Overage clauses
Discussion
I was reading this thread https://www.pistonheads.com/gassing/topic.asp?h=0&... and Equus mentioned overage clauses. I am the opposite of the OP in that thread in that I would like a house with a bit more space. While looking I have seen a few that have overage clauses.
Not having had to deal with such things before, my immediate reaction is that the seller can f&*^k right off! If they want more money if the land gets planning then how about they do all the hard work and get that planning. Then they can sell their house/land for more money. But as it stands why should I do all the hard work then pay them for the privilege? This particularly irks me as a lot of the properties are obviously probate sales so they are just after getting as much cash for the least work possible.
It is a bit me selling my car that is fit for scrap but adding a clause that, if they fix it up and sell it for more, then I want a slice of the profit.
Am I being unreasonable? I realise they can ask for what they like and it is up to me to say yes, no, or propose something different. But are these things often challenged or just accepted?
In my case it is a moot point anyway. If I got some extra land I would not want to develop it so the overage would never become an issue. But as a principle it gets my back up so I am curious what others think about it.
Not having had to deal with such things before, my immediate reaction is that the seller can f&*^k right off! If they want more money if the land gets planning then how about they do all the hard work and get that planning. Then they can sell their house/land for more money. But as it stands why should I do all the hard work then pay them for the privilege? This particularly irks me as a lot of the properties are obviously probate sales so they are just after getting as much cash for the least work possible.
It is a bit me selling my car that is fit for scrap but adding a clause that, if they fix it up and sell it for more, then I want a slice of the profit.
Am I being unreasonable? I realise they can ask for what they like and it is up to me to say yes, no, or propose something different. But are these things often challenged or just accepted?
In my case it is a moot point anyway. If I got some extra land I would not want to develop it so the overage would never become an issue. But as a principle it gets my back up so I am curious what others think about it.
gfreeman said:
Easy...
You sell off your small field as a pony paddock.
2 years later you drive by and find 2 big gaffes being built - on the market at £1m each
You kick yourself for "giving" the land away with no overage clause...
But I don't get that.You sell off your small field as a pony paddock.
2 years later you drive by and find 2 big gaffes being built - on the market at £1m each
You kick yourself for "giving" the land away with no overage clause...
If I wanted more money for the pony paddock I would put in the effort and build on it myself. If cannot be arsed to do that they what right do I have to ask for money when someone else can?
It's a very common thing. It's mostly about risk and who takes on that risk. If they have an overage clause then the amount they would get back from that would likely be less than if they were to obtain planning permission etc themselves. An overage is basically an acknowledgment of potential value that you don't want to take the risk on. That risk to obtain planning permission etc could be tens of thousands of pounds depending on the specific site and scale of housing.
Here is a novel idea.
Don't buy a house a nice bit of land around it, and then be a greedy cock and smash some grotty in-fill onto it, so that the next generation can't have a nice house with a nice garden/field attached even if they wanted to and had the money.
If you want to develop land, there is a huge amount of land that isn't on the doorstep of a nice house. Some of that is even brown field.
Daniel
Don't buy a house a nice bit of land around it, and then be a greedy cock and smash some grotty in-fill onto it, so that the next generation can't have a nice house with a nice garden/field attached even if they wanted to and had the money.
If you want to develop land, there is a huge amount of land that isn't on the doorstep of a nice house. Some of that is even brown field.
Daniel
That's one reason.
Another is that an overage clause is easier to enforce than a covenant restricting building, and even less useless than a covenant is a promise that the paddock land someone wants to buy from you is to keep their daughter's horse only, honest, and it'll never, ever get built on, I swear on my (deceased) mother's life, or trusting that the LPA won't suddenly designate your village a development area and allow change of use from agricultural to residential... Much more than an eye on future profit, it's more a guarantee that the fields next to your house/village that you're selling off will stay fields because the commercial return for building on them will be too low for a developer.
Another is that an overage clause is easier to enforce than a covenant restricting building, and even less useless than a covenant is a promise that the paddock land someone wants to buy from you is to keep their daughter's horse only, honest, and it'll never, ever get built on, I swear on my (deceased) mother's life, or trusting that the LPA won't suddenly designate your village a development area and allow change of use from agricultural to residential... Much more than an eye on future profit, it's more a guarantee that the fields next to your house/village that you're selling off will stay fields because the commercial return for building on them will be too low for a developer.
Craig W said:
It's a very common thing. It's mostly about risk and who takes on that risk. If they have an overage clause then the amount they would get back from that would likely be less than if they were to obtain planning permission etc themselves. An overage is basically an acknowledgment of potential value that you don't want to take the risk on. That risk to obtain planning permission etc could be tens of thousands of pounds depending on the specific site and scale of housing.
Yes, I get that it is not uncommon. It is more that it doesn't sit right with me but it would appear that others think there is nothing wrong with it.When you say "An overage is basically an acknowledgment of potential value that you don't want to take the risk on", that is my point. If the seller doesn't want the risk/hassle/cost of getting planning then why should I pay him when I do? If I tried to put in a clause that said the seller had to pay me a percentage of my costs if my planning failed then I doubt they would be too happy!
dhutch said:
Here is a novel idea.
Don't buy a house a nice bit of land around it, and then be a greedy cock and smash some grotty in-fill onto it, so that the next generation can't have a nice house with a nice garden/field attached even if they wanted to and had the money.
If you want to develop land, there is a huge amount of land that isn't on the doorstep of a nice house. Some of that is even brown field.
Daniel
Well, if you actually read the original post you would have seen that I said...Don't buy a house a nice bit of land around it, and then be a greedy cock and smash some grotty in-fill onto it, so that the next generation can't have a nice house with a nice garden/field attached even if they wanted to and had the money.
If you want to develop land, there is a huge amount of land that isn't on the doorstep of a nice house. Some of that is even brown field.
Daniel
brman said:
In my case it is a moot point anyway. If I got some extra land I would not want to develop it so the overage would never become an issue. But as a principle it gets my back up so I am curious what others think about it.
In fact I would go further. If some greedy cock wants to put an overage clause on a property I am buying I would take great delight in making sure it was never built on ust to spite them. Maybe a coventent when I come to sell it to prevent building?
But I am digressing from my original point....
brman said:
Not having had to deal with such things before, my immediate reaction is that the seller can f&*^k right off!
The response to which, as you've said yourself, is: 'if you don't like it, don't buy it'. In other words: f
k right off yourself!brman said:
Am I being unreasonable?
It depends on the circumstances, and the level that the overage clause is set at.- Sometimes it's set at a level that represents a fair share of the profit relative to the amount of effort required and the level of risk involved with obtaining Planning, in which case fair enough: as a prospective developer, you pays your money and you takes your chances.
- Sometimes it's deliberately set at a punitive level that would leave no profit in developing the site because the landowner wants to ensure it's not developed in the immediate future.
- Sometimes its set at a precautionary level because there is no immediate prospect of it gaining Planning, but the vendor needs to sell now but recognises that it might come forward as the Planning situation changes in the longer term and wants to hedge themselves against that possibility. You might consider that unfair, but you can hardly blame them for wanting to protect themselves against losing out on that long-term value from the site.
QuickQuack said:
That's one reason.
Another is that an overage clause is easier to enforce than a covenant restricting building, and even less useless than a covenant is a promise that the paddock land someone wants to buy from you is to keep their daughter's horse only, honest, and it'll never, ever get built on, I swear on my (deceased) mother's life, or trusting that the LPA won't suddenly designate your village a development area and allow change of use from agricultural to residential... Much more than an eye on future profit, it's more a guarantee that the fields next to your house/village that you're selling off will stay fields because the commercial return for building on them will be too low for a developer.
Ah, right I had not thought of it that way. So you are saying the overage would be deliberately set too high to make development worthwhile? In that respect I guess I should approve.Another is that an overage clause is easier to enforce than a covenant restricting building, and even less useless than a covenant is a promise that the paddock land someone wants to buy from you is to keep their daughter's horse only, honest, and it'll never, ever get built on, I swear on my (deceased) mother's life, or trusting that the LPA won't suddenly designate your village a development area and allow change of use from agricultural to residential... Much more than an eye on future profit, it's more a guarantee that the fields next to your house/village that you're selling off will stay fields because the commercial return for building on them will be too low for a developer.
dhutch said:
If you want to develop land, there is a huge amount of land that isn't on the doorstep of a nice house. Some of that is even brown field.
Except that there isn't. At least not that stands any chance of obtaining Planning Permission: rightly or wrongly, successive Governments have chosen to try to concentrate new development within or contiguous to existing settlement boundaries (and 'sustainable' settlements, at that), so that demand for housing massively outstrips land supply in most areas.
Thanks Equus, I hoped I would get a reasoned response from you 
k right off yourself!Well, yes I was aware I might get that response.
I guess what I am objecting to is the 1st and 3rd points. So The current owner wants to take some of my future profits but doesn't want to put any risk/effort/cost in to get it. It is the whole "protecting against losing out long term" thing. If you don't own somthing long term, why should you benifit from it? I can't see how it is different to me selling some shares then complaining they went up in value 5 years later....
Equus said:
brman said:
Not having had to deal with such things before, my immediate reaction is that the seller can f&*^k right off!
The response to which, as you've said yourself, is: 'if you don't like it, don't buy it'. In other words: fk right off yourself!Equus said:
brman said:
Am I being unreasonable?
It depends on the circumstances, and the level that the overage clause is set at.- Sometimes it's set at a level that represents a fair share of the profit relative to the amount of effort required and the level of risk involved with obtaining Planning, in which case fair enough: as a prospective developer, you pays your money and you takes your chances.
- Sometimes it's deliberately set at a punitive level that would leave no profit in developing the site because the landowner wants to ensure it's not developed in the immediate future.
- Sometimes its set at a precautionary level because there is no immediate prospect of it gaining Planning, but the vendor needs to sell now but recognises that it might come forward as the Planning situation changes in the longer term and wants to hedge themselves against that possibility. You might consider that unfair, but you can hardly blame them for wanting to protect themselves against losing out on that long-term value from the site.
brman said:
I guess what I am objecting to is the 1st and 3rd points. So The current owner wants to take some of my future profits but doesn't want to put any risk/effort/cost in to get it. It is the whole "protecting against losing out long term" thing. If you don't own somthing long term, why should you benifit from it? I can't see how it is different to me selling some shares then complaining they went up in value 5 years later....
1st point:Maybe they realise that the land has Planning potential, but don't have the money to realise that potential themselves?
As Blueg33 and myself (among others) have mentioned many times, it's not unusual for the work involved in obtaining PP to add up to a 6-figure sum. Lots of people cant afford that money up front, or to take the risk that they might lose it if the planning goes pear shaped.The overage clause is a mechanism for displacing a reasonable amount of both the risk and the profit onto a developer who knows what they're doing and can afford it.
2nd point:
Maybe they simply can't afford to hang onto the land in the hope that it will come forward for Planning, but equally can't afford to throw away their grandchildren's inheritance to a stranger? Again, the overage clause is a mechanism for passing a reasonable amount of the cost of medium/long term land banking (and probably promotion of the land via the Local Plan, which can similarly not be a cheap process) onto long-term investors who can afford it.
I think you have to be realistic and accept that anyone will want to protect their own interests as much as they possibly can, when disposing of a major asset.
brman said:
In fact I would go further. If some greedy cock wants to put an overage clause on a property I am buying I would take great delight in making sure it was never built on ust to spite them. Maybe a coventent when I come to sell it to prevent building?
But I am digressing from my original point....
Oh I mean, that works too!But I am digressing from my original point....
Equus said:
brman said:
I guess what I am objecting to is the 1st and 3rd points. So The current owner wants to take some of my future profits but doesn't want to put any risk/effort/cost in to get it. It is the whole "protecting against losing out long term" thing. If you don't own somthing long term, why should you benifit from it? I can't see how it is different to me selling some shares then complaining they went up in value 5 years later....
1st point:Maybe they realise that the land has Planning potential, but don't have the money to realise that potential themselves?
As Blueg33 and myself (among others) have mentioned many times, it's not unusual for the work involved in obtaining PP to add up to a 6-figure sum. Lots of people cant afford that money up front, or to take the risk that they might lose it if the planning goes pear shaped.The overage clause is a mechanism for displacing a reasonable amount of both the risk and the profit onto a developer who knows what they're doing and can afford it.
2nd point:
Maybe they simply can't afford to hang onto the land in the hope that it will come forward for Planning, but equally can't afford to throw away their grandchildren's inheritance to a stranger? Again, the overage clause is a mechanism for passing a reasonable amount of the cost of medium/long term land banking (and probably promotion of the land via the Local Plan, which can similarly not be a cheap process) onto long-term investors who can afford it.
I think you have to be realistic and accept that anyone will want to protect their own interests as much as they possibly can, when disposing of a major asset.
But that isn't really my point. My point is why is selling a house with land different to everything else? I mean, I sold a lotus about 15 years ago for £1500. Even if nothing was done to it it would be worth 5 to 10 times that now. Would it have been seen as reasonable to put an overage clause on the sale? I mean come on, when I sold it was pretty obvious the price was only going one way so my shouldn't I protect my interest? But I had to sell so that was that. I sold at the current market value.
With houses you are not selling short your childrens inheritance. It is only worth todays market value, if you want to get more from it then find some way to increase its market value now or just keep it for longer and hope that the market value keeps going up. It is the "its worth more than it is currently worth" thing that gets me.
Like I said at the start, it has no material affect on me, I was just interested in others views.
brman said:
why is selling a house with land different to everything else?
Because the amount of value added by Planning gain is so dramatic compared to the cost of achieving it.If you do a decent respray on a Lotus, it might cost you £6K and add £6.5K to the value. If you gain planning permission to build houses on a donkey paddock, it might cost you £25K, but add twenty times that to the value.
brman said:
I mean, I sold a lotus about 15 years ago for £1500. Even if nothing was done to it it would be worth 5 to 10 times that now. Would it have been seen as reasonable to put an overage clause on the sale? I mean come on, when I sold it was pretty obvious the price was only going one way so my shouldn't I protect my interest? But I had to sell so that was that. I sold at the current market value
Nothing to stop you trying. Nothing to stop the market voting with their feet and wallets.If you structure the deal right, it might even be successful: if someone offered me the chance to buy (let's say, since you mention Lotus) a Type 14 Elite for £15K instead of the current, untethered market rate of ~£75K, on the legally binding condition that if I sell it for more then the profit (even all 100% of it) went back to the original vendor, I'd bite their hand off just for the chance to own and experience a car that I'm interested in but which has hitherto passed me by.
Obviously, at £15K, the balance of risk:reward between vendor and purchaser would be way out of kilter, but that's just a matter of adjusting the figures and the balance until it isn't.
brman said:
gfreeman said:
Easy...
You sell off your small field as a pony paddock.
2 years later you drive by and find 2 big gaffes being built - on the market at £1m each
You kick yourself for "giving" the land away with no overage clause...
But I don't get that.You sell off your small field as a pony paddock.
2 years later you drive by and find 2 big gaffes being built - on the market at £1m each
You kick yourself for "giving" the land away with no overage clause...
If I wanted more money for the pony paddock I would put in the effort and build on it myself. If cannot be arsed to do that they what right do I have to ask for money when someone else can?
Equus said:
Nothing to stop you trying. Nothing to stop the market voting with their feet and wallets.
If you structure the deal right, it might even be successful: if someone offered me the chance to buy (let's say, since you mention Lotus) a Type 14 Elite for £15K instead of the current, untethered market rate of ~£75K, on the legally binding condition that if I sell it for more then the profit (even all 100% of it) went back to the original vendor, I'd bite their hand off just for the chance to own and experience a car that I'm interested in but which has hitherto passed me by.
Obviously, at £15K, the balance of risk:reward between vendor and purchaser would be way out of kilter, but that's just a matter of adjusting the figures and the balance until it isn't.
So you are saying it is a sellers market. So, if they can get away with it, they do. I guess put like that, why wouldn't they?If you structure the deal right, it might even be successful: if someone offered me the chance to buy (let's say, since you mention Lotus) a Type 14 Elite for £15K instead of the current, untethered market rate of ~£75K, on the legally binding condition that if I sell it for more then the profit (even all 100% of it) went back to the original vendor, I'd bite their hand off just for the chance to own and experience a car that I'm interested in but which has hitherto passed me by.
Obviously, at £15K, the balance of risk:reward between vendor and purchaser would be way out of kilter, but that's just a matter of adjusting the figures and the balance until it isn't.
Out of interest, what normally triggers a payment? Is normally on getting planning, or when the developed houses are sold or what? Or does it all come down to the wording of the specific overage clause?
brman said:
So you are saying it is a sellers market. So, if they can get away with it, they do. I guess put like that, why wouldn't they?
Yes, essentially.The short, if slightly facetious answer to 'why do they do it' is 'because they can'.
brman said:
Out of interest, what normally triggers a payment? Is normally on getting planning, or when the developed houses are sold or what? Or does it all come down to the wording of the specific overage clause?
It varies according to specific wording, but yes, it's most commonly grant of PP.It's also not uncommon (though not universal) to have a clause that decays in value - so that, say, planning Permission granted the same year as the land purchase might be 30% of the uplift, but reducing at 2% per year until after 15 years there's no overage at all.
The deal is whatever both sides are willing to accept...
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