Overage, Clawback – What does it mean ?
A clawback or overage is a reservation of benefit in the sale of agricultural land which may have some future but not immediate potential of non-agricultural development.
Where land is sold subject to a clawback or overage provision this is a retention of benefit to the seller and their successors for a specified period of time, usually anything from 10 years to 60 years, whilst 20 to 30 years is common practice.
In an age of residential house building on greenfield sites it is becoming common practice for vendors of agricultural land to offer land for sale subject to this reservation. Indeed selling agents and/or landowners solicitor will advise to include this sale provision particularly where land is located close to a town or village settlement.
To many buyers a clawback is something that is not entertained and can therefore affect market value, whilst others seeking to buy agricultural land are not put off by clawback simply because they have no intention of wishing to develop the land and/or if the land does come for development at a future date this is seen as a bonus and the new landowner may be content to share the ‘windfall’ payment with the original seller who sold the land at agricultural value.
I say share this ‘windfall’ as a clawback is usually a percentage of the uplift in value, usually between 30% and 50%, whilst there is no restriction on the lower or upper limit.
An overage deed should not be so restrictive that prevents the new landowner from ever seeking to develop the land should an opportunity arise.
Equally the overage should not be too short in years otherwise the buyer will simply delay making a planning application until the overage deed expires.
A development clawback is contained within a legal agreement known as an Overage Deed which can be quite a lengthy legal document which will include the types of development that will trigger the payment, the formula for calculating the payment including third-party resolution, together with timing of payment.
The formula is generally based upon the uplift in market value of the land, ie the difference between it’s agricultural value at the date of planning permission and the value of the land with the benefit of planning permission.
Both seller and buyer should be aware of the additional legal costs of concluding an overage deed due to the many complexities to make it work in practice.
Sellers and Buyers should take advice from a rural practice chartered surveyor familiar with these types of Overage Deed and/or a specialist rural lawyer.
Post kindly submitted to Farms to Market by Adam H Pickervance MRICS a rural practice chartered surveyor and director of SHP VALUERS