What is an Overage?

An Overage is an agreement where the subsequent owner pays additional sums to the previous owner if the land is, for example, developed.  The Overage can apply for as long a period as the parties agree.  The basis on which the payment is made can either be a fixed price or is more usually by way of a valuation formula.  Typically, Overage is quoted as a percentage of the increase in value arising from the receipt of planning permission.  Reasonable costs of securing any consent can sometimes be deducted and the base value is often taken as being the value of the property without planning consent.  Agreeing the formula is part of the negotiation.

The longer the period that the Overage applies and the higher amount of payment that is reserved, the more impact this might have on the existing value.  A particularly high percentage retained over a long period of time might therefore actually be seen as a restriction as the new owner may feel that they are giving the lion’s share of any increased value away to the previous owner.

An Overage does add complexity and requires specialist input from your professional team, but it can be a useful inclusion in offering a property for sale now, leaving the prospect of future development open for a future owner to consider, with the Overage sometimes being seen as an anti-embarrassment provision if the new owners achieve development earlier than anticipated.

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Posted on 08 July 2024
by Paul Walker

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Categories: News


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