Real Estate Talking Points: Unlocking overage: navigating the nuances of overage clauses
Overage, clawback, deferred consideration, anti-embarrassment, uplift…however it’s described, the mechanism whereby a seller of land is entitled to a “top-up” to the purchase price beyond completion if a specified trigger event occurs always introduces additional complexity into development transactions. Yet, overage is the most common means of maximising the value of development land whilst avoiding a buyer overpaying for a potential site before that trigger event has occurred. In this article, we demystify some key drafting points to unlock the complexity which surrounds overage clauses, touching upon:
- Understanding overage – what is it and how can it secure optimal value from a sale?;
- Key commercial points, including; trigger events, duration, payment calculations and release mechanics; and
- Securing and protecting overage rights, using restrictions on title and third-party guarantees as two potential methods to achieve this.
Overage clauses facilitate development and seller profits but require careful drafting and legal advice. Early agreement as to the commercial points can help streamline the drafting process.
