Overage Payments

An overage agreement (sometimes also know as claw-back or uplift) is an agreement that the allows the seller to share in any increase in a property’s value that is realised after the property has been sold. In other words, the buyer will pay extra, on top of the original purchase price, if and when certain events happen. For example, if the buyer increases the value of the land by obtaining planning permission for development or a change of use.

An overage obligation requires the buyer to make a further payment to the seller, representing a share of the increased value of the property after the occurrence of an agreed “trigger event” – which could be:

• The grant of planning permission for development or change of use; or

• The implementation of planning permission; or

• Disposal of the property with the benefit of planning permission.

Imposing an overage obligation is not appropriate in all situations. If the likelihood of the land being developed is remote, the cost of negotiating complex payment provisions can outweigh the chances of an overage payment ever being made. Overage provisions may also affect the purchase price that the buyer is willing to pay for the land at the outset.

Where a buyer is purchasing property intending to redevelop it straight away, it is generally preferable for the seller to grant the buyer an option to buy the land (please see our other notes abouts ‘Options’) or to enter into a conditional contract for the sale of the property. Completion does not occur until after planning permission has been obtained and the purchase price can then be calculated based on the market value using the actual planning permission that has been obtained. We can advise you whether an overage agreement is appropriate for your particular circumstances.

From a seller’s perspective, it is also important that adequate security is given by the buyer to protect the future payment.

There are various ways in which overage obligations can be drafted and secured and we can help you choose the most appropriate to suit your particular circumstances.

To discuss your requirements, please contact us by telephoning 01263 800089 or 07940 585939 or emailing enquiries@ccclaw.co.uk