Chapter 61A: Agricultural and Horticultural Liens
by Gary Casaly, Esquire
A very complicated law but one that needs to be understood is the statute concerning agricultural and horticultural liens under G.L.c. 61A. There is rarely a week that goes by that I do not get a call on this subject. The statute contains provisions that at times seem convoluted, or even contradictory. But the rules laid down in the statutory framework must be closely and vigilantly followed if the lien created by the statute is to be properly extinguished and the tax obligations imposed by its provisions properly addressed.
Logic would suggest that an article about the statute would first address how land is submitted to its provisions followed by a discussion about how the lien and tax obligations are disposed of. But I'm going to do things in reverse, only because it is most important for conveyancers to understand the latter aspects of the law.
When a lien under the statute is encountered in connection with a conveyance, it is important for both the seller and the buyer — and any lender — to know what to do about it. Do they wish to continue the preferred tax status, or do they wish to take the property out from under the provisions of the law? Do they understand the ramifications of changing or continuing the use of the property as agricultural and horticultural land after the transaction is completed? Does the seller care whether the buyer changes the use after the transaction? Can the owner, even where there is no sale, end up in a trap by making certain changes in the use of the property? What protections does a lender have from the "triggers" that otherwise would precipitate additional tax liabilities? I will address these and other questions in this article.
For the conveyancer, the most important sections of G.L.c. 61A are sections 12, 13 and 14. These sections deal with the "conveyance tax," the "roll-back tax," and the "right of first refusal," respectively. Those sections are discussed in detail below.
The Conveyance Tax. One would suppose that the conveyance tax is applicable to sales of the property that's taxed under the statute. And this is true. But a change in use of the property can also trigger the conveyance tax. Here are the relevant provisions of section 12:
Any land [taxed under the statute], if sold for other use within a period of ten years from the date of its acquisition or the earliest date of its uninterrupted use by the current owner in agriculture or horticulture, whichever is earlier, shall be subject to a conveyance tax applicable to the total sales price of such land [based upon a sliding scale] . . . . Said conveyance tax shall be due and payable by the grantor at the time of transfer of the property by deed or other instrument of conveyance . . . . provided [however], that if there is filed with the board of assessors an affidavit by the purchaser that such land is being purchased for agricultural, horticultural or agricultural and horticultural use, no conveyance tax shall be payable by the seller by reason of such sale, but if such land is not in fact continued in such use, the purchaser shall be liable for any conveyance tax that would have been payable on such sale as a sale for other use. Except with respect to eminent domain takings, the provisions of this section shall not be applicable to the following: mortgage deeds; deeds to or by the city or town in which such land is located; deeds which correct, modify, supplement or confirm a deed previously recorded; deeds between husband and wife and parent and child when no consideration is received; tax deeds; deeds releasing any property which is a security for a debt or other obligation; deeds for division of property between owners without monetary consideration; foreclosures of mortgages and conveyances by the foreclosing parties; deeds made pursuant to a merger of a corporation or by a subsidiary corporation to its parent corporation for no consideration other than the cancellation and surrender of capital stock of such subsidiary which do not change beneficial ownership; and property transferred by devise or otherwise as a result of death. A nonexempt transfer subsequent to any exempt transfer or transfers shall be subject to the provisions of this section. Upon such nonexempt transfer the date of acquisition by the grantor, for purposes of this section, shall be deemed to be the date of the last preceding transfer not excluded by the foregoing provisions from application of this section; except that in the case of transfer by a grantor who has acquired the property from a foreclosing mortgagee the date of acquisition shall be deemed to be the date of such acquisition. * * * Any land in agricultural or horticultural use which is valued, assessed and taxed under the provisions of this chapter, if changed by the owner thereof to another use within a period of ten years from the date of its acquisition by said owner, shall be subject to the conveyance tax applicable hereunder at the time of such change in use as if there had been an actual conveyance, and the value of such land for the purpose of determining a total sales price shall be fair market value as determined by the board of assessors of the city or town involved for all other property.
Although the statute begins with the provision for a tax if the property is "sold for other use" during the applicable ten-year period, the last sentence tells us that the tax liability applies also if the agricultural or horticultural use is "changed by the owner" during this ten-year period. So a "conveyance tax" may be applicable where there is no conveyance. The statute makes provision for a sliding scale in figuring the tax — 10% of the sales price if sold in the first year of ownership; 9% if sold in the second year of ownership, etc. Of course, not all sales trigger the tax; only those involving sales "for other use" do.
When there is a sale of property that is presently taxed under the statute for agricultural and horticultural use and the sale is "nonexempt" (see below), any conveyance tax due is payable by the seller (the statute provides that "said conveyance tax shall be due and payable by the grantor at the time of the transfer"). So, it's important that the seller determine that a change in use is not contemplated if the ten-year period is still applicable. How does the seller accomplish this? The statute provides that the buyer can file an affidavit to this effect with the board of assessors and, in such a case, "no conveyance tax shall be payable by the seller." But in such an instance, and where the affidavit has been secured, if there is a change in use later by the buyer, the statute provides that "the purchaser shall be liable for any conveyance tax." So the affidavit that the statute provides for is an important tool for the seller to obtain and have filed with the assessors.
As noted, not all sales trigger the payment of a conveyance tax. First, obviously, those outside the ten-year period do not (but watch out for the roll-back tax, discussed below). Second, there's a "laundry list" of what are considered "exempt" transactions, sales that do not cause the conveyance tax to become due. These exempt transactions are listed as follows:
► Deeds to or by city or town in which such land is located
► Deeds which confirm, modify or supplement prior recorded deeds
► Deeds between husband and wife and parent and child for no consideration
► Tax deeds
► Partial releases or discharges of mortgages
► Boundary line deeds for no consideration
► Foreclosure of mortgages and conveyances by the foreclosing parties
► Certain transfers between parent and subsidiary corporations for no consideration
► Property transferred by devise or otherwise as a result of death
Note that "mortgages" and "foreclosure of mortgages and conveyances by the foreclosing parties" are exempt transactions, for example. An important point to remember here is that the "laundry list" noted above is of transactions that will not trigger the tax. That is to say, although the granting or foreclosure of a mortgage will not precipitate the payment of the conveyance tax, this does not mean that mortgagees are not subject to the lien and other provisions of the statute. If the municipality should move to enforce the collection of taxes precipitated by nonexempt transactions (change of use of the property by the owner, for example) the mortgagee's mortgage would be subordinate to the lien and claim of the municipality, just as in the case of other municipal liens.
The statute is clear to state that "[a] nonexempt transfer subsequent to any exempt transfer or transfers shall be subject to the provisions of this section." This means, of course, that although certain transactions won't themselves "trigger" a tax, the "exempt" transaction does not exempt the property itself from the provisions of the statute as to future transactions.
The statute creates a "formula" for determining when the ten-year period (or more accurately, periods) expires after there has been the intervention of an exempt transaction. In the case of a nonexempt transfer after an exempt transfer, the date of acquisition by the grantor (which is the date from which we begin to count) is deemed to be the date of the last preceding transfer not exempted from the application of the statute. So, where an exempt transaction has intervened it's "ignored" in establishing the date of acquisition of the grantor, and we go all the way back to the last transaction that was not exempt in determining the whether the ten-year period for the particular grantor has expired. (In the case of a transfer by a grantor who acquired the property by foreclosure, the date of acquisition is that date and not a prior one.) The point here is that, while the property is being taxed under the statute, there can be consecutive ten-year (or shorter) periods applicable to each owner in the chain of title.
Also, the tax is imposed if a sale for other use occurs "within a period of ten years from the date of its acquisition or the earliest date of its uninterrupted use by the current owner in agriculture or horticulture, whichever is earlier." The statute contemplates that the owner, who sells the property for other use, might have begun to use it for agricultural or horticultural purpose before purchasing it, thus permitting the ten-year period to begin to run before the acquisition of title by the owner. It should be noted, however, that if the ten-year period is still running (whether from date of acquisition or the date the owner began devoting the property to agricultural or horticultural purposes) the tax rate is determined depending upon the year of ownership the sale occurs in. Thus, it would be possible to be in the ninth year of the ten-year period (calculated from the date the owner began devoting the property to agricultural or horticultural purposes) where the owner purchased the property only a year ago, thereby requiring the tax not to be imposed at the 2 percent (ninth year) rate but rather at the 9 percent (second year) rate.
A change of use of the property to one other than agricultural or horticultural can have the same effect as an actual nonexempt sale. In such a case, the "formulas" for determining the date of acquisition and the amount of the tax are the same as though there had been a sale, except that the "fair market value as determined by the board of assessors" is substituted for the "sales price" in determining the tax. Of course, if the use of the property is changed — the event that triggers the tax — subsequent applications for its assessment as qualifying horticultural or agricultural land would most likely be denied.
The Roll-back Tax. Even though two types of taxes (conveyance and roll-back) are mentioned in the statute, there's only one tax liability, as the tax obligations are mutually exclusive of each other. Roll-back taxes are governed by section 13 of the statute, the pertinent provisions of which are as follows:
Whenever land which is valued, assessed and taxed under this chapter no longer qualifies as actively devoted to agricultural, horticultural or agricultural and horticultural use, it shall be subject to additional taxes, hereinafter referred to as roll-back taxes, in the current tax year in which it is disqualified and in such of the four immediately preceding tax years in which the land was so valued, assessed and taxed; provided that such roll-back taxes shall not be applicable unless the amount thereof as computed pursuant to this section, exceeds the amount, if any, imposed under the provisions of section twelve and, in such case, the land shall not be subject to the conveyance tax imposed under said section twelve; and provided, further, that no roll-back taxes shall be applicable if the land involved is purchased for a public purpose by the city or town in which it is situated. For each year, the roll-back tax shall be an amount equal to the difference, if any, between the taxes paid or payable in accordance with the provisions of this chapter and the taxes that would have been paid or payable had the land been valued, assessed and taxed without regard to such provisions. If, at the time during a tax year when a change in land use has occurred, the land was not then valued, assessed and taxed under the provisions of this chapter, then such land shall be subject to roll-back taxes only for such of the five immediately preceding years in which the land was valued, assessed and taxed thereunder. In determining the amount of roll-back taxes on land which has undergone a change in use, the board of assessors shall have ascertained the following for each of the roll-back tax years involved:
(a) The full and fair value of such land under the valuation standard applicable to other land in the city or town;
(b) The amount of the land assessment for the particular tax year.
(c) The amount of the additional assessment on the land for the particular tax year by deducting the amount of the actual assessment on the land for that year from the amount of the land assessment determined under subsection (a); and,
(d) The amount of the roll-back tax for that tax year by multiplying the amount of the additional assessment determined under subsection (c) by the general property tax rate of the city or town applicable for that tax year.
While the conveyance tax has a "tail," the roll-back tax does not. After property has been owned or used for so long as agricultural or horticultural land the conveyance tax is no longer applicable. In other words, if the owner has "stayed the course" and devoted the land to this preferred use, eventually the owner will come to the "end of the tunnel" and will no longer have to continue to use the land as such and may sell it or convert it to another use without incurring a conveyance tax liability. The roll-back tax, on the other hand, is the "exit fee" that must be paid if property no longer qualifies for those purposes, and is applicable whether the property is taxed under the statute or not at that time. While the conveyance tax becomes less, depending upon how many years the owner has owned or devoted the property to the required use, the roll-back tax simply takes a "look back" and "refigures" what the tax would have been had the property not been taxed at and enjoyed the preferred rate. The differential is then determined and the owner pays this difference.
Note that there's no "cut out" for mortgagees when it comes to the roll-back tax, because the tax is triggered not by a transaction, but rather by inaction; once the property no longer qualifies as actively devoted to agricultural or horticultural uses the tax is due.
The "roll-back" period is determined differently depending upon whether or not the land, at the time of change in use, is taxed under the statute. If it is so taxed, the "look back" period includes the year the use is changed and the four immediately preceding years during which the property was so taxed; if change in use occurs when property is no longer taxed under statute, the land shall be subject to roll back tax only for such of the five immediately preceding years in which the land was valued, assessed and taxed under statute.
As mentioned above, the conveyance tax and the roll-back tax, though separately figured, are mutually exclusive of each other. In this regard, the statute provides that, "such roll-back taxes shall not be applicable unless the amount thereof as computed pursuant to this section, exceeds the amount, if any, [of the conveyance tax] and, in such case, the land shall not be subject to the conveyance tax."
Right of First Refusal. The conveyance tax and the roll-back tax impose financial requirements on a transaction. The right of first refusal contained in section 14 effectively prevents the free alienation of the property until the municipality is given the opportunity to purchase it and a prescribed period of time that the municipality has to act (120 days) has expired (or the right has been waived). Section 14 provides in pertinent part as follows:
Land which is valued, assessed and taxed on the basis of its agricultural or horticultural use under an application filed and approved pursuant to this chapter shall not be sold for or converted to residential, industrial or commercial use while so valued, assessed and taxed unless the city or town in which such land is located has been notified of intent to sell for or convert to such other use; provided, however, that the discontinuance of the use of such land for agricultural or horticultural purposes shall not be deemed a conversion. Specific use of land for a residence for the owner or a parent, grandparent, child, grandchild, or brother or sister of the owner, or the surviving husband or wife of any deceased such relative, or for living quarters for any persons actively employed full time in the agricultural or horticultural use of such land, shall not be deemed to be a conversion for purposes of this section; and a certificate of the board of assessors, recorded with the registry of deeds, shall conclusively establish that a particular use is such a use. For a period of one hundred twenty days subsequent to such notification, said city or town shall have, in the case of an intended sale, a first refusal option to meet a bona fide offer to purchase said land, or, in the case of an intended conversion not involving sale, an option to purchase said land at full and fair market value to be determined by impartial appraisal. [The municipality may assign the right of first refusal.] Such notice of intent shall be sent by the landowner via certified mail to the mayor and city council of a city, or to the board of selectmen of a town, to its board of assessors and to its planning board and conservation commission, if any, and said option period shall run from the day following the latest date of deposit of any of such notices in the United States mails. No sale or conversion of such land shall be consummated unless and until either said option period shall have expired or the landowner shall have been notified in writing by the mayor or board of selectmen of the city or town in question that said option will not be exercised. [The right of first refusal must be accepted in a formal manner.] An affidavit by a notary public that he has so mailed such a notice of intent on behalf of a landowner shall conclusively establish the manner and time of the giving of such notice; and such an affidavit, and such a notice that the option will not be exercised, shall be recorded with the registry of deeds. Each such notice of intention, notice of exercise of the option and notice that the option will not be exercised shall contain the name of the record owner of the land and a description of the premises to be sold or converted adequate for identification thereof; and each such affidavit by a notary public shall have attached to it a copy of the notice of intention to which it relates. Such notices of intention shall be deemed to have been duly mailed to the parties above specified if addressed to them in care of the town or city clerk; and in the case of notice to a city council or a board or commission, addressed to it as such entity. The provisions of this section shall not be applicable with respect to a mortgage foreclosure sale; but the holder of a mortgage shall, at least ninety days before a foreclosure sale, send written notice of the time and place of such sale to the parties and in the manner above provided in this section for notice of intent to sell or convert, and the giving of such notice may be established by an affidavit of a notary public as set forth above.
The statute prohibits property that's taxed as agricultural or horticultural land from being "sold" or "converted to" residential, industrial or commercial use. In this respect section 14, like section 12 having to do with the conveyance tax, addresses both sales and conversions. But the mere discontinuance of the agricultural or horticultural use (letting the land go fallow) is not a conversion that triggers the right of first refusal.
Like its companion sections, section 14 contains exempt transactions that will not cause the right of first refusal to arise. For example, the specific use of land for the residence of any of the persons in the following list is not a conversion. Note that the statute in this regard does not exempt or protect a "sale" to the listed parties, but rather simply provides that use of the parties of the property or a portion thereof as a residence will not constitute a "conversion." Here's the list:
► Parent of the owner
► Grandparent of the owner
► Child of the owner
► Grandchild of the owner
► Brother of the owner
► Sister of the owner
► Surviving husband or wife of any of the above
► Persons actively employed full time in the agricultural or horticultural use of the land
The statute provides that a recorded certificate from the board of assessors as to such use by an exempt party is conclusive.
Other exempt transactions include the foreclosure of a mortgage, but here the statute requires that the foreclosing party "at least ninety days before a foreclosure sale, send written notice of the time and place of such sale" to the parties otherwise entitled to notice.
The notice and the form in which it must be transmitted are specifically set out in its provisions. Here's a summary of the notice provisions:
Notice is to be sent by certified mail to
► Mayor an d City Council of a city or Board of Selectmen of a town
► Board of Assessors
► Planning Board
► Conservation Commission
Notices are deemed to have been duly mailed to the above parties when addressed to them in care of the town or city clerk, but each notice to a board or commission must be addressed to it as such entity.
Affidavit by a notary public with notice of intention attached that said notice was mailed is conclusive.
Regarding the exercise of the option or its expiration after notice has been given, the statute provides that the city or town has 120 days after last notice is sent to the parties entitled to it to exercise the option to purchase:
At value of bona fide offer in the case of a sale
At full and fair market value in the case of a conversion
The option may be exercised only if, within the 120 day period, a signed exercise of the option by the mayor or selectmen is:
Mailed by certified mail to the owner and
Recorded at the registry of deeds
No sale or conversion is permitted until either:
The option expires, or
The owner is notified that the city or town will not exercise the option
A follow up article will discuss some specific and common questions about, and the recent cases that have dealt with, the statute.