Overage Agreement, Is this reasonable?

[gf15]

Hi All,
We are buying a house with a couple of acres of land in Cumbria. The land is within the village boundary and the sellers have advised that there will be an “Overage Agreement” attached to the land.

The terms of the overage agreement are that;
1. The Overage Agreement has a duration of 20 years from date of purchase.
2. The overage is 50% of the uplift in value should planning permission be granted within the next 20 years.

I would appreciate if anyone could advise if the above is a standard duration and if the percentage is normal?

Many thanks in advance,
GF15

[anonymous-user]

Assuming that the overage agreement is being put in place by them, and is not pre-existing, then you are entitled to try and negotiate, though they are equally entitled not to.

Personally, I feel that 50% is far too high and may be what their solicitor has advised as a starting point. For what it's worth, when I sold my parents place, we negotiated 25% over 15 years.

However, if they play hardball, then the fact that this is your home should, perhaps, guide your decision.

[Davey S2]

20 years and 50% is quite common but as above try haggling.

[Rangeroverover]

Is this a "forever" house? I would have a haggle, as when you come to sell it would be nice for it not to transfer to your purchaser. You might also want to exclude certain things such as if you decide to buld a garage or stable block for your own use or Granny annexe etc

Make sure it only kicks in if its development plannng that involves splitting the ownership/

[paulrockliffe]

And make sure the point where you owe a load of cash works for you. If you had to pay on achieving planning permission that would mean that the seller could apply for permission and force you to sell the land to a developer to pay the uplift. You'd be quids-in too, but you would likely prefer to keep the land until you want to move I imagine. If you move it later in the process it might stop you employing a builder to build for you because you might not have the cash-flow, so you lose scope to make more money yourself that way. If it's due on the sale of any built property then that would suit you best.

You also want to control how the value is determined.

[anonymous-user]

I should have said also, that your solicitor should be advising you on this. If they are not, ask them to.

[paulrockliffe]

Inkyfingers said:

I should have said also, that your solicitor should be advising you on this. If they are not, ask them to.

I'd start by asking what your solicitors experience is. It fits better with normal commercial transactions and a lot of conveyancers may have very little experience. If it were me I'd look for a specialist or experienced solicitor to handle just this part of the contract, you might find one by speaking to a local land agent.

There's a chap on here that must deal with this day in day out though, Bluewotsit, I'm sure he'll be along to offer some advice that's backed up by more experience than mine.

[AlmostUseful]

My director is in the process of buying a place which had an overage placed on it, he told the vendors that if they wanted to earn money from it being developed they should get planning on it themselves, if they're too lazy for that they can sod off from benefitting once he owned the place
Overage was removed.

I'm sure it won't work every time, but he had little trouble in negotiating it down to zero.

Incidentally he has no plans to get planning permission on the place as he just wants a nice house for him and his wife and a few acres for the dog, but the vendor couldn't be sure if that I imagine.

[Murph7355]

AlmostUseful said:

My director is in the process of buying a place which had an overage placed on it, he told the vendors that if they wanted to earn money from it being developed they should get planning on it themselves, if they're too lazy for that they can sod off from benefitting once he owned the place
Overage was removed.

I'm sure it won't work every time, but he had little trouble in negotiating it down to zero.

Incidentally he has no plans to get planning permission on the place as he just wants a nice house for him and his wife and a few acres for the dog, but the vendor couldn't be sure if that I imagine.

I would definitely do this and wouldn't entertain buying a place that had such strings attached.

If you were to get planning presumably that would impact the value of your home - is that being taken care of in any overage clause?

Simplest way is a clean sale. If they think they can get more for the property because of the intrinsic value in the land then let them try. Or tell them to separate the land from the house in the sale.

[Steve H]

I would think most sellers would suggest that if it was to be removed entirely then they would also wish to revisit the agreed price for the sale.......

It's not such an unusual term but by all means negotiate the details and make sure that any permissions that would apply will not restrict your use as owner of the property. Ensure that getting planning permission for anything that would still leave the property as a single residence (house extension, garage, stables etc) would not trigger the uplift clause.

[Equus]

Steve H said:

I would think most sellers would suggest that if it was to be removed entirely then they would also wish to revisit the agreed price for the sale....

Understatement of the year!

By all means try to negotiate if you like, but the figures are not unusual, so be prepared to be told to fk right off.

Remember that the amount is based on Planning uplift, not developed value, so we're talking just talking about getting PP on the site, not even so much as putting a spade in the ground, It's the vendor's way of exploiting its known planning potential, which you can't seriously expect them to walk away from.

[DanL]

Equus said:

It's the vendor's way of exploiting its known planning potential, which you can't seriously expect them to walk away from.

I see what you're saying, but it just smacks of wanting to have your cake and eat it to me... If there's value in the land due to potential planning permission, surely the right way to do this is to price that into the selling price, rather than trying to grab extra money later? If it won't sell at the higher price, clearly the market doesn't agree that it's worth more due to its potential...

To bring this to a car relegated analogy - it seems like selling a classic car, with a clause in the contract that if the car gains value after the sale you want a slice of this increased value. Surely the vendors interest in anything they're selling, be it a house, car, or anything else should end after title passes on?

[Steve H]

Ultimately, that's up to the buyer and the seller to decide.

It's impossible to realistically price in the possible uplift in value at the time of sale; at agricultural rate a bit of paddock may be worth £10k an acre, get planning on it for residential housing and it could be £1m+/acre.

[herewego]

Equus said:

Steve H said:

I would think most sellers would suggest that if it was to be removed entirely then they would also wish to revisit the agreed price for the sale....

Understatement of the year!

By all means try to negotiate if you like, but the figures are not unusual, so be prepared to be told to fk right off.

Remember that the amount is based on Planning uplift, not developed value, so we're talking just talking about getting PP on the site, not even so much as putting a spade in the ground, It's the vendor's way of exploiting its known planning potential, which you can't seriously expect them to walk away from.

On receipt of planning approval a massive sum becomes due to vendor although no money is available. Any idea how that situation is resolved?

[blueg33]

Its a typical sum but as others have said it can be negotiated.

The key is the payment trigger. This should be linked to disposal of the land or property built on it, and needs to deduct costs eg planning and infrastructure costs.

Disposal is the disposition of a major interest and will include a long lease etc.

If the trigger is just planning, then where does the cash come from to pay the overage?

You also need to make sure the overage falls away after the payment is made.

I hate overages, and for work do all I can to make them go away or have a big buffer before they are trigerred

[dickymint]

herewego said:

Equus said:

Steve H said:

I would think most sellers would suggest that if it was to be removed entirely then they would also wish to revisit the agreed price for the sale....

Understatement of the year!

By all means try to negotiate if you like, but the figures are not unusual, so be prepared to be told to fk right off.

Remember that the amount is based on Planning uplift, not developed value, so we're talking just talking about getting PP on the site, not even so much as putting a spade in the ground, It's the vendor's way of exploiting its known planning potential, which you can't seriously expect them to walk away from.

On receipt of planning approval a massive sum becomes due to vendor although no money is available. Any idea how that situation is resolved?

Am I right in saying you don't have to own the land to apply/obtain planning? Which could be a bummer for you if you don't tie this down!

[Some Gump]

Some people are utter muppets. Tell them to either get planning and add value themselves, or sell you it and be done. Clearly they think that they deserve to earn from other people's work?

I have no idea how people think this is normal - you wouldn't sell a band a tape but claim ulift in value if they happen to record a popular song on it...

[blueg33]

Some Gump said:

Some people are utter muppets. Tell them to either get planning and add value themselves, or sell you it and be done. Clearly they think that they deserve to earn from other people's work?

I have no idea how people think this is normal - you wouldn't sell a band a tape but claim ulift in value if they happen to record a popular song on it...

Its perfectly normal.

Many people don't have the cash needed to get planning. Op just needs to ensure planning costs are deducted from the valuation and that overage is based on land value not the developed value

[blade7]

I've enquired about a couple of places on Rightmove that included pictures and descriptions of gardens that later turned out to be subject to separate negotiation/uplift clauses. One agent said I couldn't buy the house unless I bought the garden for an extra £150k as well. Snakey .

Edited by blade7 on Saturday 30th July 18:49

[Murph7355]

blueg33 said:

...Many people don't have the cash needed to get planning. Op just needs to ensure planning costs are deducted from the valuation and that overage is based on land value not the developed value

Then sell the land separately if they believe it has value.

Ts and Cs are a minefield IMO and I wouldn't touch it with a bargepole. Normal or not. (Edited to add - for example, what is the uplift in value against? Presumably house and land would have to be valued separately up front to set a baseline. How much land remains with the house etc etc).

OP - is the property itself relatively unique or can you assess how fairly it's priced?