Clawback Remains A Popular Option

Overage (also known as clawback) remains a popular option

Overage provisions are generally used in contracts where a seller is to share in any increase in value in a property after a property has been sold. It is used when a seller believes that there is a reasonable expectation that the land may be redeveloped or that a valuable planning permission may be granted in the future. 

An overage obligation requires the buyer to make a further payment to the seller, representing a share of the increased value of the property after the occurrence of an agreed trigger event. This trigger event could be:

·       The grant or implementation of a planning permission for development or change of use

·       Disposal of the property at a higher price within a fixed time period

·       Disposal of the property with the benefit of planning permission

·       Disposal of the completed development

The arrangement is ideal for a seller.  The land can be sold at the current market value of the property without having to forgo a share in any development potential accruing later.

Overage provisions are not appropriate in all situations.  Negotiating an overage payment provision is complex.  If the likelihood of the land being developed is remote, the cost of negotiating complex payment provisions can outweigh the chances of the overage payment ever being made. Overage provisions may also affect the purchase price that the buyer is willing to pay for the land at the outset.

If you have a property with potential for development then speak to us or your surveyor before you agree the terms of the sale.   

Posted on 01/12/2017 by Ortolan

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