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Overage Payments

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This article seeks to give a brief explanation of Overage Agreements and their potential benefits when selling on land.

An Overage Agreement is generally used to describe a situation whereby the seller is to share in any increase in value in a property that occurs after it has been sold.

Overage Agreements are most commonly made in contemplation of the land gaining planning permission for development. It goes without saying that if you were to sell a piece of land as agricultural property, (where professional valuers often currently quote values of approximately £10,000 per acre), it would be quite upsetting to see this same land get sold for development at a sum that far exceeds the price for which you sold it.

An Overage Agreement is there to avoid such situations and is now common place in many sales of agricultural property. Such Agreements can be seen to have two key characteristics.

  1. A trigger event: there will be an agreed event defined in the agreement that will trigger payment to the seller. Examples of trigger events can be:

    • Grant of planning permission
    • Implementation of planning permission
    • Disposal of a completed development
    • Disposal of the property at a higher price within a fixed time period
  2. Further payment: Upon a trigger event the agreement will then specify the payment that will be due to the seller. Payment is usually in the form of a percentage of the value that the property has risen by after deducting the costs of obtaining planning permission.

Although Overage Agreements can be highly useful and profitable, the drafting of such an Agreement so as to make allowances for future developments can be exceedingly complex. Gepp & Sons’ Rural Services team have extensive knowledge in this area and regularly act for clients wishing to ensure that they receive a proportion of the land’s increased value.

The above is not legal advice; it is intended to provide information of general interest about current legal issues. 

If you require further information please contact Edward Worthy on 01245 228124 or worthye@gepp.co.uk