Overage Agreements

Additional Payment:
Overage agreements allow sellers to receive an extra payment for the future development potential or other uplifts in the land’s value. Instead of just the initial sale price, sellers share in any increase in value resulting from development.

Certainty:
By agreeing on the overage payment upfront, sellers avoid relying on the uncertain process of land development and subsequent sale.

Securing Land for Future Development:
Buyers can secure land for future development without paying the full value upfront. This flexibility is especially advantageous when uncertainty exists regarding development potential or timeframes.

Risk Reduction:
Buyers can structure the agreement to pay the overage only if specific conditions are met, such as obtaining planning permission. This provides protection against unforeseen circumstances.

Planning Overage:
The most common type, suitable when the buyer intends future development. These agreements are triggered when the planning position of the property changes.

Sales Overage:
Applicable when the buyer plans to sell the property. The seller receives an additional payment if the property’s value increases upon resale.

Trigger Event:
The condition that activates the overage payment (e.g., obtaining planning permission).

Overage Period:
The duration during which the overage agreement remains in effect.

Calculation of Overage Payment:
Agreed upon in advance, this determines how the additional payment will be calculated.

Protecting Overage Payments:
Clauses can be included to safeguard the overage payment against loopholes or disputes.