Revenue Administrative Bulletin 1993-4

LAND REMOVED FROM A FARMLAND DEVELOPMENT RIGHTS AGREEMENT

Approved: April 15, 1993

RAB-93-4 This bulletin describes the computation of the lien imposed upon removal of land from a Farmland Development Rights Agreement as provided by sections 11 and 12 of the Farmland and Open Space Preservation Act, MCL 554.711 and MCL 554.72; MSA 26.1287(11) and MSA 26.1284(12). The computations are effective beginning January 1, 1989.

The Farmland and Open Space Preservation Act defines a “development rights agreement” as:

“a restrictive covenant, evidenced by an instrument whereby the owner and the state for a term of years, agree to jointly hold the right to develop the land as may be expressly reserved in the instrument, and which contains a covenant running with the land, for a term of years, not to develop, except as this right is expressly reserved in the instrument.” [MCL 554.702(4); MSA 26.1287(2)]

When property is removed from a development rights agreement, the state land use agency records a lien against the property. Land may be relinquished from an agreement for the following reasons:

1. Natural termination of the agreement [MCL 554.712(1); MSA 26.1287(1)

    

2. Death or permanent disability of the landowner [MCL 554.711(2); MSA 26.1287(2)]

    

3. The landowner request relinquishment of the development rights agreement [MCL 554.712(2)(b); MSA 26.1287(12)(2b)]

The lien is value is computed differently based on the reason the land was relinquished from the development rights agreement. The following discussion outlines the lien value computations required by the different ways that development rights agreements are relinquished.

COMPUTATION OF THE LIEN VALUE

Natural Termination of Agreement

According to MCL 554.712(7); MSA 26.1287(12)(7), the value of the lien will be the final amount of the farmland reservation credits attributable to the terminated agreement received by the owner in the final seven years. The final seven years shall include the year of termination. The value is computed as follows:

Step 1

Divide: The ad valorem property tax levied on property subject to the expired development rights agreement that was used in determining the farmland preservation credit that year.

By: The property taxes levied on your property subject to any development rights agreement and used in determining the farmland preservation credit in that year.

Step 2

Multiply: The owner’s total farmland credit on all agreements paid that year.

By: The quotient in Step 1.

Step 3

Sum: The results of Step 2 for each of the last seven years.

Landowner Dies or Becomes Totally and Permanently Disabled

The value of the lien will be the total amount of the farmland preservation credit received by the owner for the payback period. The payback period and value of the lien are computed as follows:

Payback Period

Step 1

Divide: The number of years the land was enrolled in the current development rights agreement

By: The number of years for which the agreement was written.

Step 2

Multiply: Seven years

By: The quotient in step one.

Value of the Lien

Step 1

Divide: The ad valorem property tax levied on property subject to the expiring development rights agreement that was used in determining the farmland preservation credit.

By: The property taxes levied on property subject to any development rights agreement and used in determining the farmland preservation credit in that year.

Step 2

Multiply: The owner’s farmland preservation credit on all agreements claimed that year.

By: The quotient computed in Step 1.

Landowner Requests Release From an Agreement

According to MCL 554.712(4); MSA 26.1287(12)(4), the value of the lien is the total amount of the allocated tax credits received by the owner for the agreement or portion of the agreement that included the property being withdrawn, plus interest at the rate of 6 percent per annum. The computation of the allocated tax credit and the value of the lien is as follows:

Allocated Credit

Step 1

Divide: The ad valorem property tax leveled in that year on property subject to the development rights agreement that included the withdrawn property.

By: The total property taxes levied on property subject to any development rights agreement and used in determining the farmland credit in that year.

Step 2

Multiply: The owner’s total farmland preservation credit in that year on all agreements

By: The quotient in Step 1.

Value of the Lien

Step 1

Divide: The assessed value of the property being withdrawn from the agreement.

By: The total assessed value of the property subject to the development rights agreement that included the property being withdrawn from the agreement.

Step 2

Multiply: The “allocated tax credit”.

By: The quotient computed in Step 1.

PAYMENT OR DISCHARGE OF THE LIEN

The lien is payable to the state by the owner of record at the time the land or any portion of the land is sold or converted to a use prohibited by the former development rights agreement. The lien is discharged upon renewal or reentry lien than the lien discharged. [MCL 554.712(5); MSA 26.1287(12)]