Overage agreement

About this agreement

This document is for a property seller. It could be used for any land deal, regardless of value. Use by incorporating it in to the contract for sale or as a stand-alone agreement.

As every property professional knows, an overage provision is a useful device to obtain the maximum value from the sale of land. The buyer can buy at a low risk cost and the seller will ultimate share the future development value in the agreed proportions.

This agreement provides for repeated payments over however many years you wish. Because the base value is always calculated for the date of the planning permission, the original seller has an inflation-proofed investment.

However, if the seller makes the terms too strong, he will provide a disincentive to each landowner in turn, to undertake a development that could result in a new payment to the present seller.

For example, suppose the present buyer builds a house on the land and sells it. Five years later, the house owner considers a substantial extension. That would trigger a further overage payment. However, the house owner does not undertake the extension work because the overage he will have to pay on sale may be based on a low, historical, base value, leaving him with a substantial bill with nothing to show for it.

The deal you choose should therefore be one which entices future owners to develop and not one that ensures that they do not develop.

The requirement for each new buyer to enter into a new deed of covenant is required because the agreement is unlikely to be registerable at the Land Registry. In this document we provide for the buyer to accept an obligation to make sure the agreement is registerable. In practice however, it may be difficult to persuade Land Registry staff that the agreement has sufficient connection to the land so as to be capable of registration.

When to use this agreement

Use this agreement when you sell any land. The land does not have to be open land. The document is just as binding when the property is an old industrial shed or a perfectly good office building that stands in the way of larger development.

The benefit of an overage agreement is that the buyer is not at risk of buying at a price that does not reflect current value, while the seller can look for a future share of future value without the expense and work involved in achieving that future value.

This document is in plain English. Nonetheless it is sophisticated, drawn by a property specialist solicitor. It is suitable if you are an individual or work through a company incorporated in England or Wales.

If you are the land buyer, rather than the seller, you will want a softer version of this agreement that concedes less to the land owner.

Contents

• Definitions
• Interpretation
• Payment terms
• Surveyor’s valuation
• Registration of restriction
• Transferees’ continuing liability
• Release to enable transfer
• Seller’s costs
• Indemnity
• Miscellaneous matters