How overage and clawback can give landowners two bites of the cherry

Many farmers have surplus land but not everyone sees themselves as a developer. Coodes Partners Pam Johns and Kevin George explain how it is possible to get two bites of the cherry if you use this kind of land as a long-term investment.

Pam Johns, Head of Coodes’ Rural Services team says: “More of our agricultural clients are asking how they can get best value out of selling off a bit of land. The increased value of land means there is great potential for farmers who own land on the edge of a village in particular. Despite this growing awareness, very few people seem to know that they could sell the land now but still benefit from future development.”

Commercial Property lawyer Kevin George explains: “The answer for people in this situation is something called an ‘overage and clawback payment’. When you sell land, you can agree with your buyer that additional payments will be due to you in the future, if the buyer obtains planning permission to develop the property.”

“You will need to agree the timeframe – whether it is 15 or 25 years – within which you would get payments for any development work. Another key part of the deal is the percentage share of the increase in the value of the land from the agricultural value to the value with the benefit of planning permission. You would also need to agree when payment would be triggered. This would be on the sale of the land with the benefit of planning permission or when planning permission is granted – whichever occurs first.”

Pam Johns adds: “There are other key considerations – for example, what will happen if the buyer sells the land on? You would need a water tight agreement in place to ensure you could still then get the payment if the land changes hands. There are also Stamp Duty Land Tax implications for the buyer, so it is important that you get tax advice.

“You will need an experienced commercial solicitor to make sure that your interests are protected and that the obligations are enforceable.”

For more information or advice on overage and clawback see our earlier blog on this topic or contact Kevin George at Coodes Solicitors on 01579 347600 or kevin.george@coodes.co.uk