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Overage agreements

View profile for Jehangir Asghar
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If you are selling land, have you considered whether you would benefit from an overage agreement?

A seller may consider an overage agreement for many reasons.  Usually it is where the seller considers the land they are selling has development potential or the seller has not achieved their desired sale price and if the land has development potential, they wish to benefit in case of future development.
 
An overage in the context of land transactions is essentially a sum, or sums, of money the seller of land is entitled to receive on the occurrence of a trigger event.
 
The terms are documented in an overage agreement and often for a fixed period, usually a number of years. There are complex formulas for the calculation of the overage payment(s).
 
The trigger event can be whatever the parties agree between themselves.  However, it is usually one of the following:-
  • the grant of a new planning permission, whether this be outline or detailed planning permission;
  • the grant of planning permission for a new (and feasibly more valuable) use of the land; or
  • completion of the development whereby the buyer makes more money than envisaged when the land was originally purchased.
Consideration needs to be given to how long the arrangement is to last, the amount of the payment(s), the trigger event and how long it will be secured.
 
The seller will want to ensure that future buyers are bound by the overage.  This can be done in many ways for example by placing a restriction on the title at Land Registry or by way of charge or mortgage.
 
Overage agreements are complicated and should not be entered into lightly.  It is essential to take legal advice.  In addition, an onerous overage can affect re-sale and advice should be taken from your surveyor or a suitably qualified person as to whether the overage would have any effect on the market value of the land.  However, if negotiated competently, overage is a good way of completing transactions to the satisfaction of all parties.
 
We can advise on overage agreements and many other aspects of commercial property law.  If we can help, please contact Jay Asghar on 01923 650884, or jay@hancockquins.co.uk

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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