OVERAGE – TOP TIPS
We are all conscious of the budgetary challenges facing local authorities. Given the focus on surplus land disposals to obtain capital receipts, it is a good time to reflect on some “top tips” around dealing with overage and clawback arrangements.
The terms on which land is disposed of are material to the best consideration assessment to be undertaken in relation to the disposal. Case law has established that an overage clause within the terms of the sale of land falls within the ambit of s123 Local Government Act 1972 and will also be subject to best value considerations under the 1999 Act.
If the buyer assumes onerous obligations that reduce the value of the consideration, the sale is likely to be at an undervalue.
Tips to bear in mind
- Take advice from a qualified surveyor as to what can realistically be achieved on the disposal in terms of overage and clawback, in the context of market conditions at the time. This will provide valuable evidence for your best consideration assessment.
- Consider the best means of securing overage obligations – what is appropriate for the site, in the context of the transaction? The method of protection may vary if it is a standalone property or surplus land forming part of a larger operational site. Use of a positive covenant coupled with a restriction on title is usually sufficient and is widely accepted.
- Including a clear communication process within the overage drafting and appending template forms will help to streamline communications during the overage period. It can be tempting in a fast moving transaction to dispense with additional drafting but the extra effort can help to ensure ease of administration and reduced costs further down the line.
Consider
- Appending the required form of covenant to be signed by an incoming owner
- Attaching a form of notice setting out the details to be provided when seeking consent to a disposal – this will reduce the otherwise inevitable to-ing and fro-ing when trying to establish if overage is due
- Setting out a clear process as to what happens at expiry of the overage period and including a form of release certificate
- Ensure everything which should be registered is registered; protect your interest.
- Overage disputes can be very contentious! Simple drafting errors can have costly consequences, as was the case in Barnet London Borough Council v Barnet Football Club Holdings Ltd [2004] EWCA Civ 1191, with a simple bracketing error. This case also serves as a timely reminder about decision making processes. The Court of Appeal refused to grant rectification to the Council on the grounds of unilateral mistake. The Court found the Council’s intentions had to be taken from the terms of its authorisation, which was based on the Council’s surveyor’s delegated powers report. The report included the bracketing error and the drafting followed the report. It was found that the error in the report was irrelevant – the authority’s intention was evidenced by its officers sanctioning the report.
Overage does pay out. Time spent upfront to negotiate detailed heads of terms and clear, unambiguous drafting (with worked examples) can be very worthwhile down the line, particularly with complex overage and lengthy overage periods. And don’t forget to register!
For more information please contact:
Vicki Moore, Legal Director, Capsticks
0208 780 4757
Vicki.Moore@capsticks.com
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