Nowadays, it seems that anyone who sells a house with a bit of ground, or a paddock in the middle of nowhere is terrified that they may miss out on a bonanza in the future. Uplift clauses – also known as overage or anti-embarrassment clauses – have become routine. Sometimes they are justified. Sometimes they are a plain nuisance. Where is the dividing line?
There are two key areas of concern. The first is the drafting of the clause. The second is the mechanism to protect the potential payment.
Uplift clauses are intended to give a previous owner of the property a share in future development value, when that value is realizable. Typically, an overage payment is 25% of any increase in value attributable to the grant of a planning permission, if the triggering event occurs within a period of 25 years. Both the percentage and the period can vary. It is more important to define the type of development that will trigger a payment, however, and when the payment is to be made.
Development is usually defined as being residential development, as this is perceived as creating the most value. It could, though, include equestrian, commercial or industrial. It is usually easy to spot what the seller is focused on.
More tricky is the question of when the payment is to be made. Frequently, the draftsman will stipulate that payment should be made within a certain period, say 28 days, after the grant of a relevant planning permission. This is seriously bad news for the person on the other end. He may not have the funds readily available to pay. The planning permission may be subject to appeal or judicial review. It may contain onerous conditions which, whilst the permission increases the value of the land, render the permission unattractive. The permission might have been applied for by a third party. In other words, it may not be a “bankable” consent.
The only safe option for the buyer is to ensure that payment is made on the earlier of:
The implementation of a planning permission – such as when someone starts digging foundations. There would be time to arrange funds to make the uplift payment; and
The sale of the property with the benefit of a planning permission. The uplift payment would be funded from the proceeds of sale.
A well advised buyer will ensure that he agrees uplift provisions which are fair and balanced. That assumes the opportunity to negotiate. Beware the auction scenario, where buyers are offered the chance to bid for the property – or not. They generally do not get the right to negotiate the drafting of contract terms.
The mechanism for protecting uplift payments has repercussions on future conveyancing of the land throughout the uplift period. This is because the original covenant to pay the uplift is a personal covenant between the original seller and the original buyer. The seller cannot enforce this obligation against subsequent buyers unless he takes a new covenant from each and every one of them. Accordingly, he will arrange for a restriction to be placed on the register, so that the property cannot be sold unless his solicitor certifies that the buyer has covenanted to observe the uplift provisions. This adds to the cost of conveyancing, and can cause delays. This is frustrating, especially when there is no realistic prospect of development, or no intention to develop.
On a more positive note, uplift clauses are frequently used where there is real potential for development, or where actual development value has been generated by the grant of planning permission. Permission might be granted for, say, residential development with a low density, or some other limiting condition. This will most likely give rise to a sale of the land, and the price will be governed in part by the terms of the permission. The seller might want to ensure that he has the benefit of any increase in value if a more valuable planning permission is granted in the future. This is a more appropriate use of an uplift clause, to protect the seller’s legitimate, and realistic, commercial interests. Careful drafting, and explanation, are essential and these are legal areas that Beaufort Montague Harris Solicitors can advise on.