Overage—drafting points
Overage—drafting points

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Overage—drafting points
  • Expectations of the parties
  • Trigger events
  • Valuation
  • Security

Overage (sometimes known as clawback or deferred consideration) enables a seller to benefit from an uplift in the value of land (eg where planning permission is obtained or where completed units are sold). Entitlement to overage is a contractual matter and overage provisions will be construed against the person seeking to rely on them. Clarity is therefore essential.

At the outset consider whether overage is appropriate. It may be the case that your client’s interests would be better served by agreeing a conditional contract for the sale of the property rather than an outright sale with overage. It is also important to keep perspective when negotiating overage as it often makes negotiations more time-consuming and costly. Some management of your client's expectations regarding timing and fees may also be required.

Sellers (particularly in the public sector) often impose overage to protect themselves against future embarrassment if the buyer manages to develop the land at a significant profit. From the seller’s perspective, overage will leave ‘trailing wires’ and the seller will need to be prepared to continue to have some involvement with the property. The overage agreement will almost certainly require some administration and monitoring on the part of the seller. If the overage is triggered then it is possible that there will be some negotiation or even dispute over valuation.