An overage agreement is a legal agreement between a land buyer and seller. The agreement outlines an additional sum of money paid to the landowner, on top of the purchase price.
Typically this is when planning permission is obtained, although other events could be applicable.
In this event, the value of the land increases. Equally the buyer is able to build on the land. This is can be advantageous for both parties if an overage agreement is entered into.
Overage Agreement – Land and Development Law Experts
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How does an Overage Agreement reduce risk?
Whilst an overage agreement does not completely remove the risk, it does help to protect both the buyer and seller. For the buyer, an overage agreement reduces the risk of buying land without planning permission, which is often cheaper.
For the landowner or seller, an overage agreement allows them to sell a piece of land without the hassle of obtaining planning permission first.
How is the Overage Payment calculated?
Normally the overage payment will be a percentage of the increase in land value minus the purchase price. For example, if you purchased the land for £100,000 and with planning permission, the land is now valued at £250,000 the uplift value would be £150,000. In your overage agreement, you will agree on a percentage to pay. Based on this example a 30% overage payment would be £45,000.
Does an Overage Agreement have a time limitation?
Within the overage agreement, you can agree upon a duration period. This could be beneficial more so for the buyer if planning permission is challenging to obtain. Obtaining planning permission on land not close to the local amenities, for example, could take a long time to achieve. In this example, you could be effectively waiting for the nearby towns or villages to grow. This could take many years with numerous planning application attempts, costing you money and time.
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