Overage agreements are a way for those selling property to protect themselves against losing potential gains when selling land or property that may significantly rise in value.
Our specialist commercial property team can assist with drawing up overage agreements so that you can maximise gains from your investment portfolio either as a seller or a property developer.
It is important to get professional legal advice when drafting your contract to ensure it is enforceable as overage agreements are based on certain conditions being met. Our team have substantial expertise and experience in drawing up overage agreements and applying the terms when conditions are met.
What Will Trigger the Overage?
Common overage triggers include:
- New planning permission granted
- Change of use granted
- A defined number of new premises built or commercial development on the land which is larger than specified
It is important that these are clear and detailed. For example, if the overage is triggered by planning, is it merely a party seeking planning consent that will trigger the overage?
The payment due when a condition is met, such as those above, is in addition to the agreed purchase price and is usually in the form of a percentage of the increase in the value of the land.
When Will Payment Be Triggered?
Usually, overage payments will be triggered when either commencement proceedings are taken after planning permission is granted or where the property is re-sold for a higher price with the benefit of added planning permission.
It is important to remember that the overage agreement will need to specify whether the overage ends after one payment or if payment can be triggered after every event during the overage period.
There are several things to consider when preparing an overage agreement that our friendly team will guide you through:
- How long should the overage provision last?
- What will the share of the increase in value be?
- When will the payment be triggered?
- How will you protect the payment in the future? For example, if the land is sold. The most common method of protecting an overage is by way of a positive covenant in a contract protected by a restriction on title.
- What are the tax implications?
Overage agreements allow you to buy and sell property while considering future moves in the market, which can be hard to predict. Although overage might seem to favour the seller, it can be mutually beneficial. The buyer can buy land before it rises substantially in price and only pays a portion of the added value when the funds are available.
Spire Solicitors have worked with both buyers and sellers on overage agreements and can include overage in larger contracts of sale so that the arrangements are integrated into the terms from the beginning.
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