Overage payment trigger vs Implementable development consent
London & Ilford Ltd v Sovereign Property Holdings Ltd  EWCA Civ 1618
The above mentioned case, decided in October 2018, highlighted the importance of seeking specialist advice when drafting overage agreements. The judgment related to an appeal made by a developer further to an earlier summary judgment (which decided against the developer’s argument) on the interpretation of the meaning of a “trigger” within an overage agreement.
Overage agreements are used when a seller wants to sell a property but wishes to retain a share of the benefit of any increase in value of the property which is realised after the property is sold (this is commonly done if there is an expectation that the land may be developed or planning permission granted in future).
A trigger for payment of the share is usually agreed between the parties at the earlier stages of negotiations and documented within the overage agreement.
In this particular case there was a trigger which occurred when the developer received prior approval from the local planning authority under the Permitted Development Order for the development (it related to a conversion of the property from offices to residential units). It transpired that the developer had not been able to obtain building regulations approval and therefore could not complete the development as originally intended.
The developer refused to pay the overage payment arguing that the intention behind the overage agreement was for there to be an agreed payment in exchange for a commercially valuable benefit obtained by the developer; until the property was lawfully built it would not have achieved the increase in value and therefore the benefit.
The Court of Appeal dismissed the appeal and held that the trigger was clearly worded so as to relate to change of use (planning permission) rather than achieving satisfactory consents relating to building regulations. The requirements for planning and building regulation approval were highlighted as two distinct regimes.
It is therefore imperative that an overage trigger reflects the intention of the parties and refers to the actual implementation of the development, to save a developer having to hand over the overage payment without any increase value in the property to show for it.