There are a number of particular issues and problems that arise when acting for the vendor or purchaser of a farm or other agricultural land.

-- Value added tax.

There are a number of VAT issues in connection with agricultural land which can pose a trap for the unwary.The vendor will normally be registered for VAT in relation to a farm, in which event it must of course charge VAT.

If the transaction is the transfer of a business as a going concern where the assets of the business are to be used by the purchaser in carrying on the same kind of business, then VAT will not be payable as art 12(1) of the Value Added Tax (Special Provisions) Order 1981 provides that this is deemed to be neither a supply of goods nor a supply of services provided both parties are either registered or registerable for VAT.The sale of a farm should normally fall within art 12(1) as the transfer of a business as a going concern.

There will, of course, often need to be an apportionment, for example where the property includes a manor house the use of which is purely residential.

An apportionment will normally be required even if the vendor has waived exemption in relation to the property because such a waiver would obviously not apply to any residential element of the property.The vendor's solicitors will also need to consider whether any VAT implications arise on other aspects of the transaction, for example fixtures and fittings or sporting rights.In view of these complications, the normal procedure will be for the purchaser to apply for clearance by writing to Customs & Excise requesting written confirmation to be issued to both parties that all the relevant criteria in art 12(1) have been satisfied.

The vendor's solicitors should obviously ensure that this application is put in hand by the purchaser at the earliest possible moment.If the required clearance has not been obtained by the contractual completion date, which often happens, then it will be necessary for the contract to make provision for the purchaser to deposit with the vendor's solicitors a sum equal to the estimated or possible VAT liability, on the basis that this is then either paid to Customs & Excise or repaid to the purchaser as appropriate.This is essential as the vendor will be liable to pay any VAT that is due and will obviously not wish to become liable to make such payment before it has been paid by the purchaser.

It will accordingly not be sufficient for the contract simply to contain a provision stating that the purchase price is exclusive of VAT and that the purchaser will be liable to pay any VAT in addition to the purchase price, as this would only give the vendor a contractual claim against the purchaser.

The vendor needs to have the money immediately available to pay to Customs & Excise.Situations may arise where the purchaser sim ply does not have sufficient additional funds to deposit the VAT, and where this accordingly threatens to abort the transaction.

In such circumstances, the vendor may have to take a view, based on advice received from its accountants, as to the likelihood of obtaining clearance under art 12(1).

The vendor could also consider taking a possible mortgage over part of the property to secure the purchaser's liability for VAT, although this will normally not be an acceptable solution.

The purchaser will of course often need to give a first mortgage of the whole property to its own bank in order to raise the purchase price, and from the vendor's point of view a mortgage still means that the vendor will have to raise the funds itself in the first instance to pay the VAT.As a related point, the deposit payable on exchange of contracts should be held by the vendor's solicitors as stakeholders.

If the deposit is received as agent for the vendor then the tax point in relation to that sum of money is accelerated, and VAT on the deposit will accordingly arise as at the date of exchange, which is obviously to be avoided.It should be noted that under s.10(2) of the Value Added Tax Act 1983 there is a presumption that the purchase price is inclusive of VAT.

It is accordingly important to ensure that if the purchase price is intended to be exclusive of VAT, which will normally be the case, that this is specifically stated in the contract.-- Quotas.

The purchaser will need to satisfy itself by appropriate pre-contract enquiries that the available quotas attaching to the land will be sufficient for its proposed farming operation.The first of the main quotas that will normally arise in this respect is the milk quota.

Milk quotas were introduced in the UK in 1984 to regulate the quantity of milk and milk products being produced in the EC.

Farms that produce milk and other milk products have a quota allocation which is normally based on their 1983 production levels.

A producer which exceeds its quota will be subject to payment of a levy.

The quota will pass to a buyer of the land as it attaches to the land, although it does still need to be expressly assigned.

Milk quota cannot be assigned without the land.The next main quota is that for sugar beet.

Once again, this requires an express assignment.

S.9 of the Agricultural Credits Act 1928 specifies that such assignment must be in a form approved by British Sugar plc.The third of the main quotas is that for potatoes, in respect of which there are no specific restrictions on assignment.Milk quota will usually be the main consideration, in respect of which the purchaser's solicitors should note the following points.A licence is required from the Milk Marketing Board or the Ministry of Agriculture Food and Fisheries for the sale of milk or cheese direct to the public.

If this applies then the licence, called a direct seller's licence, will need to be transferred to the purchaser on completion.The purchaser should check whether there is any third party having any interest in the quota, in which event that third party should consent to the transfer of the quota to the purchaser in form T1/2.The purchaser should ask the vendor for appropriate details showing the amount of milk that has been produced, ie to enable the purchaser to ascertain the amount still remaining of the quota for the current year.The purchaser must send a quota transfer form to the Milk Marketing Board within the two months after completion.

This notifies the Milk Marketing Board of the change of occupation.Other consider ations will apply on a sale of only part of the land to which quota attaches, in respect of which there will have to be an apportionment of the quota which will be referred to arbitration if the parties cannot agree.-- Farm equipment and livestock.

The parties will need to agree specifically which items of farm equipment and livestock are to be included in the sale.

The contract will normally provide either for these items to be included in the agreed purchase price or, alternatively, for them to be purchased at valuation on completion.

If the purchaser is not buying some or all of the farm equipment, then the vendor may need to have the right to retain it on the property and arrange an auction or disposal sale of the relevant equipment to take place on the property within a fixed period following completion.-- Grants and subsidies.

If there are any grants or subsidies in relation to the land, then the purchaser should check whether the sale will give rise to any repayment obligation.

In this event normally the obligation will fall on the vendor and the contract should provide accordingly.-- Sporting rights.

The parties will need to agree whether the sale includes any sporting and fishing rights or whether, as is often the case, these are to be retained by the vendor.

This will, of course, include related rights of access, and thought will also need to be given as to whether any reservation of such rights is to be in perpetuity, or only for a fixed period.-- Farmworkers.

The parties will need to discuss and agree which of the farm employees are to be made redundant or dismissed.

The basic rule of thumb is that all employees will automatically be taken over by the purchaser under the Transfer of Undertakings (Protection of Employment) Regulations 1981.

It should be remembered that, under reg 8, unless there is an economic, technical or organisational reason necessitating changes in the workforce, if the principal reason for dismissal is or is connected with the transfer of an undertaking, then that dismissal is automatically regarded as unfair.The purchaser should also check whether workers occupying farm cottages do so under a relevant licence or relevant tenancy under the Rent (Agriculture) Act 1976 or, if the licence or tenancy was granted after 15 January 1989, an assured agricultural occupancy under the Housing Act 1988.

In this event the occupier may have statutory security of tenure.-- Tenancies.

The purchaser will need to make full enquiries to ascertain details of agricultural tenancies, to which the sale will normally be subject.

Security of tenure will often exist for tenant farmers under the Agricultural Holdings Act 1986 and, as mentioned above, farm workers who are living in tied accommodation may have protection under the Rent (Agriculture) Act 1976 or the Housing Act 1988.-- Service media and utilities.

The purchaser should in particular check whether the property has mains water and drainage or, if not, what the specific arrangements are in this respect.

If there is no direct connection to the mains water pipe, then is there an adequate easement to use any private water pipes running through or under adjoining land?It is possible that the land may have a water abstraction licence under the Water Resources Act 1963, in which event the purchaser should verify that such licence can be assigned, and must then notify the relevant water authority of the change of ownership of the licence within 15 months following completion.

If the purchaser is only taking over part of the land covered by a water abstraction licence, then an assignment is not possible, and the purchaser must apply within 15 months following completion for a new licence relating to the relevant land.If the property does not have mains drainage, then similar checks will be needed to ensure that the private drainage arrangements are totally adequate.There may be wayleave agreements relating to electricity or telephone cables, in which event these should either be assigned to the purchaser with the consent of the relevant authorities, or novation agreements should be entered into between the purchaser and the relevant authority in each case.-- Ancient rights.

Farm land may be subject to manorial rights, often mineral rights and sporting rights relating to former copyhold land that has been enfranchised.

Such mineral rights are not normally a problem as the lord of the manor cannot work them without the landowner's consent.

Sporting rights are subject to the Ground Game Acts 1880 to 1906, and also possibly to the compensation provisions of the Agricultural Holdings Act 1986, ie if the land is subject to an agricultural tenancy.There is also the possibility of ecclesiastical rights.

All agricultural land used to be affected by tithe redemption annuity, which one often finds mentioned in old deeds, but this was abolished by the Finance Act 1977.

There could be other ecclesiastical charges such as corn rents, which are normally for very small fixed sums which have not been paid for many years.If the property is in the vicinity of a local parish church, then there is the potentially serious obligation to contribute towards the repair of the church chancel.

This liability is usually not mentioned in title deeds, and difficulties occur in making appropriate enquiries without alerting the church to the existence of such an obligation of which it may currently be unaware.

One potential solution is to obtain appropriate insurance against potential liability for chancel repairs, and this is easier to obtain if enquiries are not made.-- Searches and planning.

Depending on the particular location of the property, it may be appropriate to carry out some unusual searches, eg for coal, oil, sand and gravel or relating to rivers or railways.

A commons registration search should always be carried out.

Some of the pt II enquiries on the local authority search form may be appropriate.If the purchaser is concerned to establish the specific routes of pipes and cables passing through or under the property, then a specific enquiry by letter can be raised with the relevant authorities.If the land is near an ancient parish church, then it may be appropriate to carry out a corn rent/annuity or chancel repairs search.The purchaser will clearly need to establish the permitted use of the property under the Town and Country Planning Act 1990, but it should be noted that a change to agricultural use does not require any planning consent.-- Taxation.

Apart from VAT, the disposal of a farm often raises a number of other complex taxation issues, for example in relation to capital gains tax, corporation tax, inheritance tax, and capital allowances.

The vendor should be advised to obtain expert advice from its accountants, and if appropriate tax counsel, on all taxation matters.There will, of course, inevitably be a number of further specific matters that will be appropriate in any particular transaction, and the above pointers can only act as a basic check list.