Overage and Clawback
Have you ever wondered what overage or clawback was?
Have you got surplus land suitable for development, but can’t see yourself as a developer?
How could you benefit from future developments on that land?
The answer is through an overage or clawback payment.
When you sell land, you can agree with your buyer that additional payments will be due to you, if and when the buyer obtains planning permission to develop the property, or when such a planning permission is carried out. The payment is in addition to the agreed purchase price and is usually expressed as a percentage of the increase in value of the land.
You will need to consider the following:
- Period of time: how long should the overage provision last? It is for whatever number of years that can be agreed, for example it could be for 25 years.
- The percentage – this is the share of the increase in the value of the land from the agricultural value to the value with the benefit of planning permission. The percentage must be sufficient to justify imposing the overage or clawback provision. For example it could be 30%.
- Trigger – when will payment be triggered. This is often on a sale of the land with the benefit of planning permission or implementation of the planning permission.
- Protection – you will need to consider carefully how to procure the payment in the future if for example it changes hands.
- Tax – need to obtain tax advice. There are Stamp Duty Land Tax implications for the buyer.
Therefore the imposition of an overage or clawback provision needs careful consideration and drafting.
You will need an experienced commercial solicitor to draw up a suitable document to make sure that your interests are protected and that the obligations are enforceable.
If you have any questions regarding Overage an Clawback, please do get in touch either by email or telephone 01579 347600.