An overage clause can be inserted into a contract on the sale or purchase of land that protects the rights of the seller to benefit should the value of the land or property increase in the future.
It often requires certain circumstances or events to occur in order for the seller to benefit. This can include obtaining planning permission or changing the use of the property and land for something other than its use at the time of the original sale. It does not tend to apply to merely increase in property prices attributable to expected and standard market influences.
How can it benefit you?
Overage agreements can help to maximise a seller’s potential financial return from the sale of land by receiving both the initial consideration for the land on completion, as well as a share of any future increase in value following the sale. Overage can also offer sellers peace of mind by helping them access and benefit from any future uplift in value in circumstances where the land may have been under-valued at the point of sale.
Buyers can also seek to utilise overage as a calculated means to avoid over-paying for a prospective development site. As overage payments are usually conditional on any future increase in the value of the land, buyers can take advantage of overage by paying a lower original sum for the property or land on completion rather than an exaggerated value based on the land’s anticipated development potential, which may never be fully achieved.
Essential Elements
It is important to get a solicitor to draft an overage clause or agreement should you wish to include one in your sale or purchase of land. This is because there are four essential elements that make up these agreements and should you wish to enforce it, these will be considered.
- Duration
- Triggering events or circumstances
- How overage is to be calculated
- How the buyer’s obligations are secured.
Conclusion
Overage agreements or clauses can be beneficial to include from both a seller or a buyer perspective. Due to the essential elements that make up an overage agreement, it makes it important that a solicitor drafts these for any client considering this for the sale or purchase of a property they are considering. This is to ensure that the agreements or clauses are drawn on the best terms for the clients and that both parties are happy with what is trying to be achieved through the transaction.
For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our LinkedIn page at https://www.linkedin.com/company/audley-chaucer-solicitors
October 2023
Audley Chaucer Solicitors