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Mark Withers | 11th February 2019

Overage agreement triggers


Mark Withers | 11th February 2019

Overage agreement triggers

Overage agreements, option agreements and conditional planning agreements often provide that obligations are conditional on the grant of planning. The trigger to the relevant step or payment will often be the grant of planning free of onerous planning conditions (i.e. focusing solely on the planning permission and related planning agreements).

The recent Court of Appeal case of London & Ilford Limited v Sovereign Property Holdings is a stark reminder of the importance of also considering building regulations and any other relevant approvals.

The London and Ilford case concerned an overage agreement relating to an office building. The developer was seeking to convert the building into residential units relying upon permitted development rights and agreed to pay an uplift where it obtained planning permission for 60 or more residential units.

The developer obtained the necessary planning approvals for 60 residential units but then encountered difficulties with obtaining building regulations approval. Ultimately the impact of building regulations was that the number of units which could be incorporated within the converted building was below the threshold at which overage became payable. The fact remained however that a planning permission had been granted. The question came before the Court of Appeal as to whether the trigger for the payment of overage had occurred.

The Court of Appeal took the view that a sophisticated developer should have understood the risks involved and the matters to which regard needed to be had when negotiating the overage provision. Overage was accordingly payable even though the planning permission which had been obtained wasn’t capable of being implemented and this case serves as a reminder of the importance of considering all relevant factors and surrounding circumstances when agreeing what amounts to a trigger event.

If you wish to discuss any of the issues raised in this blog please contact me.

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