UK: Overage – Be Careful With Those Triggers!

Last Updated: 10 August 2018
Article by Hugo Gerrard, David Payton and Emma Broad

London & Ilford Limited v. Sovereign Property Holdings Limited [2018] EWCA Civ 1618 is another salutary reminder to any party negotiating overage provisions of the need to spell out clearly and expressly all the conditions that will trigger the payment of additional sums.

Background

London & Ilford Limited (L&I) purchased a property in Ilford from Sovereign Property Holdings Limited (Sovereign). The consideration payable was the purchase price of £7,350,000 plus L&I's obligations under an overage deed.

Under the terms of the overage deed an additional payment of £750,000 would be due from L&I to Sovereign upon:

"the receipt by [L&I] of a Prior Approval in relation to a proposal for the Development relating to a minimum of sixty (60) Residential Units … ".

"Development" here meant a change of use of any part or the whole of the property to residential use. "Prior Approval" meant written notice from the local planning authority approving that change of use (from offices to residential) pursuant to the Town and Country Planning (General Permitted Development) Order 2015 (Permitted Development Order). "Residential Units" was defined as residential dwellings to be comprised in a development of the property for residential use for sale or lettings.

Sovereign secured approval from the local planning authority for the change of use pursuant to the Permitted Development Order. That approval was obtained within the time limits set down by the overage deed. Sovereign therefore sought payment of the overage sum from L&I.

L&I argued that the overage sum was not due. While planning approval had been given, the residential units that had been approved could not lawfully be built because they would contravene building regulations. L&I said it was integral to the occurrence of the trigger event that the 60 flats should be capable of being constructed and that this was made express by the inclusion of the words in the definition of Residential Units that they were to be for "residential use for sale or lettings".

Decision

The Court of Appeal disagreed with L&I.

The court concluded that if the parties had intended that the trigger event should require the scheme to be compliant with building regulations (and therefore capable of being validly implemented) the parties would surely have spelt that out. They did not. The wording of the overage agreement only referred to the planning and development consent which was itself concerned only with the change of use of the property and not with building regulations.

Comments

The key take-away points are that any party negotiating overage provisions must think very carefully about what will trigger the payment of the additional sums and ensure they are precisely reflected in the overage agreement.

While many overage agreements contain planning triggers, most parties will want to ensure that they not only have the necessary planning approval but also that consent can be implemented by the developer prior to any sums becoming payable.

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