Overage…

[Robw85]

Anyone had any dealings with Overage on land they are looking to acquire? 

[nod]

Yes

Last year we pulled out of the purchase of a double plot Two days before handing the money over 

[Dutch]

I have heard about this before, normally the seller has tried and failed to get planning, if you are successful later on they want 50%

so if you paid 100k for the land then achieve planning and its valued at 200k you have to pay the seller 50k

 

50% overage clause 

[ProDave]

Just now, Dutch said:

I have heard about this before, normally the seller has tried and failed to get planning, if you are successful later on they want 50%

so if you paid 100k for the land then achieve planning and its valued at 200k you have to pay the seller 50k

 

50% overage clause 

But it still means you have got a building plot for less than the cost of a building plot would be normally.

[Robw85]

Yeah this one is 25% over 10 years if PP or PD are granted.   I see it that if he makes 25% then I’m saving on the land if I was to buy it with PP or PD already authorised.
I wouldn’t be making 75% as I have to have the cost of planning and capital gains etc when it comes to selling. Just another spanner but from what I’ve read a lot of land owners are adding it in. 

[nod]

It’s becoming quite common 

I think the seller should make there mind up what they want for the land and sell it 

Cut all ties 

 

In our case there was planning for two 

We only intended building one 

But should we decide to build two 

We would have to stump up 20 % of the SALE price Which could even lead to a loss 

We were paying 275k for the plot 

So wasn’t cheap 

 

The two plots and field that we have just purchased from a very good friend Had no such complications Till there solicitor got involved He wanted to put an overage on The field and paddock The seller had to threaten to change solicitor to get them to complete 

 

 

 

[Robw85]

This land is just under 1m but that doesn’t matter as it’s just the cost of the gain from pp or pd but it’s still an extra cost that has to be paid once it is granted for 3 barns on this site we wanted to convert.
How they come to the value of the gain from pp or pd is anyone’s guess.

[Temp]

3 hours ago, Robw85 said:

How they come to the value of the gain from pp or pd is anyone’s guess.

 

Ideally you want words that say its based on the average of three valuations from estate agents you obtain. Then you tell 6 you want a valuation for IHT purposes and submit the three lowest ?

[scottishjohn]

11 hours ago, Robw85 said:

This land is just under 1m but that doesn’t matter as it’s just the cost of the gain from pp or pd but it’s still an extra cost that has to be paid once it is granted for 3 barns on this site we wanted to convert.
How they come to the value of the gain from pp or pd is anyone’s guess.

I had someone try to do that  to  me when half way through the deal 

I just stood my ground 

walked away

3 years on he has still not sold it

seller is being greedy 

your choice to deal or not 

always a  poker game 

 offer a fixed sum  if you develop later ?

 then you know  where you are  for calculating further development 

to expect to get not only a lift from original sale ,but also to have to inflation proofed -- not a deal i would consider

Edited August 31, 2021 by scottishjohn

[Bramco]

Sometimes they are there for a good reason. We split the land my father in law bought years ago when he died. So there are overages on both plots in favour of the remainder of the family were either of the new owners (us and my brother in law) to sell a parcel off for development.

 

Different scenario but they can be useful.

 

Simon

[scottishjohn]

1 minute ago, Bramco said:

Sometimes they are there for a good reason. We split the land my father in law bought years ago when he died. So there are overages on both plots in favour of the remainder of the family were either of the new owners (us and my brother in law) to sell a parcel off for development.

 

Different scenario but they can be useful.

 

Simon

I understand  what you say -seems like recipe for a family fallout 

 once you decide to sell -then that should be it - not sell it then have another bite later 

 simple agreement on percentage split to other family members is all that was needed  -and if not already done --its another fallout that will happen at sometime 

 

 

[Johnnyt]

An overage clause put simply reduces the value of the land and any offer should reflect this.

[Bramco]

1 hour ago, scottishjohn said:

I understand  what you say -seems like recipe for a family fallout 

 once you decide to sell -then that should be it - not sell it then have another bite later 

 simple agreement on percentage split to other family members is all that was needed  -and if not already done --its another fallout that will happen at sometime

 

No - it's to prevent any future fall out.  The percentage split was agreed before we took over our half of the plot and we 'paid' the other 3 members of the family our share. One of them now owns the existing house and half the land.  All 4 came out of the transaction with the same amount based on valuations of the land and the existing house.

 

The overage is to protect the families of the 2 who weren't interested in the land or the existing house. On both halves of the land there's the potential for further subdivisions, all the families should be able to benefit if either of the current land owners decide to subdivide.   Fairly straightforward.

 

Simon

[Ferdinand]

Is this "overage" - a clause to retain extra value for the seller if the buyer does x, y, or z?
 

The clause is perfectly normal  and is a risk /benefit sharing mechanism. Entirely normal to have one.

 

They just need to be written or parsed quite carefully.

 

14 hours ago, Robw85 said:

This land is just under 1m but that doesn’t matter as it’s just the cost of the gain from pp or pd but it’s still an extra cost that has to be paid once it is granted for 3 barns on this site we wanted to convert.
How they come to the value of the gain from pp or pd is anyone’s guess.

 

It will be a jointly appointed RICS, or similar.

 

What does your surveyor say about the final GDV of the project? I don't understand why you can't get a decent estimate of value with PP. That is also normal.

 

You could renegotiate the clause - eg on sale of first barn. I have heard of one where it triggered on the nth house, so they just stopped at n-1 .

 

Just a normal part of the risk mix. If they want all the money they could of course have gone for outline themselves. 

 

You can play games as well, of course. If it is "triggered by PP", then you could apply for one - trigger it and pay. Then apply for the other two a bit later. We had a clause on a bungalow (.5 acre plot) we bought next door once, and that was 20 years 50% of value uplift triggered by grant of PP binding on successor owners. That one was vulnerable to this strategy but in the end the people we sold it too did not want to develop, just extend, and they limited it to PD rights so the clause did not apply.

 

( @Bramco, not a strategy to be used with your own family, unless you want a perma-schism. ? )

 

 TBH 1m sounds a *lot* for *potential* barn conversions. Is it a well-written clause? I might be inclined to try and lance that clause for a smaller amount than it could potentially achieve. Depending on the wording, apply for PP for a shed or garden pond ?. Certainly get legal advice.

 

F

 

[Cotswoldrunner]

Hi We deal with overage on commercial properties. 

You need to be very clear with the type over overage agreement. You need to make sure that if you agree the overage that it is based upon the land value only with PP/PD and that you dont end up agreeing to pay 25% of the total value once built as it could very well be your profit is gone. 

You also need to make sure that you get a clause in there which allows for cost deductions so that you don't end up paying a fortune on design and planning, surverys and feasibility. So if you spend 50K on obtaining planning permission that cost is offset against the obverage calculation. 

I would also suggest agreeing land agent that both parties agree on prior for any future assessments. 

 

Longmores have done work for us however not sure if they do residential works. 

 

[smart51]

We're making enquiries into buying a plot.  I've noticed that tucked away on the brochure there is a clause "The vendor reserves the right to receive a future Overage being a percentage of the net increase in value created by planning consent over and above the base purchase price or part thereof".  Why might they not just state that they want an overage and state the terms?  Could it be that it is a way of jacking up the price if the offers received are quite low?

 

I've checked the list of planning applications for the site.  There is nothing in the last 20 years and nothing was rejected in the whole history of the site, so it's not that they've applied for planning and been refused.

 

Is overage only usually applied if the land is sold (within the specified time).  So if the value goes up with planning permission but you keep it, no overage is payable?

[ProDave]

6 minutes ago, smart51 said:

We're making enquiries into buying a plot.  I've noticed that tucked away on the brochure there is a clause "The vendor reserves the right to receive a future Overage being a percentage of the net increase in value created by planning consent over and above the base purchase price or part thereof".  Why might they not just state that they want an overage and state the terms?  Could it be that it is a way of jacking up the price if the offers received are quite low?

 

I've checked the list of planning applications for the site.  There is nothing in the last 20 years and nothing was rejected in the whole history of the site, so it's not that they've applied for planning and been refused.

 

Is overage only usually applied if the land is sold (within the specified time).  So if the value goes up with planning permission but you keep it, no overage is payable?

So you are looking at a site without PP which is presumable "base priced" at less the plot value?

[smart51]

22 minutes ago, ProDave said:

So you are looking at a site without PP which is presumable "base priced" at less the plot value?

I'm not sure what you're saying.  We are looking at a plot which is for sale with an advertised guide price.  The firm of surveyors handing the sale has sent us a form where we make our offer together with any due diligence conditions that our offer may be based on.  They sent us to a link to some documents which include site plans.  The plot is advertised on Rightmove and that's where I found the brochure.  Buried in that is the Overage statement.

 

We want the site to build a single house for ourselves.  You could fit 8 terraced houses on it at a push.  What would the seller state when applying for outline planning permission?  It is a less than ideal situation.  I'd like to navigate through it as best as possible.

[JohnMo]

I would say in your bike, but a little less politely.  Find another plot, move onwards and upwards.

[ProDave]

9 minutes ago, smart51 said:

I'm not sure what you're saying.  We are looking at a plot which is for sale with an advertised guide price.

But you said there was no planning history.  So if they have not applied for planning permission it can only be advertised as a "potential plot" and would presumably be at a lower price than a plot with planning permission?

[Kelvin]

What’s the guide price? Presumably just a few thousand pounds. 

[smart51]

8 minutes ago, JohnMo said:

I would say in your bike, but a little less politely.  Find another plot, move onwards and upwards.

I know what you mean, but...   We've been looking for a plot in the area for years.  One has been to auction twice but withdrawn the day before both times over disputes over ownership.  One was a tiny patch of car park between a shop and a prison.  The other was a triangular scrap of land between the back of a hospital and the railway line.  I'd like to make it work, but I wonder if it is adding up to too much trouble.

[Kelvin]

That depends on how much they want for a piece of rough land with no planning. 

[smart51]

Just now, Kelvin said:

What’s the guide price? Presumably just a few thousand pounds. 

£100/m2 but a lot of m2.  It is almost the same price as the surrounding houses.

[smart51]

I think it worth giving a few more details.  It is a suburban site that once housed two buildings.  The larger of them was demolished over 20 years ago.  The smaller building remains.  We would build a house and I would keep the current building as a workshop.  The site was split in two a little over 20 years ago.  The other part was given planning permission and 6 bungalows were built on it.