If you’re looking around for plots of land or renovation opportunities, chances are you’ve come across an uplift clause.
Also known as clawbacks or overage agreements, these clauses will entitle the vendor to a percentage of the uplift in value gained by the granting of planning permission in the future, well beyond their period of ownership.
The first reaction of most would-be purchasers is to walk away. After all, why should a previous owner benefit from a future owner’s success? But with a smart approach and specialist advice, their negative effects can be minimised and become only a tiny factor in your decision over whether to purchase the property.
Tip 1: Insert a Deductions Clause
It’s entirely reasonable that the costs of applying for the planning permission that results in the uplift in value of the site are deducted from the fee due to the vendor. These would not only include the actual costs of planning applications, but design fees and the assorted surveys that might be required.
As David Baybut explains: “A buyer should ensure that there are clauses for a raft of deductions e.g. the costs of obtaining that planning permission and even things like service provision. Try to be as specific as possible, e.g. bat surveys, but be careful of admissions — therefore your lawyer should include a sweeper clause, which is an all-encompassing deduction clause.” This could take £10,000s off the charge payable to the vendor.
Tip 2: Clarify the Trigger
Although the standard trigger for payment (release) of the clause is the granting of planning approval, this should be resisted by the purchaser. “A standard position is for overage to be paid either on the commencement of a development (i.e. the implementation of a permission) or on the sale of the land with the benefit of planning permission,” explains overage specialist Henry Goulding of Farrer & Co.
“A buyer should not accept the grant of planning permission as a trigger since (a) it is of course open to a third party to obtain planning permission over another’s land, (b) there is no guarantee that the planning permission, once granted, will be implemented, and (c) the buyer is unlikely to have arranged its finances to be in a position to pay the overage due at that stage.” Ideally, as David Baybut adds, the trigger should be the commencement of work.
Tip 3: Minimise the Bites of the Cherry
“One of the main issues is to be clear on what extinguishes the clause or releases it — how many bites of the cherry the vendor has,” says David Baybut. “Is it one-time only, or over the period of the clause, including many planning permissions?” Ideally, he explains, the release is a one-time only trigger — meaning that the canny purchaser could, in theory, release the clause by applying for a more modest (and therefore less expensive) planning approval that (s)he could enjoy, uplift-free, further down the line.
Tip 4: Accept it Might Affect Your Ability to Sell Unless Extinguished
One of the biggest worries for purchasers of properties with an overage clause is that it might put off future buyers down the line. Indeed, some of the conveyancers spoken to as research for this article suggested that some mortgage lenders are spooked by the presence of an uplift clause.
There is no getting away from this as the agreement is a covenant on the deeds and, although an agreement between two parties, it would usually be transferable to future owners. Again, a specialist conveyancer would be able to minimise the impact — perhaps by inserting a sunset clause in the agreement (although the vendor is unlikely to accept this).
Tip 5: Get it Right First Time
Although a property might come with a suggested clause wording, it really is down to your conveyancer to negotiate the best position for you as the purchaser. “Get it right first time,” is the motto of David Baybut.
“They need to be set up properly so as to ensure there are no hidden effects,” he explains. He gets a lot of work from high street conveyancers who simply don’t know how to deal with them (they remain fairly niche in the world of regular property purchases) and feels that – for an extra few hundred in legal fees – a specialist is money well spent, considering the impact they can have on minimising the negative effects.
Thanks to the following uplift clause specialists: Henry Goulding at Farrer & Co (020 3375 7000); John Jones from Goldsmith Williams (0845 373 3737); David Baybut from Stephensons (0844 488 9090)