Solicitors for Property Overage

An overage agreement specifies that as part of the sale, the original owner is entitled to a part of any future financial increase in the value of property or land.

Option agreements are where either party, but more typically the buyer or leaseholder, negotiates an option (but commonly not an obligation) to purchase the property/land if a certain event occurs. This is often obtaining planning permission, but the trigger can be anything negotiated between the party.

When is Overage Used?

Overage is commonly used in situations where:

• Planning Permission is Granted - the seller anticipates the buyer obtaining planning permission for development, significantly increasing the land's value.

• Change of Use - the agreement applies if the property's use changes, leading to higher value (e.g. agricultural land converted to residential).

• Infrastructure Development - the seller benefits if nearby infrastructure projects enhance the property's value.

How an overage agreement works

For the overage agreement to be effective, the correct legal framework will need to be put in place and there are many considerations and matters which will need to be negotiated. This will ensure you are legally protected.

Assuming the overage is realistic, there are lots of issues to sort out. For example :-

• when is the clawback (additional amount of money) actually paid to the seller? Is it when planning permission is granted or is it when the property is built, or when it is sold?

• Is there a prospect of further development after overage has been paid?

• Trigger Event - the specific event(s) that activate the overage payment clause (e.g., planning permission granted).

• Calculation Method - how the additional payment is determined (e.g., percentage of the uplift in value).

• Overage Period - the timeframe within which the trigger event must occur for the overage clause to apply (usually 5-25 years).

We can help you negotiate an overage agreement that reflects the true value of land. In many cases, the estate agent will leave these issues to your lawyer to explore whether any agreement is possible.