Properties are sometimes sold subject to overage clauses – also known as uplift or claw back provisions. The idea is that, if planning permission is subsequently obtained, the seller will be entitled to a share in the uplift in value. This sounds simple but provisions of this nature give rise to a wide range of legal problems and are often a dispute in the making.
As always, the devil is in the detail. Points to watch out for as a buyer are:-
1. How long do these provisions apply? They are commonly imposed for up to 25 years but this is a very long time. Arguably they should only apply where there is a realistic chance of obtaining planning permission within the next 5-10 years.
2. What percentage state in the uplift in value should the seller be entitled to? The seller often begins by asking for 50% of the uplift in value but this is likely to leave the buyer with little commercial incentive to develop the land. Bear in mind that the buyer will incur various costs – planning costs in obtaining the permission, costs in selling the land and capital gains tax, for example. Some overage clauses allow costs to be deducted before the overage is calculated; otherwise a 50% overage may leave the seller with a greater profit than the buyer. [Read more…]