new building or development project, or, is looking to raise some money. Restrictions can have a big impact on value; therefore, time after time such restrictions are forgotten about, or, in some cases simply not known about.

There are many different types of restrictions, claw backs, statutory/planning, and pre-emptions but for this article I will concentrate on restrictive covenants.

Restrictive covenants are, in simple terms, a promise not to do something on your land so as not to detrimentally affect land that was in the same ownership (retained land) from the person you acquired from. Such covenants are commonplace and it is rare to see the conveyance without them. Prior to the introduction of claw backs/overage they were used as a method of extracting extra value from land that had been previously sold on the basis the previous owner needed to give consent for a particular activity. For example, if there was a restrictive covenant that said land can only be used for agricultural purposes, only then consent would be needed before that land could be developed for housing. Such consent would normally only be granted in return for a high price.

At the start of the 19th century the government realised that national infrastructure was being inhibited by previous landowners demanding large ransom sums to release restrictive covenants in cases when development would have no detrimental effect on retained land. The Law of Property Act 1925 put in place a mechanism where restrictive covenants could be modified or removed with compensation being payable to the previous owner on the basis of their loss, not on the basis of the increase in value due to development. The Upper Tribunal (Lands Chamber) deals with these cases and a person affected by restrictive covenant can apply to have it modified or removed to allow their proposals to proceed. The practical issue is that with any litigation, such action can be costly and take a considerable amount of time. There are also important pre-requisites before making such an application such as obtaining planning consent for your proposals.

In some cases it is possible to insure relatively cheaply against any restrictive covenant issues, particularly if the covenants are old. However if you ‘break cover’ and contact the owner of the covenant, the insurance opportunity may be lost. If insurance is not possible then informed and intelligent negotiations at an early stage can protect you and save you being put into the position where you are held to ransom for a large payment in order to realise your development.

“Time spent in reconnaissance is seldom wasted” and I apologise for using this cliché yet again. Most restrictive covenants can be dealt with providing you are aware of them and have time to take the appropriate actions to reduce their cost implications.

To find out more, contact Andrew on 0797 751 8156 or andrewentwistle@georgefwhite.co.uk

Getting the Right Value

We sat down with Andrew Entwistle, partner at George F. White, to discuss the importance of getting a correct valuation on an asset.

I am firm believer that any business or individual cannot make a rational or informed decision without knowing the value of an asset, or the cost consequences of a particular action. In fact, understanding value is the under pinning basis on which professionals advise their clients on a particular course of action.


We have seen, over the last six years, the introduction of Automated Valuation Models (AVMs), particularly into the residential sector. Will we ever see AVM’s being used to value agricultural assets and farmland? I doubt such models could ever achieve even a modest degree of accuracy for farmland. Simply put, rural assets are too diverse for a computer to handle, particularly in the market that we are in. With low supply, demand can be high yet market conditions are showing a distinct patchiness with hot spots where land prices greatly exceed expectations, contrasting with similar quality land in low demand areas struggling to sell at below average guide prices.

I have the perception that most people consider valuations are only needed for either selling or when a bank wishes to take some security for a mortgage. There are many other good reasons to get a written valuation which are often overlooked, or simply guessed at.

The frequent scenario I come across is the case when a farmer dies. In the course of obtaining probate estimates of value are submitted, particularly in the case when Agricultural Property Relief or Business Property Relief applies and there is no inheritance tax to pay. A death forms an important tax point on the value of a farm and subsequently used as a base for future events such as calculating capital gains tax. More often than not, agricultural value is underestimated or simply not recorded.

Dealing with capital gains tax cases, another important relief that is often overlooked in Principle Private Residence Relief, where a main dwelling house can be free of Capital Gains Tax including up to 0.5 Ha of gardens, grounds, and outbuildings. A formal valuation at this point should have some analysis which attaches value to the garden and grounds from the rest of the farm that can minimise a Capital Gains Tax bill.

Another misunderstood concept I come across is Hope Value, where clients attach large values to land on the basis it will developed in the future. Market Value is the standard definition that is used for bank security purposes and reflects the price that the market will pay for an asset at a specific point in time. Research carried out by George F. White shows that developers are unlikely to pay significant sums over existing use value if the land has not got planning consent. A client will view the value of their land with Hope Value differently, taking into the “worth” of the development opportunity in the future them. The “worth” and “Market Value” of land is often significantly different.

Different valuation purposes often have different bases of value, for example tax valuations are have subtlety different valuation base to security valuations that in certain circumstances can give rise to very different values. In the case of matrimonial valuations Market value may not be an appropriate as it would not reflect the existence of a special purchaser.

So will a professional Valuer ever be replaced by an Automated Valuation Model? Only if an AVM can talk to clients and understand their objectives, decide the correct valuation base to use, and work as a team with an accountant and solicitor. I can’t see that happening in my lifetime.

Land and Farm Sales Update

The purchase and sale of agricultural property is an exciting and fast moving enterprise offered by George F. White which I am pleased to be involved in. It has, however, been an area of work which in the lead up to, and post EU Referendum, we were unsure of the level which it would be impacted upon – commodity prices seem to be remaining at a low level despite a weak pound and Brexit is still causing uncertainty in the market place.

One of the big unknowns in purchasing agricultural property in the current climate is the future of the Basic Payment Scheme (BPS) income. But on a positive note, banks and financial institutions are still willing to lend on a business forecast which shows continued BPS support over the coming years. This is promising and is coupled with the continued low levels of interest payable on borrowing thanks to the long term low on the Bank of England base rate.

Thanks to these factors, we are pleased to report that it does seem like it’s business as usual with land transactions and general business growth across the region. This is very encouraging for the industry and shows good testament to people wanting to crack on despite the on-going saga the politicians seem to have us in!

Interestingly, privately marketed land transactions seem to remain popular across the region. The thought process is that the seller benefits from reduced marketing expenses and personal intrusion to their home whilst the purchaser is able to get their foot in the door from an early stage and complete on the deal without any turbulence from additional competition.

We expect to see continued movement within the land and property sector, whether it be as a result of retirement, dispute or cashflow pressure. I think that this is something that we are going to see increase within the industry with struggling businesses in need of a cash injection.

In terms of the larger scale land transactions, the market seems to be sustained as a result of the attractive tax benefits currently offered to investors, whereby the payment of capital gains tax can be offset against the purchase of a new qualifying investment.

Whether this is an area of tax likely to receive scrutiny going forward is yet to be seen – perhaps it would be prudent to assume a change for the worse.

Whilst making these business decisions, we feel it’s always important to understand what the exit strategy is going to be if something does go wrong. Stress testing the various ‘what if’ scenarios is something which is often overlooked in the run up to making a deal.

If you would like any advice regarding your property or agricultural business please speak to your regional contact:

Northumberland & Borders – Tim Michie 01665 511992
County Durham – Jonathan Wallis 01388 529577
Yorkshire – Matt Brown 01677 458203