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Seller vs Buyer - the importance of drafting relating to overage agreements

View profile for Keri Constantatou
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The recent decision by the High Court in the case of Sparks v Biden [2017] EWHC 1994 (Ch) goes to show the importance of thorough drafting particularly when it comes to overage agreements.

The basis for the case was that the parties entered into an overage agreement which obliged the buyer (Mr Biden) to obtain planning permission for residential development but once the properties had been developed there was no onus on the buyer to market or sell the same. 

The trigger for the overage payment was linked to the sale of the houses but rather than selling the properties, Mr Biden decided to occupy one of the properties himself and then let out the remaining houses on assured shorthold tenancies thereby delaying the payment of the overage sum being a minimum of £700,000.

The drafting of the agreement did not provide that the properties had to be sold or marketed within a reasonable time of their construction being completed and this is something which Mr Biden tried to take advantage of.

The Court found in favour of Mr Sparks and stated that a term should be implied into the overage agreement to require the reasonable time period mentioned above, otherwise the purpose of the overage was impracticable and lacked 'commercial coherence'.  Mr Biden was subsequently ordered to specifically perform the terms of the overage with the implied term incorporated and would therefore be required to pay the overage sum to Mr Sparks once the mechanics of this had been agreed between the parties and the Court.

The case goes to show not only the importance of consideration of all of the outcomes arising from the negotiations of an overage agreement but also the importance of ensuring that the provisions relating to these are drafted carefully to avoid situations or traps arising as in this case.

If you would like to know more about instructing us to advise on overage agreements, then please contact Keri Constantatou on 01245 228138 or by email at constantatouk@gepp.co.uk

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