Increased numbers of landowners of Massachusetts forest, agricultural, horticultural or recreation properties can now more easily take advantage of dramatic property tax savings, thanks to legislation enacted in the waning days of Gov. Mitt Romney’s administration. Also under the new law, municipalities can more easily exercise their rights of first refusal to purchase those properties before such land is converted to other uses.
As Romney was preparing to leave the State House, he signed into law Chapter 394 of the Acts of 2006, which clarified elements of and created significant changes to Chapters 61, 61A and 61B of the Massachusetts General Laws governing the taxation of forest, agricultural, horticultural and recreation land.
The Massachusetts Legislature originally adopted Chapters 61, 61A and 61B to encourage landowners to dedicate their lands to forest, agricultural, horticultural or recreational uses. If a landowner dedicates his or her land to these uses, he or she will pay significantly reduced local property taxes under the law. In return for the special tax treatment, landowners must pay withdrawal taxes whenever a particular piece of forest, agricultural or recreational land is no longer used for those purposes and they are also required to give local municipalities rights of first refusal whenever such land is sold for or converted to residential, industrial or commercial use.
Chapters 61, 61A and 61B have traditionally operated well for ushering land into the system of statutory protection. By contrast, conflicts often arose when landowners or prospective purchasers sought to take the land out of the system. In recent years, appellate litigation was required in a number of cases to resolve conflicts between conservation-minded municipalities and development-minded landowners or prospective purchasers. This litigation led to a patchwork of unsatisfactory results for all concerned.
The provisions of the new act resolve a number of controversial issues. Municipalities and landowners both benefit in specific ways from the new legislation.
Landowner-Friendly Amendments
More landowners should be able to take advantage of the significant property tax savings that are available under Chapters 61, 61A and 61B because of the act.
In particular, the act expands the definition of forest and recreational lands. The definition of forest land has been expanded to include any product produced by forest vegetation (previously, only hardwood products were included) and the definition of recreational land has been expanded to include pasture or forest land.
The act also adds specificity to Chapters 61, 61A and 61B. In each section, language has been included to add detail to the process for withdrawal of forest, agricultural, horticultural and recreation lands from classification as well as the process for a municipality to exercise its first refusal option to purchase classified land. In addition, the act sets out a new process for the appraisal of classified lands. Previously, if land classified under Chapters 61, 61A and 61B was to be converted to residential, commercial or industrial uses, a municipality’s first refusal option was to be based on an “impartial appraisal.” That language led to conflicts between landowners and municipalities who often disagreed on the process for obtaining such an impartial appraisal. Sections 18 (governing forest land transactions), 31 (governing agricultural and horticultural land transactions) and 48 (governing recreational land transactions) have eliminated much of the ambiguity with respect to this issue. Now, a municipality is required to obtain an appraisal at the municipality’s cost, and the municipality must deliver that appraisal to the landowner. If dissatisfied, landowners may obtain a second appraisal at their own cost and such an appraisal must be delivered to the municipality. If the parties cannot agree upon the full and fair market value of the property based on the two appraisals, they must contract with a mutually acceptable appraiser whose conclusion of the value of the property will be the final determination of consideration.
Consistency has also been added to some of the key provisions of Chapters 61, 61A and 61B that were previously inconsistent. For instance, owners of forest land that was classified under Chapter 61 were previously responsible for different withdrawal taxes than owners of Chapter 61A and 61B properties. In addition, Chapters 61A and 61B specifically addressed how special or betterment assessments were to be applied to classified agricultural, horticultural, and recreational properties and when those betterments were to be paid. However, a similar provision was not included in Chapter 61 for forest land. Under the new law, withdrawal tax liability is consistent for forest, agricultural, horticultural and recreational land – in each instance, owners must pay conveyance or roll-back taxes based on certain formulas. Furthermore, Chapters 61, 61A and 61B now contain similar provisions to address how special or betterment assessments will be applied to classified lands.
Municipal-Friendly Amendments
When land is being taken out of classified status, more municipalities should be able to exercise their rights of first refusal more often and more economically. The act puts an end to prior practices often used to frustrate a municipality’s right of first refusal, such as using a conditional, fluctuating purchase offer or an offer covering classified and unclassified land. Such devices often stymied towns’ first refusal rights because of the added complexities or expense involved in matching the offer upon exercise of the right of first refusal.
Under the new act, when a town is presented with a notice of the impending sale of a Chapter 61, 61A or 61B property, the notice must be accompanied by an executed purchase and sale agreement representing a bona fide offer to purchase for a fixed price and covering only land being withdrawn from classification. A bona fide offer is defined in the new statute as a “good faith offer, not dependent upon potential changes to current zoning or conditions or contingencies relating to the potential for, or the potential extent of, subdivision of the property for residential use or the potential for, or the potential extent of development of the property for industrial or commercial use, made by a party unaffiliated with the landowner for a fixed consideration payable upon delivery of the deed.”
Once the notice is sent, the city or town has, for 120 days, “a first refusal option to meet a bona fide offer to purchase the land.” To exercise that right under the new act, the city or town benefits from knowing the price it must meet and the land covered by its first refusal rights. The act provides significant teeth to enforce this first refusal right. No sale or conversion of the land can be consummated until the 120-day option period has expired (unless a notice of non-exercise has been recorded with the Registry of Deeds). No sale of the land can be consummated if the terms of the sale differ “in any material way” from the terms of the purchase and sale agreement that accompanied the bona fide offer to purchase.
This latter provision is likely to be a source of some friction between owners and municipalities and to create some uncertainty in the real estate community, depending on how literally cities, towns and ultimately courts enforce the “anti-consummation” language. Until courts give guidance on the provision, owners and developers need to be cognizant of the significant risk involved in changing the terms of a sale in any material way from the terms of the purchase and sale agreement tendered to the city or town with the bona fide offer to purchase.
The Massachusetts legislature adopted Chapters 61, 61A and 61B to give landowners an incentive to dedicate their lands to forest, agricultural or recreational uses. In exchange, the legislature gave municipalities certain purchase rights and withdrawal tax powers for those lands. Owners and developers must follow the new rules with care, however, or they may be exposed to new risks created by the act.
