Garden with overage - splitting deeds?

[Ben Weston]

Hi all,

 

Complicated one this but this forum seems very knowledgeable so I'm hoping someone will be able to help/point in the right direction.

 

We've just had an offer accepted on a beautiful old cottage that needs complete renovation in two thirds of an acre. We're very fortunate to be able to borrow cash from family to purchase – we also have around £150K cash ourselves to renovate it and the plan is to then mortgage the property and repay the initial cash loan.

 

The property has an overage (restrictive covenant) on the bottom two thirds of the garden and, as it stands, we're unable to mortgage the property at all – even with specialist building societies so far as our broker has tried.

 

We don't think the overage itself is too bad and have no plans to develop on the 'Restricted Land' anyway. I've attached a redacted version for any legal beagles but, in short:

 

• It lasts 30 years (on the long side, I know)
• It requests 30% uplift in the value if planning permission is granted and only if work commences on that planning
• It covers the bottom two thirds of an acre (highlighted in red on the plan) and not the top third of an acre with the house on

 

We spoke to Land Registry and they said that, in principle, this was reasonable grounds to apply to split the titles so that the two thirds with an overage could be separate (perhaps owned by a trust for our children) to the house on a different tile. This would make it much easier to raise a mortgage on the house.

 

Although the overage only affects the 'Restricted Land', it does make reference to the 'residential dwelling' and my concern is that, as it stands, if we attempted to split the titles, the overage would remain on the house. It would be pointless and unactionable but it would remain.

 

The property is being sold by a solicitor/executor for the previous owner's estate. They drafted the overage which is not yet applied but will be submitted on purchase. We want to ask our solicitors to ask them to:

 

• Alter the wording of the overage so that it clearly and explicitly only applies to the Restricted Land, with no reference or tie to the dwelling (we don't see that it makes any practical difference to the overage terms or implementation)
• Complete the sale as two transfers so the deed split is achieved naturally at time of purchase

 

Is this reasonable? Are we asking the unachievable?

 

We've never purchased a property like this before so any advice is extremely helpful as it is what we consider to be our 'forever' home.

Overage_-_Redacted.pdf

[joe90]

They obviously want a “chunk” of any monies made by splitting the plot and building more houses which is not unheard of, however I am surprised you cannot get a mortgage on the house because of this as it will not effect the value of the building itself. I guess you need to get solicitors to get the best result however this is done.

[Ben Weston]

Thanks Joe.

 

I should probably clarify by saying that one or two lenders did offer to lend but it was such a small amount relative to what a regular lender would give us (about £300K difference!) that it wasn't very helpful at all.

 

We've no issue with the overage and we don't want to negotiate the terms, we only want to ensure it's separate from the house itself and the third of an acre that sits in. So far as I can see, this wouldn't alter the uplift value as it is a relative value, not an absolute one. You are, of course, correct that this is an issue for the solicitors – I suppose I was wondering if anyone here had come across a similar issue, or has experience with more complicated cases like this.

[Temp]

I think i would speak to the vendor and try and persuade them not to impose the overage or at least change the wording to make it more standard. They appear to be devaluing the property by making it hard to get a mortgage. 

 

A paddock came with our plot. Its got a very simple/standard overage clause on the paddock part only. Wasn't raised as a problem by anyone.

 

 

[Temp]

Just now, Temp said:

I think i would speak to the vendor and try and persuade them not to impose the overage or at least change the wording to make it more standard. They appear to be devaluing the property by making it hard to get a mortgage. 

 

A paddock came with our plot. Its got a very simple/standard overage clause on the paddock part only. Wasn't raised as a problem by anyone. Perhaps get your solicitor to propose the wording.

 

[Jilly]

6 minutes ago, Temp said:

 

Same here. We had a Covenant/Overage on our paddock. It was clearly demarcated on the deeds and was a complete non issue when raising the mortgage. 

[Roundtuit]

59 minutes ago, Ben Weston said:

• Alter the wording of the overage so that it clearly and explicitly only applies to the Restricted Land, with no reference or tie to the dwelling (we don't see that it makes any practical difference to the overage terms or implementation)
• Complete the sale as two transfers so the deed split is achieved naturally at time of purchase

Not sure how that would work from the vendors point of view.  What base value would the uplift be on?  We've got an overage clause on our plot, and as others have said, there was no issue with a mortgage.  Is it possible that its the current state of the property that is putting off lenders?  If you're looking to mortgage the property after you've renovated, then maybe it's a bit early to be talking mortgages.

[Mr Punter]

Overage will not impact the mortgage, especially as it is at the end of the garden.  There are millions of titles with restrictions on development, whether because they are in a conservation area, listed, have planning conditions, have covenants or overage.  All fine for mortgage purposes.

[Ben Weston]

Wow, thank you for all these replies – much appreciated.

 

1 hour ago, Temp said:

I think i would speak to the vendor and try and persuade them not to impose the overage or at least change the wording to make it more standard. They appear to be devaluing the property by making it hard to get a mortgage. 

 

 

I agree with this. Unfortunately, the overage was stipulated in the will and so there isn't much negotiation on it; hence not seeking to change any of the terms, just clarifying the definitions a bit. I must add that the house has fallen through twice before when previous purchasers have tried to negotiate the terms of the overage.

 

28 minutes ago, Mr Punter said:

Overage will not impact the mortgage, especially as it is at the end of the garden.  There are millions of titles with restrictions on development, whether because they are in a conservation area, listed, have planning conditions, have covenants or overage.  All fine for mortgage purposes.

 

This is a really interesting comment (as was Jilly's too). Our mortgage broker had hit a bit of a dead-end with it (maximum income multiples of 2.5 - 3x compared to the up to 5.5x we would get without the overage). I agree that it seems odd as it clearly doesn't impact the value of the house and there are no restrictions imposed as such – even permitted development is allowed on that land, it's literally only a % of uplift if planning permission is granted.

 

53 minutes ago, Roundtuit said:

Not sure how that would work from the vendors point of view.  What base value would the uplift be on?  We've got an overage clause on our plot, and as others have said, there was no issue with a mortgage.  Is it possible that its the current state of the property that is putting off lenders?  If you're looking to mortgage the property after you've renovated, then maybe it's a bit early to be talking mortgages.

 

So the overage proposes the value is calculated on the difference in land value (with single dwelling, that's the crucial bit, even though it doesn't sit on the Restricted Land) before and after permission. I think it's a hole in the overage to stipulate the single dwelling is included as it is not marked on the area covered by the covenant. Also, I don't see that the presence or not of the dwelling really alters the potential uplift in value. If anything, I can only see that the presence of an existing property on that title would marginally devalue those newly-permitted plots.

 

Roundtuit – may I ask what mortgage lender you're with?

Edited June 14, 2021 by Ben Weston

[epsilonGreedy]

@Ben Westonhave you established what is motivating the intention to apply the overage?

 

Is it a clause in the Will or something demanded by the beneficiaries?  Are just just trying to discourage development in a cherished family garden while getting decent value from the main property sale?

[Roundtuit]

1 minute ago, Ben Weston said:

 Also, I don't see that the presence or not of the dwelling really alters the potential uplift in value. If anything, I can only see that the presence of an existing property on that title would marginally devalue those newly-permitted plots.

Well, it sort of does if that's the base value for the uplift.  If you try and separate the affected land, how do you value it to get your starting point for the 30% uplift?  ~  1/2 an acre of garden, maybe land-locked, with a limited market, or as a potential building plot?  If you got planning permission, you'd split the title of course.

[Ben Weston]

12 minutes ago, epsilonGreedy said:

@Ben Westonhave you established what is motivating the intention to apply the overage?

 

Is it a clause in the Will or something demanded by the beneficiaries?  Are just just trying to discourage development in a cherished family garden while getting decent value from the main property sale?

 

As far as I've been told, it was the wish of the owner who died to prevent development on, what is, a beautiful garden and stipulated in the will. All I know is that two previous buyers have tried to renegotiate the terms down and the sales have fallen through because of that. We've no interest in negotiating the terms down.

 

12 minutes ago, Roundtuit said:

Well, it sort of does if that's the base value for the uplift.  If you try and separate the affected land, how do you value it to get your starting point for the 30% uplift?  ~  1/2 an acre of garden, maybe land-locked, with a limited market, or as a potential building plot?  If you got planning permission, you'd split the title of course.

 

Yes, I suppose I need to think more about the impact of this. As part of the split, I had considered it would need an access route past the main house (there's the space for this) to sort the land-locked issue. As you say, the titles would be split in the event planning was ever granted (not our intention) anyway so I'm not sure splitting the title initially really makes a practical difference but I may be missing some nuance here.

 

I had also considered offering to increase the uplift to 35/40% as a compromise for explicitly removing it from the parcel of land the house itself sits on. 

 

We're basically trying to work out where a fair compromise is here. It may be that there isn't one. We could progress with the purchase and the overage, and it's certainly encouraging that others have managed to secure regular mortgages with a restrictive covenant, but our experience having sent the overage attached above to a few lenders via our broker was not positive.

Edited June 14, 2021 by Ben Weston

[Temp]

Restrictive covenants and overage clauses are normally only problem if the lender thinks they affect the value of the property to the point where the LTV is unacceptable or possibly the wording means they see the potential for legal problems. In which case I think you should be concerned about this for the same reasons.

 

Executors have a duty to look after the interests of beneficiaries so if the wording is affecting the value of the assets negatively they have the powers to change things.