An Overage Agreement is where land is sold on the basis that if conditions specified within the agreement occur, the seller is entitled to an additional sum of money or an ‘overage payment’.
For example, a developer has purchased plot of land ‘A’ for which planning consent for development has already been granted. The developer now wishes to purchase a neighbouring plot of land ‘B’ for which planning permission is yet to be obtained.
However, the developer requires plot B, whether or not planning is granted, as in the absence of planning it will still be of use as access to Plot A. The developer will however be unwilling to purchase plot B for the same value if planning permission has not been granted as he would if planning had already been obtained. The owner will also be unwilling to sell plot B for the value of the land without planning, knowing of the possibility that planning permission will be granted in the near future, later increasing the value of the land.
One way to satisfy both parties is to enter an overage agreement whereby plot B is sold at the current value in the absence of planning permission with the condition that on the grant of planning permission, the developer must pay an agreed additional sum to reflect the increase in value of the land.
For further advice on any of the FAQs above, contact our Commercial Property team.