RICS Knowledgebase

An overage clause is a legal provision in property transactions that requires the buyer to pay the seller an additional sum if the property's value increases due to specific events, such as obtaining planning permission. 

This clause ensures that the seller receives a share of any unexpected financial benefits from the property's value increase.
Key points about overage clauses include:

• They protect sellers' interests by ensuring they receive a portion of future value increases.
• They can be beneficial for buyers, allowing them to purchase at lower prices while sharing in future profits.
• Overage clauses can be structured in various ways, including positive overage, where the seller shares in the increase, and negative overage, where specific actions are encouraged

Sometimes also known as clawback or uplift  or “future contingent payments”

RICS doesn’t have a guidance note that is solely dedicated to overage in its valuation standards. Rather, the treatment of overage is embedded within its broader valuation guidance, especially in relation to development property https://www.rics.org/profession-standards/rics-standards-and-guidance/sector-standards/valuation-standards/valuation-of-development-property

The Red Book Global Standards fully adopt the International Valuation Standards (IVS), including IVS 410 (Development Property). If the overage entitlement depends on future events (planning, sale, development), valuers may need to treat some of those as special assumptions, especially where they are not “market-standard” or are highly contingent. Valuers must clearly disclose assumptions in their reports. If the overage clause is complex (multiple triggers, contingent payments, long period), the valuer must ensure their modelling expertise and understanding of the market are sufficient. The red book does not have a dedicated overage clause or standard formula for valuing overage.

Case law

Francis v Barclays Bank PLC

https://www.isurv.com/info/455/cases/9703/francis_v_barclays_bank_plc

Commentary

Land purchasing: agreement terms – protecting your options, RICS Land Journal 2016
This article has a few paragraphs on overage

https://www.isurv.com/info/390/features_archive/8895/land_purchasing_agreement_terms

#Valuation

#Overage

#Clawback

#Development