What is an overage agreement?

Overage agreements are used when the seller of a piece of land has a reasonable expectation that the land may be used for development or valuable planning permission may be granted in the future, increasing the value of the land dramatically.

Overage agreements are specific to their own facts. Their drafting must be considered carefully. It is all too easy to draft for the expected, rather than the unexpected, course of events. One of our expert Commercial Property Solicitors, Nichola Armstrong, considers the importance of the wording of overage agreements.

What should an overage agreement say?

In the recent case of Sparks v Biden [2017] the drafting of the overage appears to have assumed that the buyer would want to realise his capital investment and did not consider the eventuality that he did not chose to sell any or all of the houses on the land, or that they failed to sell within a certain period of time.

The buyer agreed to the overage and constructed eight properties on the land. The obligation to pay the overage arose only on the sale of any of the newly constructed houses. Any outstanding balance of the minimum payment was due on the sale of the final dwelling.

Rather than selling the houses, the buyer occupied one of the houses himself. The buyer then proceeded to let out the remaining seven properties. In doing so, he avoided any overage obligations, undermining the whole purpose of the overage agreement.

This case serves as a reminder of the potential traps inherent in overage drafting and the need for careful forethought. You should consider both the terms of the transaction and the potential outcomes of the development process. This will ensure that the agreement holds up to future scrutiny.

Who can draft an overage agreement?

To ensure all the possible outcomes of the development process are considered and included in the drafting of your overage agreement, call Nichola Armstrong, a Commercial Property Expert based in our Nantwich office, on 01270 619697, or visit her page on our website by clicking here.

Alternatively, you can visit our Commercial Property services page here or complete the form linked here and we will call you back.