Overage and Clawback Clauses Explained | Development Land Wanted

What is overage, and is it the same as clawback?

Overage is an agreement that the buyer will make a further payment to the seller if a defined trigger event happens after the sale. The payment is usually a share of the extra value created. Clawback is another name for the same idea, and the two terms are often used interchangeably.

Overage is common where a landowner sells land without planning permission, or with permission for less than the land might eventually take, and wants a share if a better permission is obtained later. It is also used on sales of part of a garden, farmland and surplus buildings.

Overage is not a planning matter. It is a private agreement between seller and buyer, recorded in the sale contract and transfer or in a separate deed. The council plays no part in it, and it works the same way in England and Wales, although the planning rules that might trigger it differ between the two countries.

What triggers an overage payment?

The agreement must define the trigger precisely. Common triggers include:

the grant of planning permission for a specified use, or for more than a set number of homes;
the implementation, meaning the start, of that permission;
a sale of the land with the benefit of planning permission;
the sale of the completed homes;
a resale of the land at a higher price within a fixed period.

An agreement can include more than one trigger. It can provide for a single payment, or for a payment each time a trigger occurs during the overage period.

The choice of trigger affects when you are paid. A payment on the grant of permission arrives sooner but before the buyer has any sales income, so buyers often prefer a trigger on implementation or sale. Phased schemes may need staged payments as each phase starts or sells.

How is the overage payment calculated?

There is no standard formula. The most common approaches are:

A percentage of the uplift in value: the difference between the land's market value with the new permission and its value without it, assessed at the trigger date, often less the buyer's planning costs.
A percentage of the gain on resale: the onward sale price less the original price and agreed costs.
A fixed sum for each additional home above an agreed number.

The percentage is negotiated. A higher share usually means a lower upfront price, because the buyer has to allow for the payment. Valuation assumptions, deductible costs, payment dates and how disputes are resolved all need to be written down.

Illustrative example only, using round made-up numbers that are not market values: if land were worth £100,000 without permission and £600,000 with it, the uplift would be £500,000. After £50,000 of agreed planning costs, a 30% overage share would produce a payment of £135,000.

How is overage secured against the land?

In England and Wales, the burden of a positive covenant, such as a promise to pay money, does not automatically pass to a later owner of freehold land. Without protection, a buyer could sell the land on and the new owner would not be bound. Sellers therefore use one or more of these methods:

Method	How it works	Points to watch
Restriction on the title	HM Land Registry will not register a later sale unless a condition is met, typically that the new owner signs a deed of covenant to pay the overage	Common and effective, but depends on clear wording and on the seller remaining traceable to give consent
Positive covenant with a chain of deeds	Each owner promises to pay and to obtain the same promise from the next buyer	The chain can break if an owner becomes insolvent or cannot be found
Legal charge	A mortgage-style charge secures the payment, with a power of sale if it is not paid	Strong security, but buyers and their lenders often resist it

HM Land Registry guidance says a purely contractual arrangement to pay a share of sale proceeds cannot be protected by a notice on the register, which is why restrictions and charges are used. Many agreements combine a restriction with a deed of covenant requirement. Your solicitor should also make sure the restriction does not block the sale of individual new homes once the overage is paid or released.

How long does overage usually last?

The overage period is negotiated case by case. Periods anywhere from five to 25 years or more are seen, depending on how long the trigger might realistically take to happen. A longer period gives the seller more chance of benefiting, but it makes the land less attractive to buyers and lenders and is likely to lower the price paid today.

Some agreements step the percentage down over time, with a higher share in the early years and a lower one later, which can be a fair compromise between the two sides.

Think realistically about how long a better permission might take. If the land needs to be allocated in a future local plan, or a Local Development Plan in Wales, a short overage period may expire before anything happens. If permission is likely within a couple of years, a very long period adds little and may cost you on price.

What are the common pitfalls?

Vague triggers: if the trigger refers only to ‘residential planning permission’, a buyer may argue that another use, such as a care home, falls outside it.
Avoidance: a buyer may seek permission just after the period ends, sell to a connected company, or rely on permitted development rights that need no planning application. Good drafting anticipates these.
Valuation disputes: without clear assumptions and an independent expert to decide, the payment can be argued over for years.
Unlimited deductions: uncapped deductible costs can wipe out the payment.
Release of new homes: the agreement should let completed homes be sold free of the overage, or home buyers and their mortgage lenders may object.
Tax: overage receipts can have their own tax consequences, so speak to a tax adviser before agreeing terms.
Losing touch: overage can run for many years. Keep your contact details up to date with the buyer and your solicitor, and make sure your family or executors know the agreement exists.

Should you ask for overage when you sell?

Overage makes most sense where there is a realistic prospect of a better permission than the one the price reflects. If permission is close to certain, a conditional contract may capture the value more simply. If the uplift is purely speculative, the cost of negotiating overage may not be worth it, and you may achieve a better upfront price without it.

If you are selling to us, for example by outright purchase of land without planning, you can raise overage at heads of terms stage like any other point. Your own solicitor should draft or review the clause, and our guide to selling with or without planning explains the wider choice.

Questions

Is overage the same as a restrictive covenant?

No. A restrictive covenant stops land being used in certain ways and can generally only be enforced by someone who keeps land that benefits from it; it cannot secure a payment of money. Overage is a promise to pay, usually secured by a restriction on the title or a legal charge.

What is a typical overage percentage?

There is no standard figure. The share is negotiated and depends on the price paid upfront, the likelihood of the trigger, the length of the period and which costs can be deducted. A higher percentage usually means a lower price today, so look at the deal as a whole.

Can overage be removed later?

Yes, by agreement. The person entitled to the overage can release it, often in return for a payment, and the restriction or charge is then removed from the title. Overage also ends when the agreed period expires, or once the payment has been made if it was a single-payment arrangement.

Does overage apply if the buyer uses permitted development rights?

Only if the agreement says so. If the trigger is defined only as the grant of planning permission, development under permitted development rights may fall outside it. Careful drafting covers development or change of use however it is authorised.

Sources

This guide is general information, not legal, planning or tax advice. Always take independent professional advice on your own circumstances.

Overage and clawback explained: sharing in future land value