Overage agreements: what can landowners do to avoid developer tricks & traps?

When it comes to overage agreements, developers often use a wide range of tactics to limit, delay, or even avoid overage payments altogether. What can landowners do to avoid these tricks and traps?

Overage agreements are high-stakes deals. Payments are often calculated as a percentage of the uplift in land value – frequently running into the millions.

Often, developers use top-tier legal teams to negotiate overage agreements, and these legal minds can employ clever and innovative traps. It is vital that landowners get specialist legal advice to ensure that they do not fall for them. Here are some examples from real-life cases, which landowners should be mindful of:

Trap 1: Just ‘one bite of the cherry’

Developers will often push for the overage to be triggered and paid only once – just one bite of the cherry. The risk? A developer might obtain a minimal or low-value planning permission purely to trigger the overage, pay a relatively small amount, and then return later with a much more valuable, comprehensive scheme – free from any further overage obligations.

What can you do?

Provisions can be applied to ensure that land is only released from the overage when it has the benefit of planning permission of reasonable value. This prevents strategic applications designed to clear the overage early.

Trap 2: Should a “permitted disposal” release the overage?

Most overage agreements allow for certain disposals that will not trigger an overage payment – think short-term leases, easements, or rights of way. These are known as permitted disposals, and they’re perfectly reasonable. But here’s where the trap lies: we frequently come across drafting that also provides for the overage to be released following a permitted disposal.

In other words, the developer could grant a minor lease or a simple right of way – and in doing so, release the land from overage entirely.

What can you do?

Consult with a solicitor who can ensure that permitted disposal do not inadvertently release the overage by carefully focusing on the permitted disposal and release of liability clauses.

Trap 3: “You can’t implement me!”

Here is a more technical trap – but one with major financial consequences.

Sometimes, a planning permission relates not just to the seller’s land but additional land outside their control. While the developer might have a side agreement to acquire or access that extra land, the seller has no way of delivering a site with implementable planning.

The problem? If the planning can’t be implemented as granted, it’s worth very little on paper – and overage tied to planning value becomes meaningless. This creates a loophole where the developer holds a valuable permission, but no overage is payable because, technically, the planning is “non-implementable.”

What can you do?

Seek advice from a legal professional, who can build a clear assumption into the valuation mechanism that the planning permission is implementable. In return allow reasonable facilitation costs (such as the cost of acquiring the extra land) to be deducted. This ensures a fair balance, and offers protection for landowners.

Trap 4: Seeing double… deductions

It’s common (and fair) for developers to deduct certain costs (such as planning and section 106 costs) when calculating the overage payment. But unless tightly drafted, these deductions can be double-counted or applied across phases, reducing or even wiping out the overage entirely.

In phased developments especially, a developer might attempt to:

• Deduct the same planning costs multiple times—once for each phase.
• Offset costs incurred for future phases against the overage due on an earlier phase.

What can you do?

A solicitor can ensure the drafting clearly limits each cost deduction to a single application and ties those deductions strictly to the phase to which the overage applies to make sure deductions are fair.

Trap 5: ‘Base value’ of the whole?

Overage is usually calculated as a percentage of the “uplift value” attributable to a planning permission. This is usually calculated by taking the “base value” (the value of the land without planning) from the “enhanced value” (the value of the land with planning).

Where planning is phased, the base value used for the calculation must be proportionate to the specific area subject to that phase. We have seen agreements where the base value of the entire site is deducted from the uplift value of just on part of the site.

What can you do?

A solicitor can ensure the base value only relates to the phased scheme, or where the original purchase price is used, this is calculated on a pro rata basis. This ensures the developer pays a fair share as each phase comes forward.

 Trap 6: No ‘mates rates’

Overage is often triggered on disposal, with the payment calculated as a percentage of the enhanced value achieved. Should a developer sell the site to a connected company, partner or friendly third party at an artificially low price, the landowner will lose out.

What can you do?

To resolve this issue, it’s possible to include provisions that ensure the enhanced value is calculated as the higher of the actual price paid and the market value at the time of disposal. This ensures the overage reflects the true value of the site.

Overage can be an effective way for landowners to share in the uplift their land generates. However, it is vital that landowners get the right legal advice on overage agreements and have protections in place to ensure the agreement reflects the deal agreed.

Our team work with landowners, agents, promoters and developers across the country at every stage of the land development process. If you are a landowner affected by any of the developer tricks and traps highlighted, please get in touch. We would be happy to assist.

Our Legal 500 and Chambers-rated agriculture, land & development team help landowners, as well as businesses and individuals operating in the rural sector, advising on a broad range of challenges that may arise.