Overage Agreements Expert Legal Guidance from Heald Solicitors

At Heald Solicitors, our Commercial Property team has extensive experience advising both buyers and sellers on the structure, drafting and enforcement of overage agreements. Getting the details right at the outset is vital to avoid disputes years down the line.

What is an overage agreement?

An overage agreement is a legal arrangement that entitles the seller to receive a further payment when one or more specified event(s) occur that enhance the value of the property being sold. Common trigger events include:

• The grant or implementation of planning permission.
• A change of use.
• The sale or disposal of the land.

For example, if a piece of agricultural land is sold subject to an overage agreement without planning permission, the buyer may later obtain planning consent for residential development. When that happens, the land’s value may increase, and the seller in this case would receive a fixed uplift.

Why use an overage agreement?

For sellers, it provides an opportunity to sell now while retaining a right to benefit from any future increase in value.

For buyers, it allows a lower initial purchase price reflecting that future potential value will be shared.

However, overage provisions must be carefully drafted. Poorly worded clauses can lead to the seller losing entitlement or to disputes that are costly for both sides.

Key considerations when drafting an overage agreement

Trigger events

It is essential to define clearly what event will trigger the payment and whether there can be more than one trigger. Some agreements end after a single event; others allow multiple triggers, such as planning permission followed by sale or development. It is important to define the length of the Overage Period.

Calculating the payment

The overage payment is usually based on the increase in market value between the original sale and the trigger event. The parties must agree:

• How that value will be assessed.
• What construction costs or planning costs can be deducted.
• The percentage of the uplift that will be paid.

Even small drafting differences can have major financial implications, so precise wording is crucial.

Duration and successors

Overage obligations can last from anything as short as 10 years to over 30 years. The agreement should make clear that it binds successors in title, ensuring the seller’s right to future payments remains protected if the land is sold on.

Security for payment

A well‑structured overage agreement must include measures to ensure enforceability against future owners of the land, such as:

• A restriction or notice registered at HM Land Registry; or
• A legal charge over the property; and
• A deed of covenant requiring future owners to comply.

Without proper security, an overage right may be lost when the property changes hands.

Tax implications

Both parties should take advice on potential tax liabilities. Sellers may incur Capital Gains Tax or Income Tax on overage payments, while buyers may be liable for additional SDLT or VAT. Seeking early tax advice helps to avoid unexpected tax consequences later.

Common issues and risks

• Ambiguous drafting
  If definitions of “planning permission”, “development” or “disposal” are unclear, disputes can easily arise.
• Trigger avoidance
  Buyers might structure transactions to delay or avoid a trigger event altogether.
• Overly long or complex agreements
  Lengthy monitoring periods or unclear obligations can reduce the land’s marketability.
• Lack of security
  Without appropriate protection, overage obligations may not bind future owners.
• Tax surprises
  Overage payments can have unexpected tax consequences if not planned for in advance.

At Heald Solicitors, we anticipate these issues at the drafting stage, ensuring that your overage agreement is watertight and commercially fair.

How Heald Solicitors can help

Our team advises landowners, developers and investors on every aspect of overage agreements, including:

• Negotiating the commercial terms of sale.
• Drafting and reviewing overage clauses.
• Registering title restrictions and ensuring enforceability.
• Advising on tax and planning implications.
  
• Resolving disputes where overage payments are contested.

We understand that every transaction is different. Whether you are seeking to protect your long‑term interest in a site or manage your exposure as a buyer, our focus is always on providing clear, practical legal advice tailored to your objectives.