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Overage Agreements

Essentially, overage agreements protect sellers by compensating them if the value of the property increases after the initial sale of land.  Our experienced overage agreement solicitors are here to guide you through this process.

The Ultimate Overage Agreement Guide

An overage agreement is a type of contract used in some commercial property transactions. Its purpose is to ensure that the seller of a property receives an additional payment from the buyer, known as an overage payment, if certain conditions are met in the future. When these conditions are fulfilled, the overage is “triggered,” and the additional payment becomes due.

Additional Payment:
Overage agreements allow sellers to receive an extra payment for the future development potential or other uplifts in the land’s value. Instead of just the initial sale price, sellers share in any increase in value resulting from development.

Certainty:
By agreeing on the overage payment upfront, sellers avoid relying on the uncertain process of land development and subsequent sale.

Securing Land for Future Development:
Buyers can secure land for future development without paying the full value upfront. This flexibility is especially advantageous when uncertainty exists regarding development potential or timeframes.

Risk Reduction:
Buyers can structure the agreement to pay the overage only if specific conditions are met, such as obtaining planning permission. This provides protection against unforeseen circumstances.

Planning Overage:
The most common type, suitable when the buyer intends future development. These agreements are triggered when the planning position of the property changes.

Sales Overage:
Applicable when the buyer plans to sell the property. The seller receives an additional payment if the property’s value increases upon resale.

Trigger Event:
The condition that activates the overage payment (e.g., obtaining planning permission).

Overage Period:
The duration during which the overage agreement remains in effect.

Calculation of Overage Payment:
Agreed upon in advance, this determines how the additional payment will be calculated.

Protecting Overage Payments:
Clauses can be included to safeguard the overage payment against loopholes or disputes.

Contact Williamsons Solicitors on 01482 323 697.

Understanding overage agreements is essential for both property sellers and buyers. These agreements balance risk, provide certainty, and ensure fair compensation in a dynamic property market. Consult with our legal experts to tailor overage agreements to your specific needs.

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