deed of assignment of overage

Can an overage be removed?

Following on from her previous article, What is overage? , Land and Development solicitor , Laura Gale, looks at the often asked question - can an overage be removed?

If you own or are interested in acquiring land/property that is subject to overage, you may be pondering the question ' can an overage be removed? ' and if so, how best to release the land from those overage provisions .

Can an overage be removed , and why would you want to? Well, this could be for a number of reasons, such as:

you may be seeking finance to be secured against the land (many lenders will not lend against overage-affected land);
you may want to sell the land unencumbered (overage could have an effect on land value, albeit a professional valuer/land agent's advice should always be sought; and, it may be easier to sell unencumbered land at auction); or
you may wish to develop the land without incurring the full overage sums which could become due and payable as a result of commencement. Although perhaps rare, a seller's financial circumstances could well have changed since the overage was first contemplated; they may now be willing to accept a quick, lump-sum payment in return for a release of the overage obligations.

First step to removing an Overage provision

If an overage period has time to run, the first step when seeking to remove overage provisions is to consider who has the benefit of the overage.

As can be seen in our previous article, What is overage? , this provision works to secure further payments in favour of an original seller, subject to certain "trigger events" occurring.

Overage is contractual in nature and does not tend to run with the land like restrictive covenants do. Whilst overage can be achieved via use of restrictive covenants ("negative overage"), they should only be utilised where a seller is retaining nearby land that genuinely benefits from those covenants, otherwise they will likely be unenforceable. There is also a risk of the burdened landowner applying to the Lands Tribunal for a discharge or modification of the restrictive covenant(s). For that reason, it is more common to see overage achieved via positive covenants, accompanied by a restriction on title. It may be clear from the restriction who holds the benefit of the overage, but this depends on the drafting, and whether a restriction has been registered at all. Careful investigation as to who holds the benefit of the overage should be conducted before any negotiations take place, as a lot of time may have passed since the overage period commenced.

Overage beneficiaries

In assessing who has the benefit, the first port of call should be the Overage Deed/Transfer Deed which contained the overage provisions. This should be reviewed carefully, paying particular attention to the definitions and rules of interpretation. Ordinarily, such deeds will expressly stipulate that "Seller" includes its personal representatives, heirs and permitted assigns but not other successors, e.g., successors in title. However, particularly when reviewing older deeds, care should be taken to ensure this is the case.

If the original seller was an incorporated and registered company, is that company still trading, or have they ceased to exist? If the benefitting company has been dissolved, then the benefit of the overage may have passed to the Crown, via bona vacantia . In such circumstances, an approach will need to be made to the Treasury Solicitor for a release, rather than the original seller.

If the original seller was an individual, are they still alive? If the original seller has died, his personal representatives (PRs) will generally step into his shoes under any contracts and will be entitled to any benefits due to the seller before his death. Any cause of action existing at the date of an individual’s death survives either for the benefit of, or against, his estate (section 1(1), Law Reform (Miscellaneous Provisions) Act 1934). Therefore, the benefit of the overage obligations could and should have passed automatically to the deceased seller's PRs, and any approach for a release will need to be made to the PRs (provided they have not lawfully assigned the benefit).

If the original seller was an individual, have they/their PRs since parted with their interest in the overage obligations? The right to receive overage payments is a "chose in action" (an intangible property right that can only be claimed or enforced by action to recover it (if withheld)) and is therefore capable of assignment. Pursuant to section 136 of the Law of Property Act 1925, for an assignment to be recognised in law, it must:

be absolute (unconditional);
not purport to be by way of charge only;
in terms of the rights to be assigned, be wholly ascertainable and not relate to only part of a debt or other legal chose in action;
be in writing and signed by the assignor; and

the burdened landowner must be given notice of the assignment. There is no prescribed time limit for notice to be given, but the assignee may only enforce its rights against the burdened landowner from the date that party receives the notice.

So: once you have ascertained who has the benefit of the overage obligations, how do you get rid of those obligations?

As above, overage will most commonly be achieved by way of a covenant (a promise to pay, and to procure deeds of covenant from successors to ensure they pay, too). Consequently, the method of removing overage is by entering into a Deed of Release with the benefitting person(s). The Deed should be carefully drafted so as to make it clear that the whole of the overage obligations are being released, that the releasor warrants that it has not assigned the whole or part of its interest in the overage obligations to any third parties, that any payment is in full and final satisfaction, and that the releasor will hand over all certificates and release forms to discharge any restrictions on title, and to perfect the release contemplated by the Deed.

Overage is one of the most heavily litigated areas of property law, and we would always recommend that you take specialist advice before negotiating with any third parties. If you need help with overage, please speak with our dedicated Land and Development Team.

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Deed of Assignment (for Intellectual Property)

In the realm of intellectual property, a Deed of Assignment is a formal legal document used to transfer all rights, title, and interest in intellectual property from the assignor (original owner) to the assignee (new owner). This is crucial for the correct transfer of patents, copyrights, trademarks, and other IP rights. The deed typically requires specific legal formalities, sometimes notarization, to ensure it is legally enforceable.

To be legally effective a deed of assignment must contain:

Title of the Document : It should clearly be labeled as a "Deed of Assignment" to identify the nature of the document.
Date : The date on which the deed is executed should be clearly mentioned.
Parties Involved : Full names and addresses of both the assignor (the party transferring the rights) and the assignee (the party receiving the rights). This identifies the parties to the agreement.
Recitals : This section provides the background of the transaction. It typically includes details about the ownership of the assignor and the intention behind the assignment.
Definition and Interpretation : Any terms used within the deed that have specific meanings should be clearly defined in this section.
Description of the Property or Rights : A detailed description of the property or rights being assigned. For intellectual property, this would include details like patent numbers, trademark registrations , or descriptions of the copyrighted material.
Terms of Assignment : This should include the extent of the rights being transferred, any conditions or limitations on the assignment, and any obligations the assignor or assignee must fulfill as part of the agreement.
Warranties and Representations : The assignor typically makes certain warranties regarding their ownership of the property and the absence of encumbrances or third-party claims against it.
Governing Law : The deed should specify which jurisdiction's laws govern the interpretation and enforcement of the agreement.
Execution and Witnesses : The deed must be signed by both parties, and depending on jurisdictional requirements, it may also need to be witnessed and possibly notarized.
Schedules or Annexures : If there are detailed lists or descriptions (like a list of patent numbers or property descriptions), these are often attached as schedules to the main body of the deed.

Letter of Assignment (for Trademarks and Patents)

This is a less formal document compared to the Deed of Assignment and is often used to record the assignment of rights or licensing of intellectual property on a temporary or limited basis. While it can outline the terms of the assignment, it may not be sufficient for the full transfer of legal title of IP rights. It's more commonly used in situations like assigning the rights to use a copyrighted work or a trademark license.

For example, company X allows company Y to use their trademark for specific products in a specific country for a specific period.

At the same time, company X can use a Letter of Assignment to transfer a trademark to someone. In this case, it will be similar to the Deed of Assignment.

Intellectual Property Sales Agreement

An IP Sales Agreement is a detailed contract that stipulates the terms and conditions of the sale of intellectual property. It covers aspects such as the specific rights being sold, payment terms, warranties regarding the ownership and validity of the IP, and any limitations or conditions on the use of the IP. This document is essential in transactions involving the sale of IP assets.

However, clients usually prefer to keep this document confidential and prepare special deeds of assignment or letter of assignment for different countries.

IP Transfer Declaration

In the context of intellectual property, a Declaration is often used to assert ownership or the originality of an IP asset. For example, inventors may use declarations in patent applications to declare their invention is original, or authors may use it to assert copyright ownership. It's a formal statement, sometimes required by IP offices or courts.

When assigning a trademark, the Declaration can be a valid document to function as a proof of the transfer. For example, a director of company X declares that the company had sold its Intellectual Property to company Y.

Merger Document

When companies or entities with significant IP assets merge, an IP Merger Document is used. This document outlines how the intellectual property owned by the merging entities will be combined or managed. It includes details about the transfer, integration, or handling of patents, copyrights, trademarks, and any other intellectual property affected by the merger.

In all these cases, the precise drafting of documents is critical to ensure that IP rights are adequately protected and transferred. Legal advice is often necessary to navigate the complexities of intellectual property laws.

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Five essential factors in overage agreements

Posted on 23 August 2023

What is an overage agreement?

Also known as claw-back or uplift, an overage is an agreement that the buyer will pay extra, on top of the original purchase price, if and when certain events happen. For example, if the buyer increases the value of the land by obtaining planning permission.

Overages are popular as they enable a seller to benefit from an increase in the value of their land after selling it. For example, if an individual sells land and the buyer subsequently gains planning permission to build 80 houses on them, the seller can claw back some of the increase in the land’s value.

An overage agreement can help a buyer purchase land or property for a lower initial price, with the proviso that the buyer commits to paying more if it gains in value.

The overage is usually defined as a percentage of the increase in value gained by permission for change of use or development.

What percentage the seller will receive is just the starting point for negotiations; there are many other overage variables that must be decided. It is advisable to ensure these are agreed before instructing a solicitor to go ahead with the sale or purchase.

In this article, we discuss five key factors to consider when buying or selling a property with an overage agreement.

1. Allowing cost deductions

It can be very expensive to obtain planning permission and satisfy s106 agreements and infrastructure requirements. The buyer will want these costs deducted from the final uplift payment; the seller will probably want to negotiate.

2. When is the payment trigger date?

An overage can have any number of triggers for payment. Sellers often stipulate that the uplift payment should be made when planning permission is granted. But that can cause problems for buyers. It can give cashflow issues, with buyers unable to accurately predict when or if permission will be granted.

A better option for the trigger date might be whichever happens first: implementation of planning permission or disposal of the land with the benefit of planning permission. This makes it easier for buyers to control the timing of the payment and factor it into cashflow.

3. How many triggers will there be?

There is often confusion in overage deeds about whether the overage ends after one payment is made or if it should pay out for every trigger event during the overage period.

Understandably, the buyer will want the former and the seller would prefer the latter. Whatever is agreed must be settled at the outset.

4. Which disposals are permitted?

Disposals such as the grant of legal charges, short leases or easements are not usually intended to be part of the overage. However, the agreement needs to spell out exactly which disposals are permitted, to avoid incurring unnecessary costs for giving consents.

5. Agreeing fees

Usually, the buyer is responsible for the seller’s costs in providing consent to a disposal, but where there are likely to be multiple plot sales requiring a large number of consents, there is often a period of negotiation.

In these circumstances, and in fact for all aspects of the overage, it is vital both parties are clear about the agreement terms to avoid complications and delays to exchange.

If you are buying property with a new overage, it is worth considering if you can afford to buy out the overage to speed up the transaction and potentially save costs.

For more information about overages or advice about interpreting or enforcing an existing overage deed, please contact Andrew Williamson or Louise Moore .

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Overage Clauses – The Complete Guide

Ruban Selvanayagam

Sell house fast and auction expert.

Ruban Selvanayagam is a professional cash homebuyer, private rented sector landlord, auction specialist, blogger and media commentator.

Founder, Property Entrepreneur and Sell House Fast Expert

James Durr is a passionate property entrepreneur with a strong foundation and background in business.

What is an Overage Clause?

Overage clauses are provisos in property and land sale contracts. They stipulate that a seller will receive extra proceeds of sale at a later date (in addition to the agreed purchase price).

Typically, one or more conditions must be “triggered” that result in an increase in the property and/or land’s asset value. This subsequently gets clawed back by the seller.

Buyers and sellers involve overage provisions in order to mutually benefit from a “win-win” financial outcome if things go to plan.

How Buyers Benefit from Overage Clauses

Buyers (often property developers) involve themselves in projects that may not otherwise happen without incentivising the seller.

The objective is often to acquire the land or property at a lower value and manage the ongoing cashflows of the development more efficiently. Then, at a pre-agreed point, the developer shares in the future value growth with the seller.

How Sellers Benefit from Overage Clauses

Sellers of underdeveloped land often do not have the experience (and/or direct financial resources) to undergo the planning and build processes themselves.

Entering into a legally-binding overage agreement with a competent developer means benefitting from the future uplift with zero financial input.

As long as everything goes to plan, the net proceeds of sale from the land would be higher than a straight sale.

Overage “Triggers”

There are various future scenarios that can trigger the overage payment…

An approved change of use of a particular building – most commonly residential, commercial, industrial or mixed-use development / conversion;
Demolition and reconstruction of a larger building;
Gaining planning permission for vertical or horizontal extensions, extra dwellings or other value-add purposes only;
Grant of Permitted Development Rights (PDRs) only;
Commencement of a development project only;
A share of the profits or revenues resulting from the sale of a fixed number of units or square footage / meterage;
If the landowner is selling land to a Special Purpose Vehicle (SPV) for the purposes of development, overage can be triggered by a change of company control or transfer of a pre-agreed percentage of shares to a third party;
The development is part-complete and the seller shares in the revenue or profit from off-plan sales;
In a rising market, the seller shares in the land value appreciation;
A means of preventing the buyer from quickly flipping the land (with or without planning) and making a quick profit;
Sale of the property or land at a higher value within a set and contractually agreed time period;
Sale of the property or land after pre-planning conditions have been met;
Certain auction sales can have overage clauses where the seller receives an agreed sum or percentage over the reserve price;
Councils, public bodies, housing associations, charities and social housing providers may request overage payments as part of the contractual sales conditions.

Overage Agreement

Please note that this template is for reference only.

Indeed, with no “one size fits all” overage provision, we strongly urge you to seek qualified legal advice – particularly during the heads of terms stage.

Please also be aware of the numerous overage clause loopholes (and how to avoid them).

Overage Clauses on Land – How it Works

As it’s more common to see overage clauses on private land sales (rather than residential house sales ), we’ll principally focus on this type of agreement.

Indeed, it often would not make financial sense to involve overage clauses unless the uplift is significant enough for both the buyer and seller to benefit. This usually only occurs following plans to build multiple units or a sizeable space.

Although not always feasible, the developer will usually want to pay overage after tangible value from the project has been realised. This is because property development is such a capital-intensive business. Spreading liabilities to manage cash flow is likely to be a priority.

Overage Timeframes

There is no set time period for the enforcement of overage clauses. Typically, they last for the time up to planning consent or when the development is complete (and all the units are sold).

Much will also depend on the scope of the project and the nature of the event that will trigger the payment .

1 to 3 years is fairly common for small to mid-size developments. However, it’s not uncommon for overage clause provisions to last for anything up to 25 years – particularly with phased or multi-faceted developments.

Calculating Overage Viability on Land

Successfully drafted overage clauses find the right balance between an industry-benchmark level of profitability for the developer and fair clawback value for the seller.

It’s worth noting that development in itself is a highly complex area with many moving parts, particularly the larger a project gets.

How to Work Out a Future Overage Payment

Broadly speaking, most developers work on what the industry terms a “residual” basis.

This essentially deducts the total cost of executing the project from the expected Gross Development Value (GDV) – i.e. the total sales value of all the units.

For example, let’s take a development project containing 5 houses. The developer expects each house to sell for £200,000, giving a total GDV of £1,000,000.

The research (due diligence) process establishes that total construction costs are likely to be in the region of £600,000. Developers would expect to achieve an industry-standard profit margin of 20% or £200,000 on the project. This leaves a remainder of £200,000 which would, theoretically, go to the land seller.

In terms of an overage agreement, the developer may offer – for instance – £100,000 (50%) initially and the other £150,000 after the trigger event.

Although the developer has to accept a £50,000 hit on the profit, the initial “saving” means that they can manage their cash flow better.

Added Overage Complexities…

These calculations are, of course, very crude and there are other metrics – such as Internal Rate of Return (IRR) – that often will get introduced into the discussions.

Developers will also pay close attention to a range of “micro” factors such as taxation, overheads, meeting Section 106 and other infrastructure obligations.

Macro considerations (and risks) such as inflation and the range of influences that affect the house sales market must also be considered.

Other times, more complex calculations are necessary where:

There are multiple overage payments based on the various phases of the project;
Overage payments are linked to the capital gain achieved as a result of the trigger event;
There will be a future-determined percentage of the uplift value as a result of the planning and/or execution of the development project;
There is some kind of agreed revenue share agreed.

These options would often require the seller to have full access to the income and expenditure accounts and engage in regular auditing – which many developers would not be comfortable with.

In our view, any kind of revenue-based overage agreement is risky. Although it’s possible to put caps in place, the seller has less overall control. Questions and concerns could also appear with regards to cost validity and overrun risks.

In short, giving the developer free reign over the project outcome could tip the balance out of the seller’s favour.

The Effects of Inflation

With longer time periods, factors such as capital appreciation need to be taken on board.

Sellers can and should expect an inflation-tracked return. This is most appropriate, for instance, where an overage payment will be returned much further down the line.

For these reasons, much of the negotiation process needs to involve discussions on the present value of the land (with and without planning consent) followed by the end value of the development (GDV).

Checks and Balances…

Before agreeing to the structure of the overage agreement, the developer will consult with architects, surveyors, planning consultants and other industry professionals to assess project viability. Sellers can and should be privy to these conversations.

A quantity surveyor / building cost consultant, for example, can apply inflation-index and various stress or scenario testing models. They can also advise on appropriate contingency levels and other exit strategies for the project.

Crucially, there will need to be a clear agreement on the financial realities. The execution of the development needs to maximise returns for both parties. As a seller, remember to ask as many questions as you need to get to this point.

Planning Gain Sales – Overage Rights

Sellers sometimes agree to a “planning gain” overage transaction.

This is where the developer seeks out planning consent on the land. The “shovel ready” project is then marketed and sold on to another developer or construction company to carry out. Both parties then agree on the future profit share.

Although the overage price will be lower, the seller avoids much of the development risk (which almost always involves a fair dose of stress and hassle all round). For the seller, it also means that payment happens in a shorter space of time.

Initially, much of the process will be similar to what’s described above. No buyer / developer, after all, will be interested in an unviable project.

Reasonable expectations should be set for how much profit there is after accounting for planning and various procedural costs. Essentially, there needs to be enough margin for a future developer to take the project on.

The most successful partnerships happen when the planning consent applicant has good a understanding of the intricacies involved.

Assuming consent is in place, sellers should also seek out pre and post permission land valuations by a RICS surveyor.

Be sure to also confirm whether the consent is full, outline or for Permitted Development Rights. Each has its own implications on project execution.

Also, check for any enforceable “reserved matters” – i.e. conditions that may prevent the start of the project.

Overage Clause Loopholes

With every overage agreement varying in terms of scope, sellers need to be mindful of a range of scenarios that could put any future payment in jeopardy.

Examples of broader scenarios that disfavour the seller include:

Developers make a ‘soft’ planning application that results in a marginal rise in the project’s overall value. This will clear the overage liability and then leave the seller out of the picture as the developer capitalises on the real value;
The developer executes a small development and pays off the overage before executing a more profitable project;
Provisions do not allow the seller to benefit from better than expected profits;
The developer deliberately delays project delivery until after the overage period has passed (and extension provisions are in place);
The developer does not make “reasonable endeavours” to sell the project;
The development makes no profit, or worse, makes a loss. This may result in the units going for up for sale at auction or sold using a We Buy Any Property firm ;
Notable fees and costs such as planning application / consultancy fees, Section 106 obligations, utility, the highways agency and/or public bodies are deducted from the seller’s profit;
No protection or time-related contingencies for overage payments clauses exist;
There are no provisions for falls in property sale values or lack of demand for the development project;
The Use Class of the development as a form of identification invalidates the overage trigger;
There are ambiguous definitions of the type and scope of the development from the outset;
As a means for the developer to avoid responsibility, the contract states that a third party or even the seller should apply for the planning consent;
The use of overly complex legalese with the aim of avoiding future payments;
The contract contains provisions that give the buyer further rights to the land;
The developer, fully aware that the likelihood of achieving the triggers is slim, uses overage provisions as a means of negotiating lower;
There are no clauses that protect the seller, should the buyer / developer pass away and vice versa;
The seller isn’t protected should the developer assign the contract to a third party.

Find a Specialist Solicitor

For these reasons, always consult an experienced solicitor. Remember – in the face of badly drafted overage agreements / clauses – the future litigation costs will be huge.

Obtaining a guarantee or good faith clauses that set a minimum amount of overage before termination of the agreement (or the payment can be secured againt future phases of the development or other assets).

A good contract lawyer can explore all the angles and potential exit loopholes whilst also including “anti-embarrassment” clauses throughout.

Note the role of solicitors is not to advise on whether the overage payment is fair – but to ensure their clients are protected in the eyes of the law.

A Quick Note on Solicitor Fees…

Whilst the buyer can offer to cover the legal fees involved, sellers should check what the appointed solicitor can and can’t advise on.

Say overage clause discussions extend over the original expected times, the seller could be liable for extra transactional (conveyancing) fees .

Indeed, it can often make sense to seek a second pair of legal eyes to review the heads of terms and other related documentation before signing.

Positive and Negative Overage Provisions

Although often not explicitly stated in the legal documentation, it’s worth noting the difference between positive and negative overage clauses.

Positive Overage Clause

The most common type of overage is where the seller contractually obliges the buyer to make a further payment if/when the trigger event occurs.

As discussed below, the most common overage is a legal restriction ( RX1 ) on any future disposal to a different party. The seller becomes the beneficiary and requires full consent before any disposal can happen. Removal of the restriction can only happen after receipt of the overage payment (and any associated obligations).

If the restriction on title is not properly placed over the land (by way of a positive covenant), the buyer may not be tied into the terms of the overage.

Negative Overage Clause

The seller places specific control over the land or property asset which prevents sale without satisfying the terms of the overage clause.

Note that sometimes there may be a combination of the above as clauses within the overage agreement.

Overage Legal Protection

Securing the seller’s financial interest in the project is possible in a number of ways…

First Charge

Assuming there is sufficient equity, a first legal charge is one of the best ways to protect any financial interest.

With the right legal mechanisms in place, the seller can take back possession or force the land sale ( through auction , for example) to claim back the land value alongside additional compensation.

One issue here is the potential conflict as the developer’s creditors and partners would also want the first charge over the asset. They’re also likely to be concerned about overall profitability and security.

Much will therefore come down to the project’s financial viability . Lenders and investors that agree to go ahead will often place premiums and other risk mitigation measures to protect their interests.

Another option could be for the seller secures the first charge up until the commencement of the project, after which the developer makes the overage payment. The lender then takes over after this point.

Alternatively, the lender may be able to take the charge over other assets owned by the developer.

Controls of Share Sell-Off

Where the seller’s property or land is transferred into a Special Purpose Vehicle (i.e. a separate Limited company), the trigger can be when control of the company changes or after a certain amount of shares are sold off.

Note that in such scenarios, Land Registry restrictions will not prevent the sale of shares and the developer could potentially work around this issue.

Also, undertaking the transaction through a Special Purpose Vehicle (SPV) means there will be no external assets to pursue.

Granting a Lease

As the freehold owner, it’s possible to grant a lease and retain the freehold rather than sell.

The overage effectively then becomes a covenant (legal commitment) that binds the buyer (and leaseholder).

A Ransom Strip

The seller can retain some kind of ransom strip.

This is usually a small piece of land integral to the development as a whole. The transfer of the strip will go back to the developer (landowner) upon payment of the overage.

Note that complexities could arise if there are multiple overage triggers. Also, prescriptive rights could also develop over time (which could limit the legal enforceability of the ransom strip).

In such cases, there should be a clearly defined overage payment agreement to accompany the ransom strip.

Restrictive Covenants

Restrictive covenants are essentially constraints on what can be done with the plot of land. They are legally watertight and often cheaper to draft.

One example could be a green belt plot of land with a restrictive covenant imposed on it for solely agricultural use until planning consent is granted. The release of the covenant only happens after the overage payment.

However, some lawyers argue that restrictive covenants for overage purposes are legally tenuous. There has also been case law that has rendered them unenforceable in recent history.

Restrictive covenants cannot also include overage calculations meaning that the end payment could end being open to dispute.

Legal Restriction

Most developers are happy for a legal restriction to be in place.

This provides them without constraints to execute the project. There is no risk of the seller losing the right to receive a future overage payment.

Removing an Overage Clause

Clear satisfaction of the terms of the agreement is the best way to remove the overage clause.

However, as a buyer, you may come across a plot of land or property that has an underlying or latent overage obligation.

Assuming the overage agreement was drafted correctly, it is always the beneficiary (the seller) that will consent to removal.

For this reason, the options are:

Either to wait until the overage has lapsed; or
Approach the beneficiary (or the descendent) to discuss the removal.

A conveyancer undertakes this process with any restriction formally removed at the HM Land Registry.

Tax on Overage Gains

For sellers, much will depend on how the land is owned. If comes as part of a property (on the same title) that has been lived in as a Principal Private Residence (PPR), there would no tax due.

If the land is owned separately, there will be Capital Gains Tax implications (use our CGT calculator ). Here, the amount owed to HMRC will vary according to the tax bracket the seller falls under.

Inherited land or property owned in a limited company, will have specific tax-related implications. Note that if the property being sold has commercial elements , VAT will be due on the sale price and the overage amount.

The buyer will pay Stamp Duty Land Tax on the purchase price. This tax is also due on the enhanced value of the land if the overage is triggered. There may be deferments available.

We strongly advise seeking suitably qualified tax advice in good time before proceeding with any kind of overage transaction.

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What is overage and how does it work?

26 July 2021

Overage should be an important consideration for parties to strategic land transactions but what is it and how does it work?

Overage is a contractual mechanism which allows a seller of land to potentially benefit from any subsequent increase in the land’s value after having sold it. Overage agreements, also commonly referred to as claw-back, uplift or anti-embarrassment agreements, should therefore be an important consideration for parties to the sale of land, particularly where the land has development potential.

How can overage benefit you?

Seller’s perspective.

From a seller’s perspective, overage can help to maximise their potential financial return from the sale of land by receiving both initial consideration for the land on completion, as well as a share of any future increase in value following the sale. For example, overage is commonly sought by a seller where there is a reasonable expectation that the land being sold will subsequently increase in value by virtue of obtaining planning permission and/or being developed.

Overage can also offer sellers peace of mind by helping them claw-back any future uplift in value where the land may have been inadvertently under-valued at the point of sale (hence the name “anti-embarrassment”!). This might be a particularly useful mechanism where full consideration of the land’s future development potential is not feasible prior to its sale, where planning changes might reasonably permit additional lucrative uses of the land in the future or where a seller wants to dispose of the land quickly at a discounted rate but without missing out on the true value of land in the longer term.

Buyer’s perspective

However, the commercial benefits of overage are not exclusive to sellers. Buyers can also seek to utilise overage as a strategic means to avoid over-paying for a potential development site. As overage payments are usually contingent on any future increase in the value of the land, buyers can take advantage of overage by paying a lower initial sum for the land on completion rather than an inflated value based on the land’s anticipated development potential, which may never be fully realised.

What are the essential elements of an overage agreement?

While overage can operate in a multitude of different ways, there are four essential elements to any overage agreement:

triggering events
how overage is to be calculated
how the buyer’s obligation to pay the seller any overage is secured.

It is important to note that overage agreements can only take effect for a finite period of time following a sale of land. While agreements can range from anywhere between 5 to 20 years, or even up to or exceeding 50 years, the duration of any given agreement will generally be a matter of fact and degree, depending on the nature of the transaction itself and the parties’ respective negotiating positions.

As a general rule, a seller will usually prefer a longer overage period whereas the buyer will often seek to minimise the length of any agreement.

In practice, an appropriate overage period might correspond to the timeframe within which the parties believe it would be reasonable for a specified event to occur, such as how long it might reasonably take for a buyer to obtain planning permission or to begin development. The buyer’s intended plans for the land may also affect the appropriate length of any overage period. For instance, if a buyer intends to develop a site immediately a shorter duration would likely suffice whereas, if the buyer intended to purchase the land as a long-term investment with no immediate development plans, a longer overage period might be more desirable for the seller.

Sellers can also seek to utilise the duration of an overage agreement as a means of retaining a degree of control over the land following its sale. If a seller is reluctant for the land to be developed in the future, they may seek to impose a longer overage period in an attempt to deter the buyer (or subsequent buyers) from developing the land.

Buyers should be acutely aware of the duration of any overage provisions affecting the land because it may impact the commercial viability of the transaction. If a buyer intends to develop the land within the overage period this is likely to significantly increase their development costs. Similarly, where a buyer is deterred from commencing development within the overage period, they should consider whether the extended timeframe for commencing the development remains satisfactory.

Events triggering payment

A buyer’s obligation to pay overage will usually be triggered on the occurrence of a specified, pre-agreed triggering event. A triggering event will typically be an event which has the potential to increase the value of the land. Common examples of triggering events include:

The grant of planning permission for the development of the land
The implementation of such planning permission (e.g. the commencement of any subsequent development)
The subsequent sale of the land at a higher value
The subsequent sale of the developed land or individual units (e.g. the sale of houses on a residential development).

A seller will usually want overage to trigger as soon as possible and within the overage period in order to realise any overage payment. In contrast, a buyer is likely to prefer a triggering event which occurs later in the development process. This is not only because the longer it takes for a triggering event to occur the more likely it is that it might occur outside of the overage period, but because the buyer is unlikely to want to trigger the obligation to pay overage until it can be sure that the intended development will proceed and that it will actually be able to realise any increased value of the land.

For example, a buyer is likely to resist agreeing to overage triggering on the grant of planning permission because the permission might not be satisfactory for their intended development. Also, obtaining planning permission will not, in and of itself, necessarily commit the buyer to proceed with the development. A buyer is much more likely to insist that overage is only triggered when either: (i) the development commences; or (ii) the developed land is subsequently sold.

Parties should ensure that they understand precisely what circumstances will trigger overage and should seek professional legal advice as early as possible in the transaction to ensure that the agreement is drafted sufficiently tightly. In particular, sellers should be wary of any loopholes which the buyer might try to exploit to avoid triggering overage.

In the recent case of Sparks v Biden [2017] EWHC 1994 (Ch) , overage was to be triggered on the sale of the last of several newly-developed houses. However, the developer sought to avoid triggering overage by instead occupying a property himself and leasing the remainder on a short-term basis. On a strict interpretation, this appeared to frustrate the overage provisions under the agreement. While the court came to the seller’s rescue, holding that the developer had an implied obligation to take positive action to sell the houses, this case should serve as a warning to sellers as to the issues which might arise where agreements are not drafted sufficiently tightly. Sellers should therefore also consider expressly committing the buyer to using reasonable endeavours to apply for planning permission or to complete, market and sell any future development.

Method of calculation

Overage can be calculated in a number of different ways and will ultimately be a matter for negotiation between the parties. We would strongly recommend that both parties seek advice from an experienced surveyor on the various different methods and formulae that can be used.

Some common examples include: (i) a pre-agreed percentage of any increase in the value of the land (e.g. following the grant of planning permission); (ii) the payment of a fixed sum for each unit developed on the land (usually in excess of a fixed ‘base’ number of units); and (iii) a pre-agreed percentage of the buyer’s profits from their subsequent sale of the land (minus any development costs incurred).

When deciding the most appropriate method to be used, parties should ensure that the agreement sets out how any increase in the value of the land will be determined. For example, by setting out a fixed ‘base value’ for the land against which any subsequent increase in value can be assessed and the mechanisms by which any increase in value can be determined, preferably by an independent surveyor. Likewise, where overage is to be calculated on the basis of actual sales proceeds, the seller should seek to ensure that the best value has been achieved by the buyer. We would recommend including at least one worked example to illustrate how any calculation will work in practice.

Protection and security

Sellers should also consider how they can protect or secure the buyer’s obligation to pay any overage due to them. While the agreement itself will create a personal contractual obligation on the buyer to pay the seller any overage which falls due, in and of itself, this will generally be inadequate for the seller. This is because the buyer might be of insufficient financial strength or may even cease to exist at the point any overage is to be paid in the future. Therefore, a seller will almost always seek to secure their right to any future overage payments against the land itself.

The terms of any such protection or security will be a matter for negotiation between the parties but might include:

Registering a restriction on the buyer’s title to the land, prohibiting the buyer from further selling the land unless their future purchaser also agrees to be bound by the overage; and/or
Registering a legal charge over the land such that, when the buyer wishes to subsequently dispose of the land, the buyer would be required to either redeem the charge by paying to the seller any overage due or ensure that the subsequent purchaser of the land also enters into a charge to continue to protect the overage.

Your solicitor will be able to make the necessary Land Registry and Companies House applications on your behalf to ensure that any overage obligations are correctly secured against the land in question.

The content of this article is for general information purposes only. For further assistance or advice please contact a member of Birketts’ Commercial Property Team .

Elliot Wotton

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at July 2021.

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What is overage and how can you enforce it?

Author Daniel Sturman

Demand for new housing and increased development has lead to an increase in overage agreements. Owners of land with the benefit of valuable planning permission or land which has potential for future development need to be aware of “Claw Back” or “Overage” and how to enforce it.

When a land owner sells land to a developer who in turn will develop the land in accordance with a planning permission or who will make an application for a planning permission, which would result in the significant increase in the market value of the land after it is sold, the original land owner would be well advised to seek an overage payment.

An overage payment is usually a payment to be made to the original land owner in the event that a valuable planning permission is granted. The payment will usually be a percentage of the difference between the market value of the land with the benefit of planning permission and without it.

So how is overage enforced? Commonly overage provisions are included in the legal transfer deed made between the seller and the buyer or, alternatively, a separate Overage Deed is used setting out the circumstances and payment obligations.

As positive obligations do not automatically bind successors in title, it is essential that the original landowner protects the overage payment by contractually obliging the buyer to register a restriction on the registered title of the land on completion. The restriction will restrict the buyer from making further disposals of the land unless a deed of covenant is obtained from the incoming buyer to observe and perform the positive overage obligations. This is the most commonly used mechanism of enforcing the positive obligations against successors in title however, a legal charge and restriction can also be used to protect the overage payment if required.

The overage clauses covering payment and the calculation can be very complex, so it is absolutely essential that the formula and drafting are correct and clear as failure to get it right will mean that the overage payment is incorrect and could lead to very expensive litigation. Overage agreements are therefore heavily litigated if they are not clear or give rise to uncertainty but if approached in the correct fashion, overage is beneficial to all land owners who wish to share in the profits made in future property development.

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Deed of Assignment: Everything You Need to Know

A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. 3 min read updated on January 01, 2024

Updated October 8,2020:

A deed of assignment refers to a legal document that records the transfer of ownership of a real estate property from one party to another. It states that a specific piece of property will belong to the assignee and no longer belong to the assignor starting from a specified date. In order to be valid, a deed of assignment must contain certain types of information and meet a number of requirements.

What Is an Assignment?

An assignment is similar to an outright transfer, but it is slightly different. It takes place when one of two parties who have entered into a contract decides to transfer all of his or her rights and obligations to a third party and completely remove himself or herself from the contract.

Also called the assignee, the third party effectively replaces the former contracting party and consequently assumes all of his or her rights and obligations. Unless it is stated in the original contract, both parties to the initial contract are typically required to express approval of an assignment before it can occur. When you sell a piece of property, you are making an assignment of it to the buyer through the paperwork you sign at closing.

What Is a Deed of Assignment?

A deed of assignment refers to a legal document that facilitates the legal transfer of ownership of real estate property. It is an important document that must be securely stored at all times, especially in the case of real estate.

In general, this document can be described as a document that is drafted and signed to promise or guarantee the transfer of ownership of a real estate property on a specified date. In other words, it serves as the evidence of the transfer of ownership of the property, with the stipulation that there is a certain timeframe in which actual ownership will begin.

The deed of assignment is the main document between the seller and buyer that proves ownership in favor of the seller. The party who is transferring his or her rights to the property is known as the “assignor,” while the party who is receiving the rights is called the “assignee.”

A deed of assignment is required in many different situations, the most common of which is the transfer of ownership of a property. For example, a developer of a new house has to sign a deed of assignment with a buyer, stating that the house will belong to him or her on a certain date. Nevertheless, the buyer may want to sell the house to someone else in the future, which will also require the signing of a deed of assignment.

This document is necessary because it serves as a temporary title deed in the event that the actual title deed for the house has not been issued. For every piece of property that will be sold before the issuance of a title deed, a deed of assignment will be required.

Requirements for a Deed of Assignment

In order to be legally enforceable, an absolute sale deed must provide a clear description of the property being transferred, such as its address or other information that distinguishes it from other properties. In addition, it must clearly identify the buyer and seller and state the date when the transfer will become legally effective, the purchase price, and other relevant information.

In today's real estate transactions, contracting parties usually use an ancillary real estate sale contract in an attempt to cram all the required information into a deed. Nonetheless, the information found in the contract must be referenced by the deed.

Information to Include in a Deed of Assignment

Names of parties to the agreement
Addresses of the parties and how they are binding on the parties' successors, friends, and other people who represent them in any capacity
History of the property being transferred, from the time it was first acquired to the time it is about to be sold
Agreed price of the property
Size and description of the property
Promises or covenants the parties will undertake to execute the deed
Signatures of the parties
Section for the Governors Consent or Commissioner of Oaths to sign and verify the agreement

If you need help understanding, drafting, or signing a deed of assignment, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Overage Clauses – 10 Things To Think About For Buyers

Properties are sometimes sold subject to overage clauses – also known as uplift or claw back provisions. The idea is that, if planning permission is subsequently obtained, the seller will be entitled to a share in the uplift in value. This sounds simple but provisions of this nature give rise to a wide range of legal problems and are often a dispute in the making.

As always, the devil is in the detail. Points to watch out for as a buyer are:-

1. How long do these provisions apply? They are commonly imposed for up to 25 years but this is a very long time. Arguably they should only apply where there is a realistic chance of obtaining planning permission within the next 5-10 years.

2. What percentage state in the uplift in value should the seller be entitled to? The seller often begins by asking for 50% of the uplift in value but this is likely to leave the buyer with little commercial incentive to develop the land. Bear in mind that the buyer will incur various costs – planning costs in obtaining the permission, costs in selling the land and capital gains tax, for example. Some overage clauses allow costs to be deducted before the overage is calculated; otherwise a 50% overage may leave the seller with a greater profit than the buyer.

3. What triggers the payment to the seller? From the buyer’s point of view, this should not be the grant of planning permission but either: –

the implementation of a planning permission (for example, where a buyer builds a new house to occupy himself); or
the sale of the property following the grant of planning permission.

4. Will any planning permission trigger the payment? Often the parties intend the overage clauses to apply only if permission is obtained for residential development but most overage clauses apply if any planning permission is obtained. The buyer may, therefore, want to exclude certain types of development from the overage. For example, in the case of a farm, the buyer may wish to exclude:-

any buildings for agricultural use;
any equestrian use for buildings;
any renewable energy/telecoms installations;
any commercial use (such as the conversion of barns to offices or workshops); or
extensions to the farmhouse or the erection of a house with an agricultural tie for a farm worker or family member.

Some of these changes may not require planning permission at present but it is best to exclude them for the avoidance of doubt – bear in mind that planning rules may change in the future.

5. How is the overage to be calculated? Often there can be quite a complicated formula in the documents. Check if this is correct by working through some examples, taking note to ensure that the payment to the seller does not include normal “inflation” increases in value.

If the parties cannot agree on the amount of the overage (which is usually based on the difference in open market values of the land with or without the planning permission in question) then this will be determined by an independent surveyor. This can be an expensive process and something of a lottery as different surveyors can have very different views on market values.

If interest is payable on the overage payment, make sure this runs only from when the overage payment has been agreed or determined by the independent surveyor. If interest runs from the date of the permission, this can give rise to a big interest bill whilst the price is being sorted out.

6. Will the seller have more than one bite of the cherry? Most overage clauses apply each time planning permission is obtained during the overage period. So, if a previous overage payment has been made based on a permission for, say, 5 houses, a further payment will be due if permission is subsequently obtained for 10 houses. It is important to ensure that the credit is given only for the first overage payment.

7. How is the overage secured? Usually, a seller will impose a restriction on the buyer’s title so that future dealings cannot be registered at the land registry without the consent of a seller. This is necessary from the seller’s point of view to ensure that the new buyer enters into a new deed of covenant to pay the overage (as positive covenants of this nature are not otherwise binding on the buyer’s successor in title). A restriction can, however, cause problems or delays on future dealings and a buyer should try to exclude remortgages and short-term leases from such a restriction.

Sometimes the seller requires a charge back over the property to secure payment of the overage. A buyer should resist this, particularly if they are raising finance through a bank to purchase the property. The bank will want a first charge and may not be happy for the seller to have even a second charge.

8. The benefit of the overage is an asset. This can be sold by the seller or, if the seller passes away, the benefit may pass with their estate. It can, therefore, be difficult in the future for the buyer to know who has the benefit of the overage. This causes further problems, particularly where there is a restriction on the buyer’s title which requires the person having the benefit to consent to any future dealings.

A buyer should, therefore, ask for the documents to require the buyer to be notified of any change in the persons having the benefit of the overage but, even then, practical problems often arise when this is not done.

9. Overage clauses complicate the buyer’s tax position. If an overage payment is triggered, further Stamp Duty Land Tax will be due (as the purchase price has increased). Indeed, HMRC requires that, on completion of the purchase (even if the payment of an overage is very remote), the buyer should pay SDLT on the purchase price and the estimated enhanced value of the land if the overage is triggered. The buyer may, however, apply to the HMRC for the deferment of any extra SDLT which may become due if the overage is triggered.

In the case of a commercial property, if the original sale was subject to VAT, then VAT will also be due on any overage payment.

10. Overage provisions make negotiations of the purchase contract and transfer much more complicated. This inevitably results in additional legal fees for the parties and delays in agreeing the documents. In addition, overage provisions have given rise to many disputes before the courts. It may, therefore, be worth considering if there is another way of restructuring the deal – perhaps by a slightly higher price being paid in the first place.

This is a general information sheet only and must NOT be relied on in relation to any particular matter. Overage provisions are very complicated and specific advice should be taken in relation to any transaction involving overage.

We are unable to give general or specific advice on matters relating to overage except to our existing clients. However, if you would like us to give you a quote, please contact us and a member of the Commercial Property Department will get back to you.

Published by BHW Solicitors

Categorised in: Commercial Property , Leicester Solicitors , News

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Overage in residential development.

Home / Knowledge base / Overage in residential development

Posted on 09 August 2018

What is overage?

In simple, practical terms, overage is a future payment to be made to the seller of land, by the buyer of land. The payment is usually conditional on the occurrence of a specific event, and is usually linked to the enhancement of value of the land, whereby the seller and purchaser each share in the enhanced value.

In legal terms, overage is a contractual arrangement that forms part of the overall consideration for the sale of land. It is payable post completion of a sale, and does not constitute an interest in land.

Overage provisions may be included in a contract for sale, the transfer document, or in a separate overage deed, and different forms of overage may be agreed depending on the particular circumstances. Common types of overage when selling land for residential or potential residential development include, planning overage, sales overage, and overage payable in the event that a buyer disposes of undeveloped land at a profit.

Planning overage

Planning overage is an uplift payment due once planning permission has been obtained because, due to the grant of such planning permission, the land value has increased significantly from the original price paid. The trigger events for calculating planning overage might be the grant of a planning permission , the grant of planning permission that is immune from challenge, implementation of a planning permission and/or disposal of the land with the benefit of planning permission.

Once a trigger event has occurred, the contractual documentation agreed by the parties at the outset governs how the overage payment is calculated. The contract documentation will include a formula prescribing how the overage will be calculated, and the original seller is usually due a percentage of the increase in the open market value of the land. The parties may also agree certain deductions from that payment. For example, the costs of the buyer in obtaining the planning permission, the original price paid for the land, any previous payments of overage that may have already been paid, and other costs and expenses which the buyer will incur as a direct result of obtaining planning and/or paying the overage.

It is prudent to include a disputes provision in the documentation, in the event the parties cannot agree the amount of overage due. Depending on the agreed trigger event for calculation of the overage, payment may be due on the later of grant of planning permission that is immune from challenge, implementation of the planning permission, disposal or, if later, agreement or determination of the amount of overage due.

The parties also need to agree at the outset whether they intend the overage to be a one-off payment, whereby the overage provisions fall away in relation to all of the land, or that part of it that benefits from planning permission once the payment has been made, or whether they intend the overage provisions to continue to apply, which is commonly known as “rolling overage”. This means that if a buyer, or their successor, subsequently obtains a more valuable planning permission to that originally granted, a further payment would be due to the seller.

If rolling overage is agreed, a developer will want to ensure it can dispose of the land in the way envisaged by the original planning permission without passing on the overage liability. For example, a residential developer will want to dispose of completed dwellings, affordable housing land, and land required by utilities or the local authority without liability on those incoming disponees to pay overage. As such, rolling overage provisions are likely to include a number of carve outs, or “Exempt Disposals” to allow the land to be developed and sold in accordance with the original planning permission.

Sales overage

Sales overage is an uplift payment that may fall due where the developer buyer expects to generate a certain base revenue, and agrees to effectively share any additional revenue generated with the seller.

The trigger event for calculation of such overage would be exceeding the agreed base revenue, and again the seller is likely to be entitled to a percentage share in the enhanced revenue. There may be certain exclusions or deductions from the calculation, for example sales revenue from affordable housing, plot buyer’s incentives or extras, sales costs, part exchange and other costs incurred by the developer to achieve the overall enhanced value.

Depending on the size of the development and the agreement reached between the parties, payment may be in stages, for example quarterly or annually, or at the end of the development, and reporting obligations and a disputes provisions should be included in the drafting.

Sale at a profit (anti-embarrassment overage)

This is overage that falls due when a buyer sells undeveloped land at a profit, without the benefit of planning permission. For example the seller sells to Developer A at a fixed price, and Developer A immediately, often on the same day, sells the site to Developer B for a profit. This would leave the seller in an embarrassing position, and to avoid such embarrassment, provisions may be included in the original sale documentation that require Developer A to pay all or part of the profit it has made to the original seller.

Key provisions

The parties need to consider at the outset how long the overage provisions should last. This should be a commercial and practical decision having regard to the land in question, but there is nothing to prevent the overage provisions lasting for more than 80 years.

A crucial part of the overage provisions that the parties must decide at the outset is how payment will be secured. A contractual obligation to make a payment is not necessarily sufficient, and in light of the Cosmichome Ltd v Southampton City Council [2013] case, it is not advisable to secure monetary sums by way of restrictive covenant. The most common way of securing overage is now a legal charge or a restriction on title, preventing a disposal without the incoming disponee entering into a deed of covenant to observe and perform the overage provisions.

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What is an Overage Agreement?

An overage agreement is an agreement whereby a purchaser of land agrees to pay the seller an additional sum of money (on top of the purchase price) following the occurrence of a future specified event that enhances the value of the land. This allows the seller to share in the enhanced value following the sale. Overages are sometimes referred to as “clawback”, “uplift” or “anti-embarrassment” mechanisms in property transactions.

As a result, overage agreements are popular with sellers of land with development potential and they also enable buyers to purchase land for a lower initial purchase price but with the condition that the buyer pays further sums to the seller if the land gains value in the future.

If you are selling or buying land, it is important to understand the way an overage agreement can be used, whether this might be appropriate for your situation and, if so, what the terms of that agreement should be.

In this article, we cover some of the key things you need to know about overage agreements so that you can have a general background on the subject. However, this should not be taken as specific legal advice, so please speak to our specialist overage agreement solicitors if you require support.

Key points covered in this article:

What are the different types of overage, what key provisions should be included in overage agreements, who benefits from an overage, why may a seller use an overage agreement, how is the payment calculated for an overage agreement, what tax considerations are there, how do you protect the obligation to pay the overage.

The three main types of overage are as follows:

1. Planning overage

Planning overage is an uplift payment payable once planning permission has been obtained which increases the value of the land.

The trigger events for payment include the grant of planning permission, the grant of planning permission immune from challenge, the implementation of planning permission and/or the disposal of the land with the benefit of planning permission. It is best for the trigger event to be the implementation of the planning permission rather than the grant. This avoids a situation where a buyer pays the planning overage following the grant of the planning permission, but then the permission is quashed or revoked leaving the buyer out-of-pocket.

The overage agreement should always include a formula and worked examples so all parties know how to calculate the overage payable with reference to example scenarios and figures.

The parties may agree certain deductions from the overage payment such as the buyer’s costs of obtaining the planning permission, the original price paid for the land, any previous overage payments already paid and other costs/expenses the buyer will incur as a result of obtaining planning permission and/or paying the overage.

The parties also need to agree whether the overage should be a one-off payment whereby the overage provisions terminate in relation to the land once payment has been made or whether the overage provisions should continue to apply (a “rolling overage”). This means that if a buyer or their successors in title later obtain a more valuable planning permission than the one originally granted, then a further planning overage payment would be payable to the seller.

2. Sales revenue overage

Sales revenue overage is an overage that is mainly payable where the buyer develops land for residential purposes, sells off the individual units and expects the sales to generate a certain revenue above a base figure. The seller can share this additional revenue via the sales revenue overage.

The trigger event for payment is commonly exceeding the agreed base revenue figure. The overage agreement should always include provisions whereby the buyer must provide sales updates to the seller and an obligation on the buyer to inform the seller once the sales revenue exceeds the base revenue figure so the buyer and seller can calculate the overage payable.

It is usual to have certain deductions from the calculation, for example, sales revenue from affordable housing units, build cost inflation, plot purchasers’ incentives/extras, the buyer’s sales costs, part exchange properties and other reasonable costs incurred by the buyer. The result being that sales revenue overage is payable on the net sales figure after all costs/incentives.

The size of the development determines when payment should be made i.e. in stages (quarterly or annually) or once the last unit on the development is sold.

The overage agreement should always include a formula and worked examples so all parties know how to calculate the overage payable with reference to example scenarios and figures. With sales revenue overages, it is important to deal with a situation where the overage is payable even if the buyer does not sell the last unit on the development. This is usually done by including a longstop date and if the last unit is not sold by this date, then that unit is given a “deemed disposal value” and sales revenue overage is calculated and paid based on such value.

3. Sale at a profit

This overage is payable when a buyer sells undeveloped land at a profit shortly after purchasing it without the benefit of planning permission (i.e. the buyer “flips” the land at a profit). This would leave the seller in an embarrassing position, and to avoid such embarrassment, an overage may be agreed whereby the original buyer agrees to pay all or part of the profit to the original seller.

Now we have identified the most common types of overages and their trigger events, it is important to include a list of “permitted disposals.” By including a list of “permitted disposals” the buyer can dispose of the individual units and other parts of the land without triggering payment of any overages (so the buyer can generate revenue and discharge its obligations under any planning agreements) and such “permitted disposals” will then be free from the overage provisions moving forward.

The following should always be included in any list of “permitted disposals”:

(a) sales of individual units constructed on the land (i.e. plot sales);

(b) sales of affordable housing units constructed on the land;

(c) transfers of land to any statutory authority/body concerned with planning, drainage, highway, other infrastructure or environmental matters or utility companies concerned with the installation of services;

(d) transfers of any land to a local authority;

(e) transfers of any land to a management company;

(f) transfers of any land to a highway authority for the purposes of adopting the roads/footpaths/cycleways/open space to be constructed on the development; and

(g) any mortgages or charges of the land.

Overage agreements should always include a specific date on which the overage obligations will expire (i.e. the “Overage Period”) and a good-faith and double-counting clause. Such clauses prevent double-counting where there is more than one overage payable and requires buyers and sellers to act in good faith towards each other.

Another consideration is whether the benefit of the overage can be assigned by the seller to a third party. If so, the overage agreement should include a clause whereby the seller must notify the buyer in writing of the seller’s intention to assign to a third party and the seller should be obliged to provide that third party’s details to the buyer and enter into a deed of covenant directly with the buyer whereby that third party agrees to observe and perform the seller’s obligations in the overage agreement.

For specific overage agreement tips relevant to your situation, please speak to a member of our team.

Both the buyer and seller can benefit from an overage agreement. The benefits of overage clauses will depend on which side of the transaction you are on.

For the seller, the key advantage is that they will benefit if the buyer later develops the land in a way that significantly increases its value. For example, if the land being sold is farmland, but the buyer later obtains permission to build housing there, the land’s value would then be substantially higher than its value as farmland. If there is no overage agreement in place, the seller might then feel they have lost out.

For the buyer, an overage agreement allows them to purchase land at a lower price e.g. at farmland prices rather than at the price they would pay for land with development rights. The key advantage here is that, if the buyer fails to get permission for a development, they will not have paid a higher rate than the land’s value as farmland.

For both seller and buyer, an overage clause therefore acts as a form of risk management. The seller is protected against the risk of the land’s value increasing after the sale and the buyer is protected against the risk of not being able to use the land in a way that would increase its value.

As covered above, a seller will generally use an overage agreement where they are selling land that they feel has the potential to be developed by the buyer in a way that would substantially increase its value.

Typically, the payment to the seller set out in an overage agreement would be based on a percentage of any increase in value of the land that would be achieved if planning were granted or the property was sold on by the buyer within a particular time frame.

However, the terms of an overage agreement can, essentially, be whatever a buyer and seller agree on, so a different mechanism could be used for calculating any overage payment if this was considered appropriate.

For sellers, if capital gains tax is payable on the initial sale, then capital gains tax will likely be payable on any overage payments. Sellers should obtain specialist tax advice to deal with any capital gains tax payable and whether such tax can be deferred.

For buyers, stamp duty land tax is payable on any overage payments and if VAT was payable on the initial purchase price, then VAT will be payable on any overage payments. Buyers may apply to HMRC to defer payment of stamp duty land tax on any overage payments until the overage has been calculated and paid.

The parties may agree that the additional stamp duty land tax payable by the buyer on any overage payments may be deducted from any overage payments. In such circumstances the formula and worked examples within the overage agreement should reflect this. Again, buyers must obtain specialist tax advice on such matters.

The seller can take a legal charge (mortgage) over the land. Where the buyer needs to mortgage the land to a bank to buy the land or develop it and the buyer’s lender agrees to the seller taking a legal charge to protect the overage then the seller will receive a second legal charge. However, some lenders will not consent to a second legal charge so this may not be a practical option.
The seller can retain ransom strips around the boundaries of the land, giving the buyer an option to purchase the ransom strips on payment of the overage. Therefore, until the overage is paid to the seller the seller retains some land surrounding the development and can control the land being developed (e.g. by controlling access to the development).
A restriction can be registered against the buyer’s title to the land at HMLR prohibiting the buyer from selling it on without the seller’s consent, which would only be granted upon payment of the overage or the new buyer entering into a deed of covenant to comply with the terms of the overage agreement. This is the most common and preferred method of securing the overage obligations. If you use this method then you should ensure that there are provisions in the overage agreement to deal with the removal of such restrictions promptly following payment of all overages/the expiry of the overage period.

On a final note, as overage payments are a complicated subject it is always best to include a disputes provision in the documentation in the event the parties cannot agree on the amount of overage due. This helps to provide a secure overage agreement that minimises the risk of costly, time-consuming problems later on.

Contact our residential development and housebuilding solicitors today

Our New Homes team acts for both local and national housebuilders in the sale of completed developments to both owner occupiers and investors. We can act as overage agreement solicitors for a wide range of transactions, giving the benefit of our many years of experience with these matters.

The New Homes Division is part of a wider residential development team that also advises on the acquisition of residential development sites, infrastructure agreements and Housing Association disposals so as a firm IBB can offer a full and complete service to our housebuilder and residential developer clients.

For more information or to discuss your requirements call us now on 03456 381381 , or email us at [email protected] .

An earlier version of this article was first published in the Solicitors Journal .

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Tax Sale Overage Information

If a property is sold at tax sale and the bid amount is greater than the total taxes, assessments, penalties, and costs due, the resulting excess funds are held in escrow and known as "Overage". According to SC Code of Laws Section 12-51-130, these funds belong to "the owner of record immediately before the end of the redemption period" and are available to be claimed and payable "ninety days after execution" of the tax sale deed.

If your property has been sold at a tax sale, you may be entitled to these Overage funds. The delinquent tax office will mail certified notification letters to anyone with available overage. If you have not received a letter, but would like to inquire about the possibility of available overage, please contact our office at 864-638-4147. If any overage is available, you may claim the overage at no cost by completing the Overage Claim Form included in your notification letter or provided below. If you have any questions or concerns regarding tax sale overage, please contact our office as soon as possible.

This overage must be claimed within five years of the tax sale date.

The Overage claim form needs to be downloaded, notarized, and returned to the Delinquent Tax Office.

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Overage—advice to clients

Published by a lexisnexis property expert.

Overage is a covenant or contractual obligation by the buyer to make an additional payment to the seller in the event that specified events occur. It is important to stress to clients that any such payments are not certain. For example:

the specified trigger events may not occur within the overage period

the authority '>local authority's development plan for the site or other circumstances surrounding the property may change over time

even if the trigger events do occur, the buyer may simply fail to make the payment to the seller

the buyer may become insolvent in the intervening period

At the outset

At the outset (ie when heads of terms are circulated) consider whether overage is appropriate for the transaction. Is it likely that the overage will be triggered during the overage period? If it is a near certainty then should the price be adjusted instead? If the overage is simply to cover the ‘what if?’ scenario then is it worth spending the time (and money) negotiating what may be a complicated overage agreement? Consider and suggest

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‘Overage’ is a term connected with land disposals, which allows the Seller to ‘clawback’ a further payment over and above the original selling price from the Buyer on a contingent event occurring such as obtaining a more valuable planning permission or where profits out of a completed development exceed a given figure. The duration of the overage period is negotiable between the parties.

Stamp duty land lax (SDLT) is chargeable on consideration payable for the acquisition of a chargeable interest in land unless exemptions apply. Where any consideration payable by the Buyer is ‘contingent’ (such as overage) then for SDLT purposes the chargeable consideration is calculated on the basis that the contingency or trigger event will occur, and that the maximum SDLT amount is payable. (s 51 Finance Act 2003)

If the consideration is not for an ascertained sum at the time SDLT is due then a 'reasonable estimate' of the unascertained sum has to be used instead used.

A Buyer can apply for deferment of SDLT if the specified trigger event will occur or may occur more than 6 months after the effective date (SDLT regulations 2003). Deferral is not automatic and has to be applied for within the 30 day time limit but is normally granted by HMRC.

Further complications occur if the overage terms are transferable to a future purchaser and the original Buyer is released from the overage liability, where the assignment of the contingent ‘debt’ is treated as additional consideration for the sale by the Buyer to the new purchaser.

An example:

A sells land to B for £1,000,000 subject an additional amount of £500,000 being payable (the overage payment) if planning permission for the construction of B1 offices on the land is granted within 10 years.
4 years later planning permission has not been obtained but B sells the land to C for £2,000,000.
A and C enter into a deed of covenant that provides for C to pay the overage payment directly to A if the office block planning permission is granted.
C also provides an indemnity to B should A seek to recover the overage payment from B.
As C has assumed B's contingent debt to A, it is now liable to pay the overage.
Consequently, C will be liable for SDLT on £2,500,000 (that is, the cash consideration paid by C to B of £2,000,000 plus the £500,000 assumption of debt to A).

Where a contingent event does not occur before the overage period has expired, a refund of overpaid SDLT may be claimed (s.80 Finance Act 2003)

Charge to secure payment of overage

If a charge is created to secure payment of the overage, the seller is not liable to SDLT on the creation of that charge because it is an exempt security interest (s.48 Finance Act 2003 c. 14).

This article is produced for illustrative purposes. It does not constitute legal or taxation advice and specific advice should be sought from a tax specialist on a particular transaction.

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DEED OF ASSIGNMENT IN NIGERIA
It is measured 558 sqms with Deed of Assignment and Irrevocable Power of Attorney at N8m
Can You Claim A Partial Overage Claim?
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Secrets to Overages Success

COMMENTS

Can an overage be removed?
The right to receive overage payments is a "chose in action" (an intangible property right that can only be claimed or enforced by action to recover it (if withheld)) and is therefore capable of assignment. Pursuant to section 136 of the Law of Property Act 1925, for an assignment to be recognised in law, it must: be absolute (unconditional);
Deed of Assignment: Everything You Need to Know
4 min. In the realm of intellectual property, a Deed of Assignment is a formal legal document used to transfer all rights, title, and interest in intellectual property from the assignor (original owner) to the assignee (new owner). This is crucial for the correct transfer of patents, copyrights, trademarks, and other IP rights.
Is it possible to assign the benefit of an overage ...
Deed of covenant to be bound by existing overage covenants. Deed of covenant to be bound by existing overage covenantsDate [insert date of deed]Parties1[insert name of party giving the covenant] of [insert address OR incorporated in England and Wales with company registration number [insert company registration number] whose registered office is at
Five essential factors in overage agreements
In this article, we discuss five key factors to consider when buying or selling a property with an overage agreement. 1. Allowing cost deductions. It can be very expensive to obtain planning permission and satisfy s106 agreements and infrastructure requirements. The buyer will want these costs deducted from the final uplift payment; the seller ...
Can an administrator assign the benefit of the overage provisions
Company X sold land and the transfer contained overage provisions for the benefit of Company X in the event of the land being developed. Company X has gone into administration. My client has agreed with the administrator to buy the benefit of the overage provisions. Can the administrator assign the benefit of the overage provisions? If so, do you have a precedent deed of assignment to cover ...
Overage Clauses
Overage clauses are provisos in property and land sale contracts. They stipulate that a seller will receive extra proceeds of sale at a later date (in addition to the agreed purchase price). Typically, one or more conditions must be "triggered" that result in an increase in the property and/or land's asset value.
Overage: What is it and how does it work?
The subsequent sale of the land at a higher value. The subsequent sale of the developed land or individual units (e.g. the sale of houses on a residential development). A seller will usually want ...
What is overage and how does it work?
Overage is a contractual mechanism which allows a seller of land to potentially benefit from any subsequent increase in the land's value after having sold it. Overage agreements, also commonly referred to as claw-back, uplift or anti-embarrassment agreements, should therefore be an important consideration for parties to the sale of land ...
What is overage and how can you enforce it?
An overage payment is usually a payment to be made to the original land owner in the event that a valuable planning permission is granted. The payment will usually be a percentage of the difference between the market value of the land with the benefit of planning permission and without it. So how is overage enforced? Commonly overage provisions ...
PDF DEVELOPMENT LAND AND OVERAGE CLAUSES
In the case of a "positive overage clause," the benefit of the "covenant to pay" is (generally) capable of assignment; the burden of the "covenant to pay" is generally secured by a variety of alternative measures: under the Rentcharges Act 1977, entry of restrictions on the register, use of a charge and of long
Deed of Assignment
The deed of assignment is the main document between the seller and buyer that proves ownership in favor of the seller. The party who is transferring his or her rights to the property is known as the "assignor," while the party who is receiving the rights is called the "assignee.". A deed of assignment is required in many different ...
Overage Clauses
10 August 2017. Properties are sometimes sold subject to overage clauses - also known as uplift or claw back provisions. The idea is that, if planning permission is subsequently obtained, the seller will be entitled to a share in the uplift in value. This sounds simple but provisions of this nature give rise to a wide range of legal problems ...
Overage in residential development
Overage provisions may be included in a contract for sale, the transfer document, or in a separate overage deed, and different forms of overage may be agreed depending on the particular circumstances. Common types of overage when selling land for residential or potential residential development include, planning overage, sales overage, and ...
Will my deed of assignment be valid?
The deed of assignment will complete on 1 December immediately after the sale to the housebuilder. I will then service notice on the housebuilder the seller has assigned the benefit of the contract and that all overage payments are to be made to the 3 individual shareholders.
What is an Overage Agreement?
An overage agreement is an agreement whereby a purchaser of land agrees to pay the seller an additional sum of money (on top of the purchase price) following the occurrence of a future specified event that enhances the value of the land. This allows the seller to share in the enhanced value following the sale. Overages are sometimes referred to ...
Tax Sale Overage Information
The delinquent tax office will mail certified notification letters to anyone with available overage. If you have not received a letter, but would like to inquire about the possibility of available overage, please contact our office at 864-638-4147. If any overage is available, you may claim the overage at no cost by completing the Overage Claim ...
PDF ASSIGNMENT OF RIGHT TO COLLECT EXCESS PROCEEDS
Please see the "Final Date to Submit Claim" on the attached cover letter. After our office has reviewed your claim you will be notified as to the disposition of the excess proceeds. If additional claim forms are needed, please contact our office at the address shown below or call (213) 974-7245.
Overage deed
Planning overage—uplift in market value on grant of permission. Sale overage—price per square foot achieved exceeds threshold. Legal charge to secure overage payments. Deed of covenant to be bound by existing overage covenants. Overage deed (long form—percentage of amount by which development receipts exceed a series of thresholds)
Overage—advice to clients
Overage is a covenant or contractual obligation by the buyer to make an additional payment to the seller in the event that specified events occur. It is important to stress to clients that any such payments are not certain. For example: •. the specified trigger events may not occur within the overage period. •.
New: Deed of assignment
Summary. This new Standard document is for use on an assignment of an unregistered lease. It is suitable for use where: The assignor is assigning the whole of the property demised by the lease. The property is not subject to any underlease (s). The Standard document contains optional clauses that are appropriate in the following circumstances:
North Carolina General Statutes Chapter 45. Mortgages and ...
Mortgages and Deeds of Trust /. North Carolina General Statutes Chapter 45. Mortgages and Deeds of Trust § 45-42.3. Automatic release of real property from ancillary security instruments. (1) Ancillary security instrument.--An assignment of leases with respect to the real property, an assignment of rents from or arising out of the real ...
BUYERS BEWARE
Further complications occur if the overage terms are transferable to a future purchaser and the original Buyer is released from the overage liability, where the assignment of the contingent 'debt' is treated as additional consideration for the sale by the Buyer to the new purchaser. ... A and C enter into a deed of covenant that provides ...
Deed of assignment of contract (with subcontracting option)
The deed also includes optional drafting to subcontract performance of the assignor's obligations under the contract to the assignee. ... Deed of assignment of contract (with subcontracting option) Practical Law UK Standard Document 9-381-3100 (Approx. 12 pages) Ask a question

Can an overage be removed?

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Deed of Assignment (for Intellectual Property)

To be legally effective a deed of assignment must contain:

Letter of Assignment (for Trademarks and Patents)

Intellectual Property Sales Agreement

IP Transfer Declaration

Merger Document

Mishcon de Reya page structure

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Five essential factors in overage agreements

What is an overage agreement?

1. Allowing cost deductions

2. When is the payment trigger date?

3. How many triggers will there be?

4. Which disposals are permitted?

5. Agreeing fees

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Overage Clauses – The Complete Guide

Ruban Selvanayagam

Founder, Property Entrepreneur and Sell House Fast Expert

What is an Overage Clause?

How Buyers Benefit from Overage Clauses

How Sellers Benefit from Overage Clauses

Overage “Triggers”

Overage Agreement

Overage Clauses on Land – How it Works

Overage Timeframes

Calculating Overage Viability on Land

How to Work Out a Future Overage Payment

Added Overage Complexities…

The Effects of Inflation

Checks and Balances…

Planning Gain Sales – Overage Rights

Overage Clause Loopholes

Find a Specialist Solicitor

A Quick Note on Solicitor Fees…

Positive and Negative Overage Provisions

Positive Overage Clause

Negative Overage Clause

Overage Legal Protection

First Charge

Controls of Share Sell-Off

Granting a Lease

A Ransom Strip

Restrictive Covenants

Legal Restriction

Removing an Overage Clause

Tax on Overage Gains

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What is overage and how can you enforce it?

Deed of Assignment: Everything You Need to Know

What Is an Assignment?

What Is a Deed of Assignment?

Requirements for a Deed of Assignment

Information to Include in a Deed of Assignment

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Overage Clauses – 10 Things To Think About For Buyers

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