Overage – can a seller apply for planning permission to trigger an overage payment?

A seller obtained planning permission for residential development of its land. The buyer entered into an overage deed, under which it agreed to pay an additional sum to the seller in the event that an improved planning permission was granted within five years. An improved planning permission was defined as a planning permission (including any variation) which had the effect of authorising a higher net internal area than that authorised by the seller's original permission (or any subsequent permission).

After the sale of the land to the buyer, the seller applied for, and obtained, two additional planning permissions, which authorised an additional net area of 1,900 square feet and 500 square feet respectively.

The seller contended that it was entitled to overage as a result of the planning permissions it had obtained. It sought additional payments of £252,054 and £88,145.72 as a result. The buyer declined to pay on the basis that, under the deed of overage, payments were only to be made when it, the buyer, obtained planning permission.

The High Court, trying the matter as a preliminary issue, found in favour of the seller. The buyer appealed.

The Court of Appeal held that the overage deed only contemplated the buyer obtaining planning permission. It provided that the buyer had to notify the seller when a trigger event under the deed occurred. The buyer was then obliged to supply a copy of an improved planning permission to the seller within 10 working days of its receipt by the buyer. The Court of Appeal found that to read the deed as giving the seller a right to payment if it obtained permission would, in effect, require reading clauses into the agreement.

The court thought that its construction also accorded with commercial common sense. However, it was at pains to point out that it was merely deciding a preliminary issue, and that it had not delved into the facts. If the buyer had in fact played a part in the obtaining of the additional permissions, or if the seller had obtained the permissions on behalf of the buyer, the position would be different.

Things to consider

In September 2007 we reported on the decision in Johnson v Secretary of State for Communities and Local Government, where an applicant sought to quash the permission granted for conversion of his own house. The applicant had entered into an overage agreement when he purchased the site; the payment being triggered on the grant of planning permission. But, on appeal against an initial refusal of permission, the inspector granted permission for development of part of the application site. This was in fact unimplementable due to ground levels. The court refused to quash the permission and the payment under the overage agreement was therefore due, despite the fact that the development could not proceed.

In both of these cases, the buyer's position would have been put beyond doubt by drafting the overage provisions such that an additional payment was only to be payable on the implementation of an acceptable permission, not on the grant.

Micro Design Group Ltd v BDW Trading Ltd

This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.

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