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Warning: These articles were originally published as brief newspaper articles. The articles are not intended to be definitive advice on any particular set of circumstances. The authors and the firm of Nicholson Portnell accept no liability for any use of these articles. Specific legal advice should always be sought in all cases for any actual transactions or matters.
Making Your Sale ''Futureproof'' - April 2010
Simon Jewitt
Often clients wish to sell land now, but they are aware of the possibility that, in a few years’ time, this land may be worth more, perhaps because planning permission may be granted for the development of this land. There are good reasons why the client wants to sell now, but they also wish to have a share in the increase in the value if and when it happens.
Through the inclusion of the appropriate provisions in the sales documents, the client can be given the best opportunity to secure a share in this increase in the future. Such provisions are referred to as “overage” or “clawback”.
Methods of securing overage or clawback are constantly evolving. The most common methods are:
· A Restrictive Covenant in the Sales Transfer, preventing the new or future owners from using the land for anything other than its current use. The relevant Covenant will then be released by the original landowner on payment of an additional amount of money.
· A Positive Covenant, in the Sales Transfer, providing that the buyer (and future owners) will be required to pay additional monies to the original seller on the happening of certain events (e.g. a grant of planning permission and/or development). Such covenants also need to be protected by the entry of a Restriction on the registered title of the land.
· A Legal Charge between the original seller and the buyer, which also binds future owners, whereby the original seller is entitled to repossess the land should there be a grant of planning permission and/or development on the land, for example, without the original seller also being paid an additional amount of money.
All of the above methods of securing a future payment have their own strengths and weaknesses, and will need to be carefully drafted to ensure the best chance of enforceability. Consequently, it is vital that any person wishing to secure an overage or clawback payment contacts their legal advisers to discuss and agree the most suitable mechanism for their particular situation.
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