What looks like the perfect plot on which to build your own home can come with a surprise in the form of restrictive covenants and overage. Either can have serious implications for your project.
You might have come across restrictive covenants when buying a house. In this case they have to be considered before making the purchase because they regulate either the use or the appearance of the property.
But restrictive covenants on land also need careful investigation because they can limit what you can build, or even prevent you from doing so. And it’s also vital to be aware of any overage provisions that mean you’ll have to make a further payment on the land in the future and, here, we provide expert advice on both.
What is a restrictive covenant on land?
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A self-build plot can come with restrictive covenants on what you can build there, or even whether you can do so at all. The existence of planning permission doesn’t waive the restrictions.
Before you buy a plot it’s imperative that your solicitor reviews the title deeds in order to find out how covenants might affect your project – not doing so is one of the plot-buying mistakes you should avoid.
What is overage on land?
Like a restrictive covenant, overage can also have implications for a self-build project – albeit not in the same way.
“An overage is an obligation on the buyer to make a further payment being a share of the increase in the value of the land after the occurrence of one or more ‘trigger’ events,” says Tom Coulson, associate solicitor at SAS Daniels. “This can be in the form of a separate overage agreement or incorporated into the title deeds.”
The difference between restrictive covenants and overage? “A restrictive covenant is an obligation to restrict the use of the land in some way,” explains Tom. “The restrictive covenant must be for the benefit of some other land. For example, where the seller retains some land adjoining the plot of land being sold to the buyer. A common restrictive covenant is to prevent building without prior consent.
“An overage does not prevent building but will oblige the owner to make a payment of the agreed share of the increase in value,” he says.
Tom Coulson
Tom Coulson is a solicitor at SAS Daniels working in the property sector dealing with a wide range of transactions. He has acted for both individuals and developers in the acquisition of land for development.
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Overage: what to be aware of
There are a number of issues you need to bear in mind when there is an overage on land, including when you would have to pay.
“The trigger for payment is commonly the earlier of implementation of planning permission for development or sale of the land with the benefit of planning permission,” says Tom Coulson. “However, it could be even more restrictive such as the grant of permission or the mere disposal of the land at a higher price.
“Development should be carefully defined to ensure that payment is only triggered where it is relevant,” he says. “For example, where you are purchasing land to build a property but the seller wishes to include an overage protecting them in the event of further development, it should not be triggered by the development of the one property.
“Check whether the calculation is based upon the uplift in value compared to the value without the benefit of the permission at the time of the trigger event or the original sale price,” he adds.
Get informed before buying
Restrictive covenants and overage on land can mean the difference between achieving the home you have planned for the self-build budget you have drawn up and not doing so, making it vital to be well informed before committing.
“If the seller wants you to enter into an overage, it is vital to negotiate these terms at the point of agreeing the price to avoid disputes at a later stage and increased legal costs,” says Tom Coulson. “You should ask your solicitor to check that there are no existing covenants preventing you from carrying out your plans.”
Be aware of overage when looking for a plot for a self-build home as well as paying attention to whether restrictive covenants attach to the land to avoid the issues they can bring. Appointing a specialist conveyancer to investigate and advise is essential.
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