Overage clauses, also known as uplift or clawback provisions, entitle a land seller to receive an additional payment during a period after completion if certain land value-enhancing events occur, such as the obtaining of a planning consent or sales are achieved at an above-threshold price. For developers, overage can be a pragmatic way to acquire land with a lower upfront cost while aligning risk and reward with the seller. However, clumsy or poorly drafted overage provisions can create uncertainty, cashflow pressure, and disputes that jeopardise the delivery of developments and/or exit strategies for the developer.
In this blog we explore four key aspects of overage provisions that developers should be cognisant of when transacting with landowners.
Understanding Trigger Events
Trigger events define when the overage becomes payable. These typically include the grant of planning permission, the implementation of a planning consent, the obtaining of a new planning permission for a higher density of units, or the disposal of units above an agreed price.
Ambiguity around trigger events often leads to contention. Problems arise where “Planning Permission” is not precisely defined, where variations or reserved matters approvals are not addressed, or where unexpected triggers arise from events beyond the developer’s control, such as third-party consents or “deemed” consents.
Developers should insist on clear, objective trigger events that are readily identifiable. The drafting should specify whether outline and/or reserved matters consents count, how refusals and appeals are treated, and whether lapsed permissions affect liability. Where relevant, the drafting should address phased schemes and/or partial implementations. Triggers should always align with the development’s commercial milestones, for example tying payment to implementation or first disposal rather than simply the grant of a planning permission.
Calculating the Overage Payment
Overage is typically calculated as a percentage of the uplift in value arising from the trigger event. For example, this may be expressed as a share of the difference between the land’s base value and its market value with planning, or as a percentage of net sales proceeds above an agreed threshold. Overage agreements can implement a fixed sum on the grant of a planning permission, a staged payment profile, or a hybrid mechanism.
Calculations can become complex where abnormal costs, section 106 obligations, Community Infrastructure Levy, remediation, or infrastructure contributions materially affect value. Disputes often stem from unclear base value assumptions, treatment of costs and contingencies, and the timing of any valuation.
Robust drafting should set out a clear formula, define all inputs and deductions, and specify the basis for the valuation and what assumptions it is to be based on. Independent expert valuation mechanisms with a defined appointment process and timescales help avoid prolonged disputes.
Time Limits and Expiry Dates
Time limits are critical to contain risk and provide certainty for a developer’s exit. Indefinite or overly long periods increase liabilities and title complexity, while very short periods pose a risk to the seller in losing value from planning consents that face delay either in being obtained or in their implementation. Gaps around pauses or judicial review can result in either the accidental expiry of an overage provision or an unintended and open-ended exposure.
Developers should seek a reasonable overage period that reflects real-world planning and delivery timescales, which should be reflected in longstop dates for the overage. Drafting should address any permitted extensions for appeal periods or judicial reviews and clarify whether time is suspended during force majeure events.
Securing the Overage Payment
Sellers often request that the overage payment is secured in some suitable way so as to not be frustrated by an onward sale by the developer. Common methods include a registered legal charge, a restriction on title preventing dispositions without the seller’s approval, guarantees from group entities, and retention arrangements on completion.
Overly restrictive title restrictions can inadvertently stall sales and frustrate a developer’s ability to secure funding for a development. As well, insufficient carve‑outs for routine dealings can disrupt development infrastructure, such as utility easements or wayleaves.
Where developers agree to provide security, that security should be proportionate and align with their funding requirements. A well‑drafted restriction should permit dispositions for development infrastructure, and allow a solicitor’s certificate by way of evidence that overage is either not triggered by a particular disposal or is protected for the seller going forward.
Conclusion
Overage provisions have the ability unlock development opportunities for developers whilst sharing potential upside with landowners, but only if it is tightly drafted and aligned with the development’s commercial and funding model. Clear trigger definitions, transparent valuation formulas, sensible time limits, and workable security are essential to reduce uncertainty and avoid disputes. Developers should engage experienced legal and valuation advisers early, stress‑test the drafting against the programme and finance terms, and ensure the overage regime remains practical throughout its lifespan. Careful structuring at the outset will mitigate risk and support the ability to fund a development.
If you’d like to speak to our commercial property team about this or a similar legal matter contact us today. Call us on 0161 930 5151, email us at enquiries@gorvins.com or fill in the online form.