Agricultural Law
Agricultural land value
Overage
Overage arrangements are quite common in relation to the sale of agricultural land, since the price often relates to the land’s current value, but there is also the possibility of a more valuable use being made of the land at some time in the future. This could be on anything from a very small to a very large scale.
On a small scale, it might involve the purchase of a garden extension or pony paddock by an individual householder, with the possibility of an extra dwelling being put on that land later. On a larger scale, it could be the sale of land for development with the benefit of a new planning permission, but the possibility of a more valuable planning permission being obtained before the currently permitted development is fully built out.
The overage mechanism usually comprises a positive covenant by the buyer to pay an agreed percentage of the uplift in value created by a later obtained planning permission. The scheme will last for an appropriate fixed period, with that period depending on the circumstances and bargaining strengths of the parties.
Because an overage obligation is not based on a restrictive covenant, it does not run with future ownerships of the land; it is, therefore, important (except where the overage period is minimal) that the buyer enters into a covenant (for himself and his successors) not to dispose of the land or any part of it or any interest in it without obtaining for the original owner an overage covenant from all successors, matching the one originally given.
It’s important from the buyer’s perspective that he’s released from the overage obligations once he has parted with all interest in the land and obtained an appropriate covenant from his successor. If this does not happen, then he and his estate will be bound for the full overage period. Further protection is desirable by one or both of the following means:
- the placing of a Land Registry restriction on the buyer’s new title, confirming that no subsequent dealing can be registered without a certificate being provided that the new owner has signed an appropriate new deed of covenant and;
- a charge back of the relevant land to the original owner (usually the more difficult one of the two to negotiate, particularly where the buyer is going to have to charge the land, for instance, to his bank, to secure purchase or development costs).
Overage provisions have sometimes been based on restrictive covenants, under a scheme prohibiting any further development of the land without the original owner’s consent (and with him retaining neighbouring land taking the benefit of the covenant), linked to an obligation on the original owner to give that consent if an appropriate payment is made.
There are three main problems.
- The obligation to release the restriction is itself a positive one, which will not run with ownership of the retained land.
- If the retained land is partitioned, then it will not necessarily be a single owner who has the benefit of the restrictive covenant (and ability to release it).
- If the restrictive covenant is not genuinely for the benefit of the retained land (as opposed to being for the benefit of its owner), a successful application may be made to the Lands Tribunal to discharge it under section 84 of the Law of Property Act 1925.
For further information contact Christopher Wacher on 01227 763939.
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