What is Overage?
Bidwells discusses what is overage and the concept of overage agreements in property transactions.
In a property transaction, the term “overage” refers to a sum of money which a vendor may be entitled to receive when completing the sale of a piece of land, provided a specified condition is satisfied.
When selling a piece of land, the vendor will try to get the best possible price, but sometimes this price may only be available at a future date, if at all.
For example, there may be a case where planning permission is granted for a more valuable use of the land, but this permission is not guaranteed. Or in another instance, a vendor might sell to a developer planning to build a predetermined number of houses on the land, at a certain value, but if the developer manages to build more houses than originally planned, that makes the land more valuable.
In cases like these, the sale of the land will include an overage clause, which secures the seller's rights to share in a possible future uplift in the land's value. This is also commonly known as an “anti-embarrassment clause” as it helps to save the vendor the potential embarrassment of having sold the land for less than it is worth.
Conditions for an Overage Agreement
The condition for including an overage agreement in the sale of land may be:
- The grant of a new planning permission
- The grant of planning permission for a more valuable use of the land
- Construction of more than a specified number of houses on the land
- Construction of a larger than specified commercial development on the land
- The on-sale of the land in its present state, where the vendor wants to prevent the buyer from taking advantage of a rapidly rising market to make a quick profit from the land
Duration of an Overage Agreement
The duration of overage agreements will differ, depending on the time frame of the event that will trigger the payment, such as the granting of planning permission or the completion of a new development.
For example, if the developer buying the land applies for planning permission immediately, the overage clause will span a relatively short period of time (likely no more than five years). However, some types of land may take much longer to become available for development.
The vendor and the buyer must negotiate to determine how long the buyer's obligation to pay overage will last.
Strategic Sale of Land with Bidwells
When a vendor is selling land, clauses like overage must be carefully considered so that all parties involved get the best deal and nobody takes unfair advantage of the deal.
Bidwells property specialists can assist with strategic land promotion and sale. This includes helping vendors to get premium land value with comprehensive overage provisions and ensuring that contractual obligations and overage payments are fulfilled.
Find out more in these Bidwells case studies on the sale of prime residential developments and land in the UK. If you're a land-owner hoping to sell part of your portfolio at the best price, contact Bidwells to discuss overage and other vital matters in your sale.