Overage and clawback clauses in a planning agreement

An overage clause in a section 106 agreement gives the local planning authority a share of value that appears after permission is granted. It exists because the authority accepted less at the point of decision, usually on affordable housing, and wants a route back to the policy position if the scheme turns out better than the appraisal said it would.

Drafting it badly is how developers end up paying twice, or paying on a sale that was never meant to trigger anything.

Why overage appears in planning agreements

The common route is a reduced affordable housing offer justified by viability. The authority agrees to the reduction, and in exchange the agreement provides that if values rise or costs fall, a share of the improvement comes back as a payment or as additional affordable units.

A second route is land value. Where an authority disposes of land, or where a permission creates a much higher value than the scheme assessed, an overage provision captures part of the uplift on a later sale or a later permission.

A third arises on phased schemes, where the authority accepts a first-phase position on the understanding that later phases are reassessed.

None of this is unusual and none of it is unreasonable. What varies enormously is how carefully it is written.

Trigger events and how they are defined

The trigger is the whole clause. Everything else is arithmetic.

Common triggers include the grant of a further planning permission for a more valuable use or a greater quantum, the disposal of the land or any part of it, practical completion of a defined number of units, the sale of a stated proportion of the market housing, and the passing of a fixed date.

Each carries a trap. Disposal defined loosely catches an intra-group transfer, a sale and leaseback, or the grant of a long lease to a registered provider delivering the affordable units, which is the opposite of what anyone intended. Sale of a proportion of market housing needs a definition of what counts as sold, and whether reservations, exchanges or completions are meant.

Exclude what should be excluded, expressly. Group reorganisations, transfers to a registered provider, statutory undertaker land, plot sales to individual purchasers on a self-build scheme, and security transfers to a funder should all be carved out unless there is a reason not to.

And set a longstop. An overage that survives indefinitely is a permanent encumbrance on the title that will surface in every future transaction.

Measuring uplift and agreeing the base

Overage payments are almost always a percentage of the difference between an agreed base and a measured outcome. Two numbers have to be fixed and both are argued about.

The base is normally the appraisal that supported the reduced offer, so it should be attached to the agreement in full, including the residual valuation, the assumed values, the build costs, the finance assumptions and the profit level. Attaching a summary rather than the model is a false economy, because the summary will not answer the question that arises four years later.

The measured outcome is either actual sales values and actual costs, or a revaluation on a defined date. Actual figures are more accurate and harder to audit. Revaluation is cleaner and produces a fight about the valuer.

The cap deserves attention. Without one, an overage can in theory exceed what full policy compliance would have cost, which no authority should be asking for and no developer should agree to.

Security, charges and enforcement

An obligation under section 106 binds the land and runs with it, so a successor in title takes it on. That is the primary protection and it is usually enough.

Authorities often want more. A legal charge over the land secures payment ahead of other creditors, and a restriction on the title at HM Land Registry prevents a disposal being registered until a certificate of compliance is given. Funders resist the first and tolerate the second, so the negotiation usually lands on a restriction plus a covenant to notify.

Where a special purpose vehicle holds the land, expect a request for a parent company guarantee or a bond. Push back on the amount rather than the principle, and tie any bond to release on payment rather than on completion of the whole development.

Make sure the release mechanism actually works. A restriction with no defined route to removal will hold up a plot sale on a Friday afternoon three years from now.

Interaction with viability review mechanisms

Overage and viability review mechanisms overlap and are not the same thing. A review mechanism reassesses viability at defined points, typically before implementation and again at a late stage, and adjusts the affordable housing or the contribution accordingly. Overage captures value after the event on a defined trigger.

Running both is common on larger schemes and it needs coordinating, because otherwise the same uplift can be captured twice, once through the late-stage review and again through overage on the eventual sale.

Say expressly which mechanism takes priority, and provide that any sum paid under one is credited against the other. Set out the position in the Viability Assessment that supports the application, so the drafting starts from a shared understanding, and keep the affordable offer described consistently in the Affordable Housing Statement.

Common drafting disputes

Allowable costs generate the most argument. Developers want abnormal costs, finance and internal overheads included. Authorities want a short list of verifiable categories. Settle it by naming the categories and capping the soft ones.

Profit is the second. A clause silent on whether profit is taken on cost or on gross development value can shift the payment by a wide margin.

The third is timing. Overage assessed at practical completion on a scheme selling over three years produces a different answer from one assessed on the last sale, and the difference is not small in a moving market.

Agree all three at heads of terms stage, in a single page, before the solicitors start drafting. That page will save more in fees than any amount of later negotiation, and it belongs alongside the rest of the application evidence base rather than in a separate legal file nobody on the design team ever sees.

This is general guidance, not legal advice, and drafting a planning agreement is a job for a solicitor. Check the position with your local planning authority or a qualified professional before relying on it.

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