Overage payments

by Practical Law Property

A note that considers overage and clawback payments in property transactions, where a seller shares in any increase in value realised after a sale. This note outlines common trigger events, such as the grant of planning permission, and explores both positive and negative overage methods. It highlights significant drafting pitfalls by examining key case law, illustrating how imprecise drafting can lead to unforeseen consequences. The note analyses various methods for securing overage obligations, including the use of personal obligations, positive covenants with restrictions, legal charges, restrictive covenants, and ransom strips. For each method, this note discusses the respective advantages and disadvantages, providing guidance for conveyancers on choosing the most appropriate mechanism to protect a seller's future payment. It stresses the importance of ensuring adequate security is in place to prevent the overage provisions from becoming worthless, particularly against a buyer’s successors in title.