Monday, March 15, 2010

The Williamson Act

The Williamson Act, officially known as the California Land Conservation Act of 1965, allows property owners and local governments to enter into contract together to control future usage of the landowners property. In exchange for agreeing to preserve the land (100 continuous acres minimum to qualify) as agricultural or open space use for a minimum of 10 years, the landowner receives a reduction in their property taxes. According to the California Farm Bureau Federation, most farmers can save between 20-75% on their property taxes annually. The California Department of Conservation also currently estimates that approximately 16,000,000 of the state's 30,000,000 acres of farmland are protected under the Williamson Act. This equates to approximately 53%.
In 1998, another law was passed to create Farmland Security Zones (FSZ) which allows a property owner to save an additional 35% if he/she agrees to a 20 year preservation period.
It is important to note that the contract between owner and government automatically renews every year with both the landowner and government having a right of 'nonrenewal'. Upon exercising this right, the land enters a 9 year nonrenewal period and the property tax assessment rate begins to increase gradually each year.
Landowners may petition for a cancelation of the contract and must exhibit sufficient reason why they want to do so. Greater economic use is not an acceptable reason. Furthermore, if a landowner is successful in arguing for a termination of contract they are then required to pay a termination fee equal to 12.5% of the cancellation value of the property. For a FSZ termination, the fee rises to 25%.
The Williamson law is intended to preserve farmland and stays valid upon sale of the property. This means that the Williamson Act can severely hurt developers. The best example is the uncalculated ten-year holding period for a developer who buys raw land with the intent to build housing. Having to sit on 100+ acres for 10 years or paying a steep 12.5% termination fee (in addition to legal expenses) can kill a proforma.

Additional Links

Basic Facts

FSZ Fact Sheet

Sample Contract

Canceling the Contract FAQs

Additional Article