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Property Development FAQs

Property Development FAQs

Property Development Frequently Asked Questions

Property development can present challenges for even the most experienced of developers. From acquisition and planning applications to construction and funding, there may be points along the process where you need guidance.

If you require further guidance on your development please contact David Marsden on 01923 919 303.


I own some land that has development potential. A developer has asked me to sign an 'option', what is this?

An option is a contract whereby the landowner grants the right to a potential buyer to buy the land for a specified period of time at a specified price. The landowner cannot sell to anyone else during this period. The potential buyer can, but does not have to, exercise the option to buy and proceed to complete the purchase of the land.

Options are commonly used to enable a developer to assemble a development site, possibly from several adjoining owners. The developer would then spend time and money in promoting the land for development and applying for planning permission. If the developer is successful and planning permission is granted then the developer may proceed to exercise the option and complete the purchase of the site.

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What is a Conditional Sale Contract?

A Conditional Sale Contract is a contract for the sale of land that comes into existence when it is signed and binds both the seller and the buyer. However, certain clauses in the contract do not come into existence until the 'condition' is satisfied. If the condition is not satisfied then the contract does not become unconditional and the buyer does not have to proceed with the purchase of the property.

Conditional Sale Contracts are commonly used in the sale of land for development. The condition would usually be that the buyer is to apply for planning permission. If successful then the contract becomes unconditional and the buyer must proceed to completion of the purchase of the land.

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What is overage?

Overage is the mechanism often used in property documents to protect a seller's position in the event of a buyer achieving an uplift in the value of the land, or sales revenue above a certain agreed amount.

Overage is in essence an additional payment over and above the specified sale price payable at the point of completion of a land transfer, which in the event a certain specified event occurs within an agreed period of time after completion of the land transfer, will become due from the buyer to the seller.

Example

The Property is sold with the benefit of a planning permission for 40 houses and the buyer secures a planning permission for 50 houses. Overage could be:

  • a certain agreed figure per additional house authorised
  • a proportion based on the additional square footage of authorised development
  • a proportion of the actual uplift in sales proceeds.

It is important to consider the 'trigger' for the payment to fall due - the seller may want the earliest possible timing, for example on the grant (or at least implementation) of an enhanced planning permission, but the buyer will say that it has not yet received any value to pay out overage from, so it might well prefer to pay out on completion of the sale of the final unit.

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What is an overage period?

The 'overage period' is the time period from completion of the land transfer for which the overage deal will apply. This will vary depending on how soon it is envisaged that proceeds will be realised. For example on an 'oven ready' site already with the benefit of planning permission the overage period might only be 3-5 years, whereas on land yet to be allocated by the local authority for development purposes, the overage period could be in the region of 20 years.

Sellers (and buyers) should seek advice at an early stage to ensure that their interests are properly protected and that the buyer's obligation to pay overage is properly secured, particularly in the event of the buyer seeking to sell the undeveloped site on.

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For further information, please contact David Marsden on 01923 919 303.

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Our large and experienced team of property development solicitors can advise you on all aspects of property development and the regeneration process.

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