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Overage agreements: the importance of precision

A recent case has highlighted the importance of precision when it comes to drafting and negotiating overage agreements, and the risk of using terms which have no precise meaning in legislation. Lodders’ Real Estate solicitor, Lauren Pearson, explains.

Background

In the case of Loxleigh Investments Ltd v Dartford Borough Council [2019] EWHC 1274 (Ch), outline planning permission was granted in 2012 to build five detached houses on land owned by the Council.

The developer, Loxleigh Investments Ltd (Loxleigh), purchased the land in March 2013, subject to the agreement that it would make an overage payment to the Council should “any detailed planning permission which grants planning permission for the construction of units” be obtained, resulting in residential or commercial units with a gross internal area greater than 3,000 square feet.

Loxleigh was subsequently granted approval of reserved matters in relation to the outline planning permission, including having plans approved to allow four dwellings to be built on the land, each with a gross internal area in excess of 3,000 square feet. Because of this, the Council claimed that Loxleigh was liable to pay overage. and subsequently requested payment from Loxleigh.

Arguments

Planning legislation only defines “planning permission” and “outline planning permission” and does not define “detailed planning permission”. This lack of clarity meant that the parties had a different view on what should trigger overage payments.

Loxleigh’s position was that no planning permission was granted during the overage period, only approval of the reserved matters, and also that the overage agreement should not be triggered by ‘predictable future events’ i.e. the obtaining of reserved matters approval to enable development to take place.

The Council challenged this position and argued that the phrase ‘detailed planning permission’ included approval or permission granted pursuant to outline planning permission, and did not specify that it had to be a planning permission granting consent to the carrying out of the development, as Loxleigh claimed, and there was no specific clause in the agreement that stated that ‘predictable future events’ would be exempt.

Outcome

It was ruled that the approval of reserved matters did trigger Loxleigh’s liability to pay overage.

The High Court sided with the Council by stating that the ordinary and natural meaning of the phrase includes “approvals and permissions granted pursuant to an outline planning permission” and it was irrelevant that obtaining planning permission and reserved matters approval are two separate processes.

The provision stating that overage would be payable by Loxleigh if “any detailed planning permission” was granted to include more than one type of permission i.e. the grant of planning permission for another development, or the approval or consent of reserved matters pursuant to the outline planning permission. The High Court did not accept Loxleigh’s argument that “predictable future events” should be disregarded.

Considerations

The phrase ‘detailed planning permission’ is commonly used in overage (and other development) agreements, but there is no definition of what this includes in any legislation. Therefore, it is imperative to take into consideration and define exactly what ‘detailed planning permission’ covers and which, if any, future events might be exempt when drafting or negotiating an overage agreement.

This needs to be done in order to ensure that both parties have a clear understanding of what could trigger an overage payment, and to avoid leaving room for future disputes between the parties. Whilst this case was ultimately based on its own facts and the specific agreement made when Loxleigh purchased the land, it may turn out to be persuasive in future cases.

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Get in touch

Lodders’ Real Estate team have extensive expertise in advising on overage agreements and can provide you with the expert advice and support that you need when it comes to drafting or negotiating an agreement.

For more details, please contact Lauren Pearson on 01789 206126, or via email.