Overage - applicable to future owners

[edsr]

Hi All,

 

Hoping someone can help here....

 

We're buying some land to subdivide and sell as either self build plots with planning, or develop as houses ourselves. 

 

There's a 50% overage agreed on it and we're finalising the contract. 

 

The vendor wants overage to apply for 50 years, to all subsequent owners. I understand why - we could sell it to a 'friend', or sell as massively oversized plots that are later subdivided.

 

But that also means if we develop the site to the maximum permitted density, any future owners who apply for planning to build an extension have to pay the current owners 50% of the uplift in value. And that'll hurt our resale values. 

 

My question:

 

Is anyone aware of a suitable mechanism or wording that doesn't hurt the resale values of the plots, yet protects the current owner from us deliberately selling over-sized plots with a view to future subdivision, selling to a 'friend' etc?

 

Suggestions appreciated. 

 

Thanks,

Ed

 

 

 

[Ferdinand]

This to me looks horribly complicated. As it stands I would say your sales prospects will be substantially damaged just by unknowns. Or if this is your consortium then they all need to be on board.

 

Aiui It is the nature of things that any sales taxes you impose eg an overage will just come straight off the price. If you face them with an unknown risk eg if it depends on them they applying for PP then it will be really difficult to determine values.

 

IMO Take some weight off the overage; it is perhaps too much of a one club golfer as it stands. Personally I think that attempting to apply a sanction to people building an extension in 2069 is rather outrageous.

 

I would perhaps suggest limit the max size of plots you can sell in the agreement, or use an option agreement. You could put such a limit in the deeds.

 

Do you have good legal advisers on this? Overage agreements are notorious for unintended loopholes. They should have wordings in their desk drawers.

 

A further area of uncertainty is how your council deals with planning gain, S106, affordable etc for Self Build projects of several houses. No one has a reliable or predictable model of process for that, yet. 

 

Ferdinand

 

Edited May 3, 2019 by Ferdinand

[lizzie]

 @edsr this is not a diy job talk to a lawyer with the relevant experience (not one that just does house sales and purchase) overages are becoming the norm these days.  It should not be impossible to find a way around it with a will on both sides.....of course if it is the original vendor proposing the overage in this fashion the change is something they need to agree and if they wont do something that you find acceptable then you have to go and find some other land. The vendor holds the cards, always another purchaser waiting for land its red hot everywhere at the mo.

[Mr Punter]

I was just looking at an overage clause for a friend the other day.  It was in favour of the Church of England and was 34% of the difference between the original purchase price and the uplifted value after planning consent.  Duration was 21 years.  I am a layman but it looked tightly worded including the assumption for the revised valuation that all services, rights etc were in place.

 

They paid £30k for a plot which will be worth £250k with consent.  They were a monopoly bidder as the site was landlocked, the only access being through land owned by the friend.

 

50% for 50 years I would tell them to do one.

[Temp]

Perhaps you can limit the overage to "new dwellings" rather than all planning gains?

 

I also heard a long time ago that the land registry like to limit overage to 30 years but I can't recall where I got that idea from

[lizzie]

@Temp dont think the Land Registry can influence an overage time, as I understand it they register the details of what has been agreed between the parties thats all.  We put overage of 40 years on some land we recently sold.  Thats long enough to see us out and not unreasonable.

 

 

[Temp]

Perhaps of interest..

https://forums.moneysavingexpert.com/showthread.php?t=5519543

 

..although changing "future further separate residential development" to "future further separate dwelling(s)" might be better? Job for your solicitor really.

[Temp]

It also occurs to me you may want to think about when you want the overage payment triggered. Should getting outline PP be enough to trigger payment? Full PP? Commencement of construction?  What if someone gets PP for an extension but doesn't go ahead with it? Do they still have to pay the overage because the value has increased?

 

 

[edsr]

Thanks everyone. Some great advice here.

 

Separate dwellings is a good suggestion and there’s been other negotiation around the trigger. 

 

This has been reviewed by the solicitors, who also advised us that overage is one of the most litigated areas at the moment and you can see why. 

 

The above tends to mirror our stance with this so it’s good to have some others with experience ratify this. 

 

Very much appreciated. 

 

 

[Temp]

I think it would also be reasonable for any "tax that accrues as a result of the development (eg the CIL or similar tax introduced in the future)" to be split in proportion to the overage. Otherwise projects could easily become unviable. Elsewhere on the forum someone posted data showing the CIL averages something like £20 per house.

 

 

 

[Temp]

Also worth a read..

https://www.taylorvinters.com/article/five-essential-factors-overage-agreements