Structure of an overage clause — trigger events, periods, shares and uplift calculation
The four key elements of any overage clause are the trigger event, the overage period, the seller's share, and the uplift calculation method. The trigger event determines when the overage payment crystallises: grant of planning permission (seller-friendly; payment due even if development does not proceed); commencement of development (buyer-friendly; payment only due when development starts); sale of developed land (most buyer-friendly; payment only on ultimate sale). Overage periods: typically 10-25 years from completion (longer = more burdensome for buyer). Seller's share: typically 20-30% of net development uplift. Uplift calculation: market value with planning permission MINUS market value as sold (at trigger event date); deductions for planning costs and finance costs are heavily negotiated.
- Trigger event: grant of planning permission is seller-preferred — payment due even if buyer never develops; commencement is buyer-preferred
- Overage period: after expiry with no trigger event, obligation falls away — check expiry date before incurring planning costs on land subject to overage
- Uplift calculation disputes: parties' RICS surveyors often disagree significantly on 'market value with planning' and 'market value as sold' figures — most clauses provide RICS expert determination (binding)
- SDLT on overage payment: treated as additional consideration for original purchase — must file additional SDLT return within 14 days of payment becoming due
Land Registry registration, practical implications for landlords, and option agreements
Without Land Registry registration, overage is merely a contractual right between original parties — it does NOT bind successor purchasers. Register a restriction on the Proprietorship Register of the buyer's title: prevents any successor buyer registering without the original seller's confirmation of compliance. For landlords as buyers: check Proprietorship Register for overage restrictions before purchasing development-potential land; calculate likely overage payment before submitting planning application; ensure sufficient cash at trigger event (which crystallises before development revenue). Option agreements: developer pays modest option fee for right to buy at agreed price if planning permission obtained; avoids committing to purchase before planning is secured; registered at HMLR as a notice on vendor's title.
- Land Registry restriction: 'No disposition ... without certificate that overage provisions have been complied with' — seller's solicitor issues certificate on payment of overage or on confirmation no trigger event has occurred
- Legal charge alternative: seller takes charge over buyer's land as security for overage — less common than restriction; creates secured debt
- Landlords as buyers: always ask solicitor to investigate overage clauses in title report; factor overage liability into development appraisal before committing to planning costs
- Option agreement alternative: cleaner than overage — developer does not buy until planning granted; vendor gets certainty of sale on exercise; avoids ongoing uncertainty of long overage period