These are agreements which enable the seller of property to share in the financial benefit of future development at the property by a subsequent owner. The legal paperwork can be complex and there are Stamp Duty Land Tax issues to carefully consider.
It is particularly relevant for a seller of property or land to consider asking a purchaser to enter into an Overage Agreement if the property or land has some possibility of being developed further at some date in the future. The usual future period can span from 20 years to 30 years.
The usual ‘trigger’ event that will give rise to the further payment from the purchaser is the grant of planning permission for change of use or building development on the land concerned.
Such agreements have to be carefully drafted to ensure that it is quite clear what exactly the ‘trigger event’ shall be; for example, is it outline planning permission or detailed planning permission that is the trigger event, or is it completion of the development?
It is also important that the Overage Agreement binds subsequent purchasers from the original purchaser and a careful formula has to be worked out to calculate what exactly the further payment to the original seller (or his successors) is to be.
The original seller of the property with the Overage Agreement will want to ensure that he or his successors are notified of a ‘trigger’ event when it occurs and want to ensure that the payment then due is somehow secured to ensure that they (or their successor) are duly paid what is due under the agreement. This requires legal advice as to what would be the appropriate method for the particular transaction in hand in order to secure the possible future payment.
We can assist you and draft the relevant documentation if you are a seller contemplating requiring a purchaser to enter into an Overage Agreement or if you are a purchaser hoping to buy property that is subject to an Overage Agreement.