What is an Overage?
An overage agreement describes a sum of money in addition to the original sale price which a seller of land may be entitled to receive if the land increases in value in the future. It is entered into by the Seller to secure their interest in any future increase in the value of the land they are selling. The Overage agreement is a contractual obligation and as such is only enforceable against the parties to the contract. To be entitled to this sum the seller, having sold its interest in a property, retains the right to a share in the increase in value – usually once the buyer complies with some agreed condition such as subsequent development of the land. In an overage agreement, certain terms need to be met such as the grant of a new plan, planning permission etc., When land is sold, the vendor will normally do his best to sell at the best possible price – indeed, if the vendor is a public sector authority or a charity, he may be obliged to sell at the best possible price. Sometimes, however, the best possible price may only be available at some time in the future, or not at all. However, agreements for a share of future profits – known as overage – present many traps for the unwary.
Since it may not be in the best interests of the buyer to trigger an overage payment, sellers should be careful when negotiating such agreements. We help in negotiating an overage agreement, observe due diligence in drafting an overage agreement taking into cognizance the fact that restricting the terms to the contract might make the agreement unenforceable against subsequent land owners and we register the agreement so that buyers can be put on notice.