Understanding a PA 116 FDRA Agreement in Michigan (and what it means for value, compensation, and future resale)

 

A PA 116 FDRA agreement refers to a Farmland Development Rights Agreement (FDRA) created under Public Act 116 of 1974, Michigan’s Farmland and Open Space Preservation Act (now part of Part 361 of the Natural Resources and Environmental Protection Act). This is a statewide, voluntary farmland preservation program that allows landowners across Michigan to commit land to agricultural use in exchange for tax benefits and relief from certain special assessments.

While PA 116 applies uniformly throughout the state, its real-world impact can feel more pronounced in areas experiencing development pressure—such as parts of Washtenaw County, including Ann Arbor Township.

📌 What Is PA 116 and an FDRA?

• PA 116 is shorthand for Public Act 116, Michigan’s long-standing farmland preservation law.
  
  

• An FDRA (Farmland Development Rights Agreement) is the specific, recorded contract between a landowner and the State of Michigan.
  
  

• By signing an FDRA, the landowner agrees to temporarily restrict development of the land so it remains in agricultural use.
  
  

This framework is statewide, even though applications are administered locally through townships or municipalities.

📋 How the PA 116 Program Works (Statewide)

1. Voluntary enrollment
   Eligible landowners anywhere in Michigan may apply through their local unit of government, with final approval by the State of Michigan.
   
   

2. Commitment period
   
   

• Minimum term: 10 years
  
  

• Renewable in increments, up to 90 years total
  
  

3. In exchange, landowners may receive:
   
   

• Michigan income tax credits, calculated using property taxes paid and household income
  
  

• Exemptions from certain special assessments, such as sewer, water, lighting, or non-farm drainage projects—unless imposed before the agreement was recorded

📍 Key Features of PA 116 FDRA Agreements

✔ Runs with the land

PA 116 agreements are recorded and stay with the property through future ownership unless properly terminated or allowed to expire.

✔ Development restrictions

• New non-agricultural structures are generally prohibited
  
  

• Uses inconsistent with farming typically require state approval
  
  

• Residential or commercial development is usually not permitted during the term
  
  

✔ Expiration or renewal

• Near the end of the term, the landowner may renew or allow the agreement to expire
  
  

• If Michigan income tax credits were claimed within the previous seven years and the agreement is not renewed, repayment (recapture) of some or all credits may be required
  
  

💰 Compensation Under PA 116 — What Owners Actually Receive

A key point of clarification: PA 116 does not provide a lump-sum payment or market-value compensation for development rights.

Instead, the “compensation” comes through ongoing financial relief, including:

• Annual Michigan income tax credits
  
  

• Exemptions from certain special assessments
  
  

• Lower and more predictable holding costs for land kept in agricultural use
  
  

For many farmers and long-term landowners, these benefits can add up significantly over time—especially when land is held for decades.

PA 116 vs. Development Rights Purchase Programs

Confusion often arises because some properties participate in both PA 116 and separate development rights purchase programs (such as Greenbelt or PDR initiatives). In those cases:

• The landowner may receive a one-time payment, often near market value, for permanently limiting development
  
  

• That payment is not part of PA 116
  
  

• The land may carry both PA 116 restrictions and a permanent conservation easement
  
  

PA 116 alone provides tax-based benefits, not a buyout of development rights.

📉 How PA 116 Can Affect Future Sale Price

Potential Cons (Common in Estate Sales)

• Restricted use = smaller buyer pool
  Buyers seeking residential, commercial, or speculative development may opt out.
  
  

• Estate properties may sell for less
  Heirs often want flexibility, and restrictions can reduce perceived value.
  
  

• Buyer and lender hesitation
  Unfamiliarity with PA 116 can slow decisions or affect financing comfort.
  
  

• Tax credit repayment risk
  If credits were claimed in the last seven years and the agreement ends, repayment may be required.
  
  

Because of these factors, estate homes and farmland under PA 116 sometimes trade at a discount compared to similar unrestricted parcels.

Potential Positives for Value

• Clear expectations
  Buyers who want agricultural or open land value certainty and protection from future development.
  
  

• Lower long-term costs
  Reduced taxes and assessments improve affordability.
  
  

• Preserved character
  Land protected from development can be more attractive to conservation-minded buyers.
  
  

• Right buyer, not most buyers
  When priced and marketed correctly, PA 116 properties often sell well to the appropriate audience.
  
  

⚖️ The Core Trade-Off: Certainty vs. Flexibility

PA 116 represents a deliberate trade-off:

• ✅ Pros: Tax relief, predictable costs, farmland preservation, protection from development pressure
  
  

• ❌ Cons: Reduced flexibility, smaller buyer pool, and potential impact on resale—especially for heirs or estates
  
  

For owners committed to agriculture or land stewardship, PA 116 can be a strong fit. For future sellers, understanding these impacts before listing is essential.

📦 Callout: How This Plays Out in Ann Arbor Township

In Ann Arbor Township, PA 116 agreements are common due to proximity to the City of Ann Arbor and intense development pressure. While the rules of PA 116 are set at the state level, local context matters:

• PA 116 land often overlaps with Greenbelt goals or conservation priorities, adding layers of due diligence
  
  

• Buyers may assume rezoning or development is possible—PA 116 can significantly limit those expectations
  
  

• Sellers must clearly disclose restrictions and explain what is and is not allowed
  
  

• The timing of an agreement—near expiration vs. recently renewed—can influence pricing strategy and buyer interest
  
  

Understanding both the statewide framework and the local realities is critical when buying or selling PA 116 land here.

Bottom Line

A PA 116 FDRA agreement is a powerful statewide tool for preserving Michigan farmland—but it comes with long-term obligations. Owners are compensated through tax and assessment benefits, not a development buyout, and those restrictions can influence future resale value. Clear education, proper disclosures, and realistic pricing are key to successful transactions involving PA 116 land.

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Whether buying, selling, or seeking valuable insights into the market, I'm here to be your trusted guide in the dynamic world of real estate. Feel free to contact me for a confidential discussion, where we can explore your goals, address any questions, and navigate the exciting path of real estate together. Your real estate journey is unique, and I am committed to providing personalized assistance tailored to your needs. Don't hesitate to connect. 

Dani | 734-623-9442 | dani@danihallsell.com