An overage is an agreement entered into between seller and buyer on the sale of land, under which the buyer is obliged to pay more money (usually a percentage of the increase in value) to the seller on the satisfaction of certain conditions.
Often this happens where the seller expects that the land may be redeveloped or valuable planning permission may be granted in the future. It is also known as “claw-back” or “uplift”.
Although the obvious benefit of an overage falls to the seller, being able to benefit from an increase in the value of the land after selling it, an overage may also suit a buyer that is willing to purchase the land whether or not it has planning consent for further development. In that case the land or property can be bought for a lower price at the outset, with the commitment to pay more in future if it increases in value.
Note there is no guarantee under an overage that further monies will be due – it is conditional on certain event(s) occurring at some future point. It may be more appropriate to agree a conditional contract (e.g. if planning permission is granted) rather than an outright sale with overage – you should take legal advice on the best option for your situation.
During overage negotiations it is key to address the following:
- Trigger events – in what circumstances will the overage be triggered?
The grant of a planning permission (and would this be a full or outline consent) or upon the implementation of planning consent, or some other event?
- Valuation – how will the land/property be valued for overage purposes?
Should there be any costs deducted (e.g. costs of obtaining planning consent)?
- Costs – who will be responsible for professional costs incurred by either party?
- Security – the seller may require protection against the buyer failing to comply with the overage terms if a trigger event occurs.
This security could take the form of a restriction on the title or retained rights or covenants over the land.
It is crucial that an overage agreement is drafted correctly so as to ensure that all situations considered in negotiations are covered.
The recent case of Loxleigh Investments Ltd v Dartford Borough Council [2019] EWHC 1274 (Ch) has highlighted the importance of clear drafting in overage agreements. In this case, the developer failed to convince the court that the overage trigger of ‘detailed planning permission’ did not include approval of reserved matters after an outline planning consent had been granted and the developer was forced to pay the overage.