Covenant, Clauses and Clawbacks

When you have land, or buildings, that you are looking to develop in some way, it is always important to check whether there is any form of covenant, overage clause or clawback clause placed on it which could be triggered upon grant, or implementation, of a consent.

These mechanisms are usually put in place at the point of sale of the property and often benefit the seller of the land so that when the purchaser decides to develop the property they are able to benefit financially. Typically these should be noted in any sales particulars but whilst the most recent seller may not have placed them on the property, a previous owner could have so it is worth checking. Dependent upon the type of clause it is always worth checking the following points before undertaking any works on the planning side of development:

– Time: How long is the clause in place for? The start of the length of time is usually at the point of completion on the property and the clauses can be in place for many years (several decades!)

– Percentage: This is the percentage of the increase in value of the property from its existing use (more often than not agricultural) value to the value with the planning permission in place. The percentage will often be large enough to justify the imposition of the clause.

-Trigger of payment: the trigger for the payment being required is often either on sale of the land with the new benefit of planning permission or at implementation of the planning permission. Some may even be so restrictive that upon grant of the permission the uplift must be paid within a set timeframe.

Although there may be hope that a seller just ‘forgets’ about such clause or the development goes ahead ‘under the radar’, all clauses of this nature must be taken seriously and looked at on an individual basis. This is where any person developing land, with a clause, must seek legal advice to ensure they are compliant with the clause.

Additionally the value of the uplift must be calculated and agreed upon by both parties. Where there is no agreement able to a reached by the parties resolve will often involve the requirements of a surveyor who is correctly qualified to value the uplift and decide how much the seller will get. Many clauses of this nature specify length of qualification and experience (for example a Fellow of the Royal Institution of Chartered Surveyors (FRICS), ten years qualified and with experience of valuing similar assets).

To link this back to planning, if you are looking to develop and you are unsure of the impact a clause may have on your ideas, we will always be happy to discuss this and advise on the best cause of action to try and ensure you do not have any nasty surprises when it comes to these types of clauses. If our advice it to seek legal advice, this may be beneficial as recent cases in law have revealed that wording of clauses may not be as they seem and may play in your favour. We can then work with your legal advisors to ensure that any development, and permissions, are obtained in the most efficient manner which allows your legal obligations to be met.