Retain value in land – even after you have sold it
You may wish to sell a plot of land but wish to retain a benefit from a potential significant increase in the future value of the land e.g. if subsequently planning permission were granted over it in the future. You can benefit from this increased value by entering into an overage or claw back agreement at the time of the sale. These are simple in principle but key principles need to be thought through and agreed at the outset:
- When is the additional payment going to be due? You will wish this to be as soon as the value in the land has increased (e.g. grant of planning permission). A buyer will not want to pay until it is closer to realising profit (e.g. when it can sell any properties built);
- The method of calculating the payment? Typically a percentage of the increase in value from the grant of planning permission. The agreement should address attempts by the buyer to depress the value.
- You will want to make liability to make the overage payment enforceable not only against the immediate buyer but also against any future owners who may acquire from your buyer. An obligation to pay money does not automatically attach to the land sold and you need to ensure you can recover your money.
- Cashflow – You need to beware of their potential liability to pay Capital Gains Tax on the value at the date of the sale of the land and the potential right to receive an overage payment at a later date. You need to take appropriate accountancy advice.
Careful and well thought through drafting of the agreement is key. The agreements can often be challenged when the potential payment falls due particularly as to when payment is to be made and how the amount of payment is calculated. Don’t lose out. Seek specialist advice.
This article just provides an overview of the law in this area. You should talk to our Property team for a complete understanding of how it may affect your particular circumstances.
Call Russell now on 01423 851 104 or email to arrange a call with the Property law experts at LCF Law today.