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Overage: The Potential Right To Future Payments
- AuthorMyria Griffiths
Myria Griffiths, an Associate Solicitor in our Rural Practice and Commercial Property Team, advises a farmer who is considering selling some land to a developer.
I have been approached by a developer who wants to buy some of my land, for quite a low price. I have some health issues and I’m considering selling. If the developer is given planning permission to build homes once I have sold to him, would I be able to pursue him for a dividend of any kind?
This is a fairly common situation and there is a way of enabling you to potentially receive payments after you have passed your land on.
Overage involves putting in place the potential right to future payment if certain trigger events happen within an agreed period, which represent a share of the increased value of the property.
The trigger events might include:
- The granting of outline planning consent or detailed planning permission for change of use or development that would increase the value of land
- Sale or lease of property with the benefit of planning permission
Overage is not appropriate in all situations. If the likelihood of development of the land is remote, the cost of negotiating complex payment provisions could outweigh the chances of the overage payment ever being made.
That being said, both parties will need to agree on any overage arrangement and the details of its terms, but overage is complex and it is vital to have legal documentation drawn up by a professional as both parties need to consider all reasonable foreseeable circumstances, in order to ensure that the overage provisions remain effective for the whole of the overage period.
Here are some of the details you might want to include:
- A precise description of your agreed overage payment trigger
- Any expiry date for your overage agreement
- The obligations of both parties. So, for example, you might put an obligation upon the buyer to apply for permission for a minimum size development or by a certain date
- How you calculate the overage payment
There are a number of other methods for securing overage payments, including contractual obligations, a bond or guarantee, a charge or mortgage, or granting a lease with restrictions on development. These may be avenues you want to explore, but again, they are complex and you should look to your legal adviser for advice tailored to your circumstances.
For more information contact Myria on email@example.com or call: 01267 266949.
The question posed is based on a hypothetical situation.
For further advice, please contact our specialist Commercial Property solicitors in:
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