Overage Clause

mechtec

We placed an offer in against an old School house being sold by the Church in Wales and were told by the estate agents that an overage of 50% would have to be paid to the Church on the granting of a planning application for change of use to residential. Our offer reflected that allowance.

However the full terms and conditions which the Churches Solicitors say are "STANDARD" seem appalling as follows:
1)Overage term is to be 50% of uplift for 25years
2)Overage is triggered by a planning application (not implementation) which can be made by absolutely anyone regardless of not owning the premises or having an interest in the premises.
3) We would be liable for all legal costs of both parties in the event of a overage trigger point.
4)Any planning application be it for residential, business or maintainance ( tree presevation pruning works) regardless of not increasing the property value would still trigger the overage situation and require valuations by surveyors and legal costs at our expense.
5)A cap on expenses deductable from any overage payment of £5,500 for the next 25 years for obtaining any planning application, this would include architects fees, environmental surveys (wildlife and trees) planning fee.

Now our Solicitor who ironically was recomended by the selling agent has advised us to pull out of the sale and not accept any of these termsas being unfair and overburdoning. Also a financial advisor also reccomended by the sellers agent said that no bank, building society, or broker would ever be able to secure a mortgage against the property as it could never be classed as a "secure Asset"".

So the question is as the Churches solicitors state that this is a standard contract has any other reader come across similar penalties.

davidmcn

mechtec wrote: »

2)Overage is triggered by a planning application (not implementation)

On the grant of a planning consent, not merely an application, surely?

which can be made by absolutely anyone regardless of not owning the premises or having an interest in the premises.

That's how planning works. In practice nobody else is going to be making the application unless they're in a conditional contract with the owner.

4)Any planning application be it for residential, business or maintainance ( tree presevation pruning works) regardless of not increasing the property value would still trigger the overage situation and require valuations by surveyors and legal costs at our expense.

Ok, that's over the top.

Also a financial advisor also reccomended by the sellers agent said that no bank, building society, or broker would ever be able to secure a mortgage against the property as it could never be classed as a "secure Asset"".

Not sure what they think they mean by "secure asset", but assuming there is a security connected to the overage agreement, that would complicate most mortgage lending. Not impossible though.

So the question is as the Churches solicitors state that this is a standard contract has any other reader come across similar penalties.

As what they're envisaging is consent for residential use, I would expect it to be a once-only payment, rather than something remaining in force for any subsequent planning applications.

Is there any doubt that the planners would allow consent for residential use? It sounds like the sort of property where it would be nodded through, in which case why not just value it on the basis that residential use can be obtained somehow, and forget about the complications of the overage agreement? Overage agreements are more relevant if everyone is waiting for e.g. a change in planning policy before they apply.

mechtec

Thank you

Yes sorry the overage is triggered on the granting of planning but they are adamant that this stays in place for ANY type of application granted over the next 25 year period. There is no cesation clause and if planning is again granted for future extension, changes to roof line or windows etc this will still trigger the overage.. ie the overage can be triggered multiple times on the same property.
The property is within a village boundry and has 1.9 acres of grounds(playing field) surrounding the schuool rooms and as the 5 acre field (privately owned) next door is being sold for 1.8 million to build an estate the Church seem to have dollar signs in their eyes.
Our solicitor tried in vain to get the overage changed to be on implementation of a granted planning application so that we could at least be in control of our own destiny but they refused.

AdrianC

mechtec wrote: »

We placed an offer in against an old School house being sold by the Church in Wales and were told by the estate agents that an overage of 50% would have to be paid to the Church on the granting of a planning application for change of use to residential. Our offer reflected that allowance.

However the full terms and conditions which the Churches Solicitors say are "STANDARD" seem appalling as follows:
1)Overage term is to be 50% of uplift for 25years

I don't have a great issue with that - although 50% does sound steep.
Remember, the vendor is a charity, with a legal duty to maximise their income.

And you are, I presume, buying it because you want to convert it... Sure, they could get the permission in place, or even just sell at a price that assumed permission - but then it'd be a more expensive purchase to start with, right? The important figure is what the place costs you to buy PLUS the overage.

Now our Solicitor who ironically was recomended by the selling agent has advised us to pull out of the sale and not accept any of these termsas being unfair and overburdoning. Also a financial advisor also reccomended by the sellers agent said that no bank, building society, or broker would ever be able to secure a mortgage against the property as it could never be classed as a "secure Asset"".

So the question is as the Churches solicitors state that this is a standard contract has any other reader come across similar penalties.

Seems fairly simple to me. You're being recommended to reject these terms. So the vendor has a choice - amend their terms, or lose the sale to you.

One thing that's not mentioned - does the overage calculation take into account only the uplift in value for the unconverted property with consent, or is it based on the final converted value? I would assume the former. If the latter, then how are costs of conversion taken into account?

mechtec

we would be buying to convert but would need to get planning permission for the change from educational to residential. The 50% overage over a 25 year period is not a show stopper for us if it was only linked to residential applications. As I mentioned the propert has 1.9 acres and included some woodland.

The overage is 50% of any increase of value in the difference between before valuation and after planning being granted before any works is carried out so is not on the finished and converted place.

The problem for us and our Solicitor is the never ending overage triggers that we could get caught with..A planning officer said if we combined every single thing we would ever hope to build, errect etc into one big fat application so we only paid the overage once it could be rejected as the council like to keep things clean and it could get bogged down with dross, but if we wanted to put a large polytunnel up in the garden for our own use, we would need planning permission= trigger overage clause.. we want to put a large ground mounted solar array(15kw) in the garden= trigger overage. if we need planning permission to maintain ( cut down or trim ) a tree with presevation order on it= trigger overage. Each time the overage clause is triggered we have to arrange a surveyor/valuer, lodge his reports with our solicitor and the churches, and pay for all fees for both parties.

Our main concern is if someone like Persimon Homes fancied putting in a planning application for 10 houses and it got granted despite them not owning the land or being able to build (as it belonged to us) we would still be liable to the church for any uplift in value even though we had no intension of building 10 houses in the garden and hadn't applied for the permission. Having no control over ones land yet being liable for 3rd party actions does seem dangerous as if they demanded their 50% it could bankrupt us.

AdrianC

mechtec wrote: »

Our main concern is if someone like Persimon Homes fancied putting in a planning application for 10 houses and it got granted despite them not owning the land or being able to build (as it belonged to us) we would still be liable to the church for any uplift in value even though we didnt want to build and hadn't applied for the permission.

Just pause there, and ask yourself why on earth a developer would apply for permission for land they don't even have a purchase option on...?

mechtec

Thanks Adrian

I have paused that was only an example. According to planning legislation anyone whether they own the land or not can submit an application and according to a planning officer it happens quite often..If we sold any land off for building plots the overage terms and conditions have to be transfered onto the new purchaser.

In this case if someone fancied putting in an application to test the water before approching us and seeing if we wanted to sell off a corner of the garden if an application was granted we would be liable for the payment of the overage increase not the applicant, despite not making an application nor wanting to build or sell the land. It seems an odd position were an outsider could cause us to pay an overage fee for something we didn't want. This seems to be the stumbling point on mortgage lenders that they could be liable for further expense far in excess of the purchase price if Mr anybody put in an application for 10 houses etc.

AnotherJoe

I am mystified as to why you are even asking and havent already walked.

moneyistooshorttomention

Well - I guess the choices boil down to:

- Finding out whether the Anglican Church is usually that "demanding" re their terms for selling a place (or is it just in that part of the country). Maybe if they are more reasonable in England you could quote that back at them as their "norm"?? Though I have to say I dont rate the chances very highly of that one way or another - their first words might well be "We don't care what the Church of England does - they are a different church" - and they might have set up different management to "prove" it.

- Tell them its "Decent deal or no deal". Have your solicitor make it plain no-one else is likely to agree those terms either - so they either change them to reasonable terms or you will walk and you very much doubt they'd find a mug that would accept terms like that. So they might as well do so - or get landed with having to keep their property on their hands unsold from here to kingdom come. (The risk to that course of action is they might "know someone" on the local Council and, if made to change to reasonable terms, you mysteriously found that planning permission didn't get given for whatever excuse they could dream up for not doing so).

- Just plain walk (whilst wondering if they had deliberately made those outrageous demands to me personally - but would be much more reasonable to a buyer they preferred).

Personally - I'd take option 3 and just walk and they could choose between "any preferred buyer they have (if there is one) or no-one". Those terms are outrageous.



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davidmcn

mechtec wrote: »

In this case if someone fancied putting in an application to test the water before approching us and seeing if we wanted to sell off a corner of the garden if an application was granted we would be liable for the payment of the overage increase not the applicant, despite not making an application nor wanting to build or sell the land.

But as I said, in practice that doesn't happen - why would anyone spend thousands on a planning application without being in a contract in order to benefit from it? When the consent is granted then it enhances the value of your property, irrespective of who the applicant was, so if the overage is going to be triggered by the planning consent then what they are suggesting makes sense.

This seems to be the stumbling point on mortgage lenders that they could be liable for further expense far in excess of the purchase price if Mr anybody put in an application for 10 houses etc.

Hmm, not sure they would be asking the lender to be a party to the agreement to that extent? At worst they might want the lender to agree that the agreement would continue in the event of repossession - but if the lender can sell with the enhanced value from the planning consent then that's not in principle unreasonable.

TBagpuss

They do seem unduly onerous. I'd discuss with your solicitors but it may be reasonable to require either a cap (i.e. the agreement comes to an end once the first claim is made - which would also discourage them from triggering it prematurely) or provides for costs to be split, or to be paid by them but refunded by you in any case wherer the va;luation shows that your proposed/actual change has increased the value of the proeprty by more than a set %.

To me, the terms sound more like what you might see in a case where land is being sold on the basis it *won't* be developed, to deter any deveolpment. If they are selling to you with the express expectation you will be convertting it then Iwould expect the sale price to reflect that, and then for any overage agreement to be limited to any new deveopment o thegarden / playing field. I would normally expect it to refer to the building of any new dwelling or other independet buildings and to the extension of the existing dwelling/ main building by more than x%.

But your solicitor is the best placed to advise you about whatwould be reasonable.

I also don't thinkthat a cap on expenses is reasonable - I'd expect this to be either a cap per valuation, or a % of the total amount payable to the Church, not s set amount, particualrly as they are looking for the agreement to continue for such a long period of time.

The terms look great for them, but not for you, and anything like this is a negotiation.