Can an overage be removed?

Following on from her previous article, What is overage?, Land and Development solicitor, Laura Gale, looks at the often asked question - can an overage be removed?

If you own or are interested in acquiring land/property that is subject to overage, you may be pondering the question 'can an overage be removed?' and if so, how best to release the land from those overage provisions. 

Can an overage be removed, and why would you want to? Well, this could be for a number of reasons, such as:

• you may be seeking finance to be secured against the land (many lenders will not lend against overage-affected land); 
• you may want to sell the land unencumbered (overage could have an effect on land value, albeit a professional valuer/land agent's advice should always be sought; and, it may be easier to sell unencumbered land at auction); or
• you may wish to develop the land without incurring the full overage sums which could become due and payable as a result of commencement. Although perhaps rare, a seller's financial circumstances could well have changed since the overage was first contemplated; they may now be willing to accept a quick, lump-sum payment in return for a release of the overage obligations.

First step to removing an Overage provision

If an overage period has time to run, the first step when seeking to remove overage provisions is to consider who has the benefit of the overage. 

As can be seen in our previous article, What is overage?, this provision works to secure further payments in favour of an original seller, subject to certain "trigger events" occurring. 

Overage is contractual in nature and does not tend to run with the land like restrictive covenants do. Whilst overage can be achieved via use of restrictive covenants ("negative overage"), they should only be utilised where a seller is retaining nearby land that genuinely benefits from those covenants, otherwise they will likely be unenforceable. There is also a risk of the burdened landowner applying to the Lands Tribunal for a discharge or modification of the restrictive covenant(s). For that reason, it is more common to see overage achieved via positive covenants, accompanied by a restriction on title. It may be clear from the restriction who holds the benefit of the overage, but this depends on the drafting, and whether a restriction has been registered at all. Careful investigation as to who holds the benefit of the overage should be conducted before any negotiations take place, as a lot of time may have passed since the overage period commenced. 

Overage beneficiaries

In assessing who has the benefit, the first port of call should be the Overage Deed/Transfer Deed which contained the overage provisions. This should be reviewed carefully, paying particular attention to the definitions and rules of interpretation. Ordinarily, such deeds will expressly stipulate that "Seller" includes its personal representatives, heirs and permitted assigns but not other successors, e.g., successors in title. However, particularly when reviewing older deeds, care should be taken to ensure this is the case.

If the original seller was an incorporated and registered company, is that company still trading, or have they ceased to exist? If the benefitting company has been dissolved, then the benefit of the overage may have passed to the Crown, via bona vacantia. In such circumstances, an approach will need to be made to the Treasury Solicitor for a release, rather than the original seller.

If the original seller was an individual, are they still alive? If the original seller has died, his personal representatives (PRs) will generally step into his shoes under any contracts and will be entitled to any benefits due to the seller before his death. Any cause of action existing at the date of an individual’s death survives either for the benefit of, or against, his estate (section 1(1), Law Reform (Miscellaneous Provisions) Act 1934). Therefore, the benefit of the overage obligations could and should have passed automatically to the deceased seller's PRs, and any approach for a release will need to be made to the PRs (provided they have not lawfully assigned the benefit).

If the original seller was an individual, have they/their PRs since parted with their interest in the overage obligations? The right to receive overage payments is a "chose in action" (an intangible property right that can only be claimed or enforced by action to recover it (if withheld)) and is therefore capable of assignment. Pursuant to section 136 of the Law of Property Act 1925, for an assignment to be recognised in law, it must:

• be absolute (unconditional);
• not purport to be by way of charge only;
• in terms of the rights to be assigned, be wholly ascertainable and not relate to only part of a debt or other legal chose in action;
• be in writing and signed by the assignor; and

the burdened landowner must be given notice of the assignment. There is no prescribed time limit for notice to be given, but the assignee may only enforce its rights against the burdened landowner from the date that party receives the notice.

So: once you have ascertained who has the benefit of the overage obligations, how do you get rid of those obligations?

As above, overage will most commonly be achieved by way of a covenant (a promise to pay, and to procure deeds of covenant from successors to ensure they pay, too). Consequently, the method of removing overage is by entering into a Deed of Release with the benefitting person(s). The Deed should be carefully drafted so as to make it clear that the whole of the overage obligations are being released, that the releasor warrants that it has not assigned the whole or part of its interest in the overage obligations to any third parties, that any payment is in full and final satisfaction, and that the releasor will hand over all certificates and release forms to discharge any restrictions on title, and to perfect the release contemplated by the Deed.

Overage is one of the most heavily litigated areas of property law, and we would always recommend that you take specialist advice before negotiating with any third parties. If you need help with overage, please speak with our dedicated Land and Development Team.