These type of agreements are used to ensure fairness between the seller and buyer where there is future potential in the land but the value at the time of the sale is uncertain.
They allow the seller to benefit from future increases in value and a share in the profit of the development.
The Buyer is able to pay a lower price upfront and acquire land that has development potential but delay part of the payment until the value of the developed land has been realised.
An overage payment will be payable by the Buyer when a ‘trigger event’ occurs such as:
The overage payment is calculated on the increase in value of the land and is important to set out in the agreement how the payment is to be calculated to avoid any potential disputes. Typical approaches includes; a percentage uplift in value, a share in the development profit or a fixed formula agreed between the parties.
The overage agreement will be for a fixed period often between 10 and 30 years because of this the agreement must be protected so the seller is able to enforce their rights and this is usually achieved by placing a restriction on the title of the land.
If you are purchasing land subject to an overage, it is important to be aware that additional payments may be due in the future, which could affect your ability to sell or mortgage the land later on.
If you are looking to sell your land with the benefit of an Overage Agreement you should ensure this is drafted clearly and include protections to ensure payment from subsequent buyers.
If you require the services of a solicitor to find out more about buying or selling land and Overage Agreements, please get in touch with Lawson West Solicitors Commercial Property Team today.
While overage provisions are often associated with land or large buildings suitable for development, they can also affect properties with substantial unbuilt land, including large houses with outbuildings, spacious gardens, and paddocks.
Overage provisions can be intricate and challenging to decipher. They impose an obligation to pay a potentially significant amount of money if a hypothetical event occurs, usually the implementation of a planning permission or the sale of a property.
Many property owners do not fully comprehend the complexities of their overage provisions. These agreements can last a long time, and people’s recollection and understanding may vary. If your property is subject to overage, Lawson West can help by reviewing the overage provision and other title documents, clarifying the main points for you.
We often assist clients who are preparing to sell or mortgage a property with overage provisions. It’s advisable to address these provisions before putting your property, as they can influence potential buyers. For instance, we recently reviewed the title of a house with development potential but had an onerous overage provision. We recommended approaching the overage owner to negotiate changes that would benefit both parties with the help of specialist land agent, potentially increasing the property’s development prospects.
Lawson West’s commercial property team has extensive experience dealing with overage provisions. We can provide expert advice to make your property more attractive to potential buyers while maximising your return.
This article is not intended to be legal advice and cannot be relied upon or applied to any set of circumstances. For further guidance, please contact Lawson West Solicitors Limited.
