What is an overage agreement?
An Overage Agreement (whether a separate standalone agreement or within a property sale agreement) will set out in detail when a payment might arise and how the payment is to be calculated.
It is extremely important to receive specialist advice on overage arrangements as Overage Agreements are very complex and need to be drafted very carefully in order to ensure that they deal with matters correctly.
The most common reason for an overage payment arising is that there is some change of use of the property at a future point, usually as a result of planning permission being obtained.
Careful thought needs to be given, and professional advice sought, to a number of different aspects of the overage agreement.
What is the “Overage Period” to be?
For example how long is the obligation to make an overage payment to be applicable for? It could be one year, five years, ten years or longer.
What will “Trigger” payment of an overage payment?
Should this be the grant of a planning consent or the implementation of planning consent, or something else? The trigger event is vital and can lead to very different consequences.
How is the “Overage Payment” to be calculated?
Ordinarily the beneficiary of the overage payment will share a percentage in the uplift in value of the property that has occurred. What percentage should that be? How is the uplift in value to be calculated? There will usually be a “base value” and an “enhanced value” and the difference between the two is the uplift, but how are these defined and calculated
How is the “Overage Payment” to be secured?
This can be dealt with in a number of ways, depending upon the particular circumstances of the transaction.
We can assist with all aspects of Overage Agreements, whether you are buying a site that is subject to an existing overage agreement or whether you are selling a site and want to consider imposing overage obligations.
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