The term “overage” describes additional sums that a seller hopes, or expects, to receive for land that may be developed, but which is sold before its development potential is fully realised.
Overage agreements enable parties to sell and purchase land at a time and for a price that suits them both, but can result in subsequent disagreements about their scope and effect.
Harris v Berkeley (Strategic Land) Ltd [2014] EWHC 3355 (Ch); [2014] PLSCS 283 concerned a buyer’s liability to pay overage following the grant of planning permission for the construction of accommodation within class C2 of the Town and Country Planning (Use Classes) Order 1987. The accommodation included 60 units with associated communal/care facilities in a part of the development that was described as a “care home”. In addition, there were15 flats, which were to be used to provide sheltered accommodation.
The parties’ contract provided for overage payments that were triggered by the grant of planning permission for development in excess of a specified number of “units of residential accommodation”. How many of the units were to be included in the overage calculation?
The parties agreed that the 15 flats qualified as units of residential accommodation. Did the 60 care units qualify as well, or was the developer entitled to exclude them from the calculation? Two issues were important; the physical character of the units permitted by the planning permission and their permitted use.
The physical layout of the care units and flats was much the same and there was no obvious distinction between them, although they were physically separated from each other and there were additional facilities in the part of the development described as the “care home”. However, the judge could not see why the care units should not be described as “units of residential accommodation” as well. The care units had their own doors. They could be separated in terms of occupation and use and they provided accommodation that was residential in character.
The planning permission permitted the care units to be used for any purposes within class C2 of the 1987 Use Classes Order. Class C2 deals with “residential institutions”. It covers the provision of residential accommodation and care, but excludes use within class C3 (dwelling houses). So the units could lawfully be used for the provision of residential accommodation – but not for the provision of residential accommodation in the absence of care.
However, the judge rejected the notion that it mattered for the purposes of the overage agreement that the care units must be provided as part of a composite package that included care. The definitions in the overage agreement did not adopt the classification of C2 or C3 use, and the phrase “units of residential accommodation” was general and wide. Therefore, while it was possible to describe the building that housed the care units as a care home, this did not mean that the care units were not units of residential accommodation. Consequently, all 75 units qualified for the purposes of the overage calculation.
The decision underlines the attention to detail required when drafting and interpreting overage agreements and the importance of making it clear whether planning classifications should govern the interpretation of contractual clauses referring to use.
Allyson Colby is a property law consultant
