Overage Agreements

What Is An Overage Agreement?

An overage agreement may also be called a Clawback Agreement or an Uplift Agreement. It is a type of contract in which the seller would be paid extra by the buyer if matters specified occur within a specified timescale. These agreements are often used where land is sold and allow the seller to retain a financial interest in the sale. A sale may be subject to an overage clause stating that a certain percentage of the increase in value will be paid to the seller if sold with the benefit of planning, for example. Or if the land that is sold is later developed increasing its value significantly, then an overage clause would allow the buyer to retain some of that financial interest.

An overage clause may be included in commercial matters or sale transactions.

These clauses are often beneficial to the landowner. An overage clause may contribute a great deal towards any future sale transactions.

How Can An Overage Be Secured Over A Property?

An overage can be secured in several ways. It can be through putting a charge over the title of the land, putting a restriction on the title, having a requirement for a Deed of Covenant from the successors or obtaining a guarantee.

An overage does not only impact the initial purchaser, it also binds the successors of the land.

What Effect Does A Charge Have?

Having a charge over the property creates greater security for the landowner as it is a more secure method to recover the amount that the overage clause specified when the trigger event occurs.

A trigger event can be one of many things. It may be the granting of planning consent or when a new development is implemented or completed. With some overage clauses, it is important to seek clarification from a solicitor from the outset to understand what the trigger event is for that specific overage agreement.

What happens when a trigger event occurs and the buyer is unable to pay the overage as agreed? The original landowner would be able to take possession or force the land to recover the agreed payment amount out of the net sale proceeds.

How Is Overage Calculated?

The buyer would expect the current inflation to be ignored. They would deduct any incurred costs when calculating the increase in value. The costs that would be taken into consideration may be related to obtaining planning permissions, for example. Costs associated with corrections or improvements to the land to increase its suitability for future use are also relevant.

If the overage land forms part of a larger development there may be complications in terms of valuing the transaction. This can be particularly difficult if the planning consent was only applied for on part of the overage land, not the entire land.

These are some basic considerations of Overage Agreements but if you want further information or guidance in this area then contact our experienced team at Bond Adams LLP Solicitors on 0116 285 8080 or email us at lawyers@bondadams.com.


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