In the UK, property owners often want to invest in properties.
Sellers can sometimes benefit from increased property value after they’ve sold, too.
But how is this possible? What can sellers do to gain from future property or land value increases?
An overage clause provides an elegant solution to this problem.
What is an overage clause in property transactions?
An overage clause is when a seller gets a share in the future value of a property or land.
They are lesser-known but important aspect of some property transactions.
An overage agreement outlines how the seller benefits from future increases in value.
In exchange for this, the seller may offer a lower selling price.
How common are overage clauses?
Most sales do not include them, but some do. If you are going down this route, you should seek expert legal support.
Overage clauses are most commonly seen when a property developer purchases land. So, they are often offered to buyers of new build properties.
What triggers overage clauses?
Examples of overage clause triggers include:
- Demolition and reconstruction of a larger building.
- Gaining planning permission for vertical or horizontal extensions
- Planning permission extra dwellings or other value-add purposes
- Disposal of the property at a higher price within a fixed period
- Sale of the property or land after pre-planning conditions are met.
And more.
Find the right experts
Not all conveyancers have experience dealing with overage clauses.
You can find legal experts who specialise in this area.
Note that overage clauses complicate a buyer’s tax position, as they may have to pay more Stamp Duty Land Tax.
The seller may also have to pay tax on overage payments further down the line.
How much does an overage payment cost?
Overage payments are usually a percentage of the increase in value.
So, the amount you receive from an overage will vary according to the value of the property/land. And how much it has increased.
In most cases, the land buyer will want inflation to be disregarded in overage payments.
They will also want to deduct any costs involved in achieving the increase in value. For example, any fees associated with obtaining planning permission.
Can I remove an overage clause?
Yes, it is possible to remove an overage clause, but in most cases, only the beneficiary (the seller) can do this.
You can remove an overage clause by waiting until it has lapsed. Or by approaching the beneficiary to discuss removing it. A conveyancer can often do this.
