When selling land, a seller may want the buyer to enter into an overage agreement. Such an agreement requires the purchaser to pay a sum of money (“overage payment”) to the seller if a trigger event occurs.
The usual triggers for an overage payment are:
- Obtaining planning permission for change of use or other development of the land;
- Implementation of planning permission for change of use or other development of the land;
- Disposal of the land following the grant of planning permission for change of use or other development of the land.
As anyone can apply for planning permission and not just the owner of the land, a buyer would be advised not to agree to 1 above as a trigger event. It is usual for an overage agreement to have more than one trigger event and for the payment to be due on the first to take place.
The trigger event must take place within the period specified in the overage agreement.
It is usual for the amount to be a specified percentage of the increase in value to the land as a result of the obtaining of planning permission for change of use or other development of the land. This is why an overage payment is also known as an uplift payment as it is a payment in respect of the increase in value of the land.
Overage Agreement Issues for Sellers
The Seller will want to ensure the overage agreement:
- Provides for securing the payment of the overage – this can be achieved by giving the seller a charge over the land.
- Requires the buyer to ensure future owners of the land are bound by the same overage agreement until the overage period ends.
- Provides for a restriction to be registered on the title to the land preventing disposals of the land without the seller’s consent.
- Does not release the buyer from all of its obligations to pay overage following a disposal of part of the land.
- Requires the buyer to pay overage on subsequent different planning permissions for change of use or other developments of the land and not to release the buyer from all of its obligations following the first planning permission obtained.
Overage Agreement Issues for the Buyer
The Buyer will want to ensure the overage agreement:
- Does not require more than one overage to be triggered by the same planning permission.
- Provides for the costs of obtaining planning permission to be deducted when calculating the overage amount.
- Permits disposals of the land without having to obtain the seller’s consent where such disposals do not release any capital value (eg easements, short term leases.)
- Limits the trigger events to specific changes of use or other specific development
Overage agreements are complicated legal documents. Once in place they can continue to affect land for a long period of time. They should not be entered into lightly. It is advised that land agents acting on behalf of the seller negotiate the main terms of an overage agreement.
For further information and assistance in relation to overage agreements, please contact our experienced Commercial Property Department at Russell & Co.