Q&A - If I sell land that is later developed, can I claw back for the increased value?

11/04/2016

Q: I am selling a piece of land which has the potential to be developed. Is there any way I can keep a share of that increased value if valuable planning permission is granted in the future? 

A: You need an “Overage Clause” drawn within the Contract of Sale to “claw-back” part of any specified uplift in the future. Also known as a ‘claw back’ or ‘uplift’ clause, an Overage Clause is a potential right to receive future payments in respect of land.  The potential right becomes an actual right when the relevant trigger event occurs e.g. the granting of planning permission.

The overage agreement will apply for however many years the seller and buyer agree at the outset. The length of the “clawback period” is a matter of negotiation  but is usually  between 10 to 30 years. The seller normally expects to receive a percentage of the increase in the land value generated by the grant of a planning permission. The percentage can be whatever the parties agree but if for example the parties had agreed 50%, then the uplift payment would be the value of the property with qualifying planning permission minus value of the property without qualifying planning permission multiplied by 50%. 

The overage clause can also be drafted to include details of how and when any future payment is to be made. The seller can also ensure that any future owners of the land are bound by the clause by imposing a restriction in the title to the property at the Land Registry to the effect that no transfer of the land can take place unless the new owner has entered into a Deed of Covenant with the seller or by imposing a charge on the property.

You will need to tell your solicitor exactly what you want to achieve so that the best contract for you can be drawn up.

 

Hywel Jones

Hywel Jones

Partner

Part of our Property team in Oswestry

Iain Hall

Iain Hall

Senior Solicitor

Part of our Property team in Wrexham