Overage Agreements: A Complete Guide to Clawback and Uplift Provisions

When selling land with untapped development potential, a standard sale price often fails to reflect the future value of the land. This is where an overage agreement, also known as a clawback or uplift provision, becomes an essential legal tool that allows sellers to benefit from an increase in the land's value.

In England and Wales property law, these agreements ensure that a seller receives a secondary payment if a specific "trigger event," such as the granting of planning permission, increases the land's market value post-completion. However, navigating the intricacies of overage requires meticulous drafting; from defining the valuation period to ensuring the obligation is secured against the Land Registry title, both buyers and sellers must conduct thorough enquiries to avoid the common pitfalls of future litigation.

What is an Overage Agreement?

An Overage Agreement (often referred to as a "clawback" or "uplift" agreement) is a contractual arrangement where the seller of a piece of land or property is entitled to a further payment from the buyer after the sale has been completed. This payment is triggered if a specific future event significantly increases the value of the land.

Why are they used?

Sellers typically use overage agreements when the land they are selling has "unrealised" potential. Instead of delaying the sale until that potential is reached, they sell now but "reserve" a share of the future profit.

Common scenarios include:

• Planning Permission. If the land is sold as agricultural space, but the buyer later secures permission to build residential housing.
• Development Intensity. A buyer gets permission to build 10 houses instead of the 5 originally anticipated.
• Change of Use. A commercial building is converted into luxury flats.

In each of these circumstances, the seller could wait to realise the benefit themselves; however, they choose not to and sell the land for a lower amount with an Overage Agreement with the buyer. This way, they can still benefit from the increase in the land's value if any of the above are achieved.

What is included in an Overage Agreement?

The Agreement is a deed and should include the following:

• Trigger Event. The specific event that increases the value of the land and when the buyer should pay money to the seller (e.g., the granting of planning permission or the commencement of building works).
• Duration. How long does the agreement last? It could be 5, 10, or even 80 years.
• Seller's Share. The slice of the "uplift" the seller receives, typically 20% to 50%.
• Valuation Method. How the "market value" of the land is calculated before and after the trigger event.

How can the seller protect themselves?

A major challenge for this type of arrangement is ensuring the seller gets paid by the buyer when an event is triggered, especially if the land has been sold to someone else in the meantime. To prevent a buyer from dodging the payment, solicitors should do the following:

• Restriction. The solicitor can apply a Form L restriction to the title, preventing the buyer from selling the property without the seller's consent. This is a very common and more foolproof solution.
• Legal Charge. The solicitor can apply a legal charge, similar to a mortgage charge. This is equally a safe solution for a seller.
• Restrictive Covenant. The solicitor can register a restrictive covenant in the Land Registry title that limits the future owner's use of the land without the seller's consent.

5 Common Mistakes with an Overage Agreement

These are the top 5 common mistakes made with an overage agreement.

• 1

  Ambiguous Trigger Events

This is where a solicitor has poorly drafted the event when the seller is to be paid. This leaves the seller assuming one thing, and the buyer another. This is a common example of poor drafting:

• The Mistake: The solicitor used a broad term to describe the event, such as "obtaining planning permission".
• The Risk: Does this mean when the council decides to grant it, or when the formal decision notice is issued? What if the permission is subject to a Section 106 Agreement that makes the development unviable? The seller wants the event as soon as possible, but the buyer would be happy with it as late as possible.
• The Fix: Use precise milestones for the trigger event, such as the "grant of a Reserved Matters Approval" or the "date of implementation" (breaking ground/starting the works).

• 2

  Failing to Deduct "Abnormal" Costs

The Overage is typically calculated on the uplift in the value of the land; however, the buyer should be able to claw back the costs they have incurred in making the land more valuable.

• The Mistake: The solicitor failed to allow the buyer to deduct the costs of obtaining the planning permission or dealing with site issues like contaminated land or expensive utility diversions.
• The Risk: The uplift isn't reflective of the actual profit, i.e., the cost to get the uplift could be a considerable chunk of the increase in value.
• The Fix: Include a clear "Net Uplift" formula that permits the deduction of professional fees and planning costs.

• 3

  "The Ransom" Scenario (Incomplete Land)

The solicitor needs to consider the land along with the surrounding development.

• The Mistake: Drafting the overage to apply only to the specific land sold, without considering how it fits into a larger development.
• The Risk: A clever buyer might buy a small "ransom strip" of adjacent land and ensure the new houses are physically built on that strip, while the overage land is used only for "open space" or gardens.
• The Fix: Ensure the agreement covers the land being used "in connection with" any wider development.

• 4

  Ignoring Inflation and Interest

These agreements can last years, so you need to factor them into the calculation Retail Price Index (RPI) or Consumer Price Index (CPI).

• The Mistake: Not including a "Base Value" indexation.
• The Risk: If the land was worth £100,000 in 2005 and is worth £150,000 in 2026, the £50,000 "increase" might just be inflation over those years, not a real increase in the value of the land.
• The Fix: Link the original "Base Value" of the land to the Retail Price Index (RPI) or Consumer Price Index (CPI), so the seller only profits from a genuine increase in the land's value.

• 5

  Gaps in the chain

If there is no restriction or charge, then a buyer could sell the land to someone else.

• The Mistake: Not having a charge or a restriction on the deeds at the Land Registry.
• The Risk: The buyer sells the land to a third party "B" without telling the seller. If there is no restriction on the title, the seller cannot stop the sale and may have to sue the original buyer (who might be a "shell company" with no assets) for the money.
• The Fix: Always register a Restriction on Form L at the Land Registry, ensuring the land cannot be transferred without the seller's written consent.

Seller Versus Buyer

What happens if the land is sold again before the overage is triggered?

A solicitor who is acting for the buyer will need to address this during their legal enquiries because the agreement runs with the land, not the original buyer. This is why a restriction or charge will be registered on the title.

The only way for the property ot be transferred would be to:

• have written consent from the original seller; and
• have the new buyer sign a Deed of Covenant promising the original seller that they will honour the overage terms. This creates a "chain" of liability that stays with the land until the agreement expires or is triggered.