A summary of points to watch out for when drafting an overage clause:

remember that the seller will retain a lien on the land for sums which may become payable under the overage agreement, unless the seller expressly waives the lien. Such a lien is enforceable against all volunteers (eg donors, and against the trustee in bankruptcy or liquidator of the buyer). The creation of the lien could therefore have a prejudicial impact on the buyer’s present and future financing arrangements, and thus on his ability to sell the property. Accordingly, lenders may be unhappy for there to be a lien which has priority of their charge. Thus, when acting for a buyer or lender, you do want to ensure that the lien has been waived;

take care if the trigger for payment is linked to the sale of the last house in a development, since the housebuilder may attempt to avoid paying overage by never constructing the last house;

the trigger event for overage may be linked to planning permission being granted (in which case, make sure that it deals with a situation in which there is subsequently an application for judicial review). Also, planning permission might never be implemented. Deal with the situation where land is sold before the grant of planning permission (so any overage is protected);

overage may be linked to any further ‘sale’ of the land, in which case it is important to be clear that ‘sale’ includes disposal of any legal or equitable interest. But, there may be some disposals that should be excluded from the definition (eg granting a charge over the land);

remember that a trigger event which causes overage to be paid may result in a further SDLT return having to be submitted (and additional SDLT paid). If the additional payment puts the transaction into a higher rate banding, then additional SDLT may be payable on the original consideration as well.

For more on these issues see article in [2010] 247 PLJ 2.