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Overage


"I own a commercial building that a developer wants to buy but will only pay the current use value. The land will be worth four times as much when it receives planning. Would an overage clause be a good idea?"

The most certain way of sharing in the potential planning windfall is to negotiate an increase in the price, payable on completion of the sale. If there genuinely is no room for movement on the price, an overage clause can help you share the uplift in value when planning permission is granted and the property is redeveloped.

The danger in doing so is that your entitlement to a further payment is contingent and, because you will no longer own the land, it is essential your entitlement is watertight.

Ensuring overage is enforceable is not straightforward, especially if the developer subsequently sells the land. A positive obligation to pay overage will not automatically be enforceable against a successor in title. A negative – or ‘restrictive’ – covenant can be enforced against successors, but only if it is genuinely negative in nature and you retain some land capable of benefiting from it. Your solicitors should advise you on this. They should also help put in place a structure that is enforceable not just against the developer but also against third parties.

Overage can be secured by a charge over the title, a restriction on the title, a requirement for a direct deed of covenant from successors, or obtaining a guarantee. A charge is the best form of security, but unlikely to be acceptable to a developer or its funder. A restriction is more likely to be acceptable, provided it does not hinder the developer from actually redeveloping the land.

There are several problem areas, such as the calculation of the overage amount or clarifying events that will trigger payment, so expert advice is essential.

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