COMMERCIAL PROPERTY – EXAM NOTES
OVERAGE AGREEMENTS
STEP 1: DEFINE OVERAGE
Payment made by a buyer to a seller after completion – not part of agreed purchase price, but is contingent on a future
event where the value of the property is increased in some way
STEP 2: IDENTIFY TRIGGER EVENT
What is the future event where the buyer will realise a gain from the property? Must be clearly identified in agreed
overage provision
STEP 3: THE OVERAGE MUST BE SECURED APPROPRIATELY
Must be secured otherwise seller will be an unsecured creditor and not have an interest in the land. A promise to pay
by itself is not enough
If buyer becomes insolvent or goes bankrupt, unsecured seller would lose out
Positive covenants do not run with the land meaning if the buyer were to sell the overage provision would not apply to
the new buyer
Solicitor may be held negligent for not securing an overage appropriately = Akusac v. Farmar & Shirreff
What form of security should be taken?
Bank guarantee or bond Buyer deposits an agreed amount
Lease Seller grants either a lease with an option to buy the reversion or a highly restrictive lease.
Option can be exercised once the buyer pays the overage, or restrictions will be lifted once
the buyer pays the overage
Legal Charge Buyer grants the seller a charge over the property
Ransom Strip Seller retains a strip of land. Once the overage has been paid, the buyer receives the ransom
strip
Restrictive Covenant The buyer enters into a restrictive covenant with the seller, which is only lifted once the
overage has been paid
Easement The seller retains an easement over the property until the overage has been paid
Positive Covenant The buyer covenants to pay and covenants to make any future buyer covenant to pay the
overage due – creates a chain of promises
Rentcharge and right of Can also be used – but very rare
re-entry
CONSIDERATIONS FOR SOLICITOR
Acting for buyer
Advise buyer that SDLT is payable on overage payment
Exclude the seller’s lien
Negotiate provisions on how much money is to be paid, when and how
Consider that the buyer would prefer the trigger event to be set to when the buyer actually realises a cash gain, rather
than set to the moment at which the property value increases
Acting for seller
Negotiate provisions on how much money is to be paid, when and how
OVERAGE AGREEMENTS
STEP 1: DEFINE OVERAGE
Payment made by a buyer to a seller after completion – not part of agreed purchase price, but is contingent on a future
event where the value of the property is increased in some way
STEP 2: IDENTIFY TRIGGER EVENT
What is the future event where the buyer will realise a gain from the property? Must be clearly identified in agreed
overage provision
STEP 3: THE OVERAGE MUST BE SECURED APPROPRIATELY
Must be secured otherwise seller will be an unsecured creditor and not have an interest in the land. A promise to pay
by itself is not enough
If buyer becomes insolvent or goes bankrupt, unsecured seller would lose out
Positive covenants do not run with the land meaning if the buyer were to sell the overage provision would not apply to
the new buyer
Solicitor may be held negligent for not securing an overage appropriately = Akusac v. Farmar & Shirreff
What form of security should be taken?
Bank guarantee or bond Buyer deposits an agreed amount
Lease Seller grants either a lease with an option to buy the reversion or a highly restrictive lease.
Option can be exercised once the buyer pays the overage, or restrictions will be lifted once
the buyer pays the overage
Legal Charge Buyer grants the seller a charge over the property
Ransom Strip Seller retains a strip of land. Once the overage has been paid, the buyer receives the ransom
strip
Restrictive Covenant The buyer enters into a restrictive covenant with the seller, which is only lifted once the
overage has been paid
Easement The seller retains an easement over the property until the overage has been paid
Positive Covenant The buyer covenants to pay and covenants to make any future buyer covenant to pay the
overage due – creates a chain of promises
Rentcharge and right of Can also be used – but very rare
re-entry
CONSIDERATIONS FOR SOLICITOR
Acting for buyer
Advise buyer that SDLT is payable on overage payment
Exclude the seller’s lien
Negotiate provisions on how much money is to be paid, when and how
Consider that the buyer would prefer the trigger event to be set to when the buyer actually realises a cash gain, rather
than set to the moment at which the property value increases
Acting for seller
Negotiate provisions on how much money is to be paid, when and how
