Farmers and landowners could be in for a significant financial windfall if the value of their land increases in the future – even after they have sold it on.
This is according to rural affairs specialists at law firm mfg Solicitors, who said they are dealing with a significant upturn in overage agreements – an agreement in which a land seller can share in any value increase once a sale has been completed.
Solicitor Emily Regimbeau, who specialises in advising farmers and landowners across the country, said that overage agreements could bring a variety of benefits for landowners.
However, Regimbeau encouraged farmers to seek legal guidance around the “complex process”.
“Overage can be used where land is being sold and when there’s a likelihood that its value will increase, usually due to planning permission being granted or a development taking place,” she said.
“A landowner may be selling land which has been valued as agricultural and may not be in a position to apply for planning permission or carry out development themselves, but would still like to benefit from any increase in the value as a result of permission being granted or further development.”
“In this situation, a seller could sell the land subject to overage obligations which would require a buyer to make additional payments, representing a percentage of the increase in value as a result of planning permission being granted.”
Regimbeau said there were a number of key considerations for landowners before entering into an agreement.
“Although overage agreements can financially benefit a landowner, they are complex documents which may require extensive negotiation between a buyer and seller and both parties will incur costs in preparing the agreement, so if there is no likelihood of planning permission ever being granted, it may not be worthwhile going to the expense of entering an overage agreement,” she said.
“Other considerations include any impact on the sale price as a buyer may not be prepared to pay as much for land which is subject to an overage agreement.
“Those selling land must also consider how long the agreement will last, as it cannot go on indefinitely and how the overage will be calculated. This will usually be by reference to percentage of the increase in the value of land.
“Overall, an overage agreement can be a good option for some sellers, but there are multiple considerations to make before entering into one. It’s vital to seek legal advice at the outset.”
