Overage Agreements are becoming more and more common especially in the development land. They are not easy to draft, and many things need to be considered if problems are to be avoided. Working closely with a reputable Surveyor is essential and will reduce the risk of something going wrong.
Briefly, an overage refers to the right for a landowner to receive further payments if, and when, certain events occur, such as the grant of planning permission or the implementation of planning permission.
The benefit for the landowner is that he will be able to sell the land for a fixed sum based on its current use value and at the same time retain a proportion of its “hope” value.
There are several factors which the parties need to consider before the Agreement is drafted:
- Overage Payment. The overage payment may be a fixed sum, a percentage of the enhanced value of the land following the grant of planning permission, or a percentage of the amount by which the sale price of a completed unit exceeds the specified price per square foot/metre.
- The Trigger Event. The standard trigger events are the grant of Planning Permission or the disposal of the land with the benefit of Planning Permission. There may be more than one trigger event although understandably, the Buyer would prefer only one.
- Time for Payment. Normally, the Payment date will be the later of:
- The Planning Date.
- The date on which the relevant Overage Payment is agreed between the parties or determined by an expert in accordance with the relevant clause in the Agreement.
- The date on which the relevant Planning Permission becomes capable of implementation.
- Permitted Disposals. Disposals which are allowed and do not a trigger an event normally include: mortgages, short leases or easements.
- Fees. The legal fees of the Seller for drafting and negotiating the Agreement are normally paid by the Buyer as well as those incurred by the Seller for giving consent in order to comply with any restrictions registered against the land subject to the Overage.
- Deductions from the Overage Payment. The Buyer will wish to exclude certain costs/expenses from the Overage and these may (inter alia) include:
- Planning costs.
- Planning gain costs payable under a planning agreement.
- The costs of complying with the obligations contained in a planning agreement, including but not limited to) the cost of carrying out works pursuant to such obligations.
- Any development land tax that may be payable.
- The Community Infrastructure Levy (CIL) and/or the Infrastructure Levy (IL) or any new infrastructure levy that may replace CIL or IL or which may be payable in addition to CIL or IL.
As can be seen, there are several matters which the parties need to agree before the Overage Agreement can be drafted.
For more information about Overages please contact Peter Epaminondas at pepaminondas@hawleyadrodgers.com
