In the world of property, the term “overage” is now being heard more and more as it becomes a popular way for landowners to secure additional payments if their land is developed.  But what does it actually mean and how does overage work?

What is overage?

Overage (also known as clawback or uplift) is a clever way for landowners to benefit from future development, even after they have sold their land.

It is a contractual agreement between seller and buyer and is often used where land has a reasonable prospect of being developed. 

Overage ensures that if the land significantly increases in value due to future development, the seller will get a share of that uplift

How does it work?

Overage payments aren’t automatic—they’re triggered by specific events (trigger events). While the exact definition can vary from deal to deal, the most common examples include:

• The grant of planning permission
• The sale of land that already has planning permission
• Or even starting development on the land (i.e. implementing the permission)
• Once a trigger event occurs, the seller is entitled to a share of the land’s increased value.
• Typically, that means receiving a percentage of the uplift—the difference between what the land was worth before and after planning was granted or implemented.

If you are selling land and are thinking about overage, what do you need to consider?

• The term of an overage agreement typically runs between 20 and 25 years. 
  
  
• What type of development will trigger the overage? This really comes down to personal preference and the nature of the land being sold. You might choose to limit overage to specific types of development—residential, for example—if that’s where you see the most potential value. On the other hand, you could take a broader approach and agree that any type of development (residential, commercial, industrial, etc.) would trigger an overage payment.
  
  
• A key concern for sellers is making sure the overage doesn’t just apply to the first buyer—but to anyone who owns the land in the future. To make this happen, the overage is typically protected by a contractual obligation requiring the buyer to ensure that any future owner signs a direct deed of covenant with the original seller.
  To protect this further, a restriction is usually placed on the land’s title at the Land Registry, preventing a sale from going through unless the proper agreements are in place
  
  
• How is the Overage Payment calculated? Clear and precise calculation methods are vital when it comes to calculating overage. The formula used should be simple, transparent, and agreed upon upfront. That way, everyone knows exactly how the overage payment will be worked out—minimising the risk of misunderstandings or disputes later on.
  Typically, the payment is based on a percentage of the increase in land value caused by a trigger event. But what if the buyer and seller can’t agree on what the land was worth before and after planning? In those cases, it’s common for an independent surveyor to step in and provide a valuation that both parties must accept.
  
  
• An overage agreement can influence how attractive your land is to potential buyers and what they are willing to pay. Sellers should be mindful of this when marketing the property. While overage protects your long-term interests, some buyers may view it as a future financial burden and factor that into their offer (or be put off entirely). That’s why it’s important to strike the right balance between securing future value and keeping the land appealing to buyers.

Overage clauses can be complex and getting them wrong can be costly. That’s why it’s essential both the buyer and seller seek legal and professional advice early on. Key terms—like what triggers the overage, how it’s calculated, and how long it lasts—should be clearly negotiated and agreed at the outset by an experienced Agent.

How Can we help?

Whether you’re a seller looking to include an overage clause or a buyer considering purchasing land subject to one, specialist professional advice is essential. Overage agreements can be tricky, and getting the details right can make all the difference.

Our specialist property lawyers offer clear, expert advice to help you understand and manage overage agreements effectively.

Please do get in touch with our property development team to discuss your overage requirements.