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If you’re a landowner looking to sell off part of your portfolio, a little known legal term called ‘overage’ may have a big part to play in any future sale.
Every person involved in property disposals must consider the need for clauses which protect the seller’s right to a share in the future value of the land or property, and this is where an overage agreement comes into play.
Put bluntly, overage means securing the rights to any uplift in future value, and is commonly referred to as an anti-embarrassment provision. In most cases the provisions allow for a seller to share in the uplift in land values attributable to circumstances such as the obtaining of planning permission or the use of the property and land for a use other than that which it was used for at the time of the original sale. Overage clauses tend not to apply merely to increase in property prices attributable to typical and expected market forces.
Almost every deal today could involve an element of overage. But in order for an overage payment to be made, a trigger event must occur first.