What Is a Clawback Agreement?

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If you are buying or selling land, you may come across the term clawback agreement, sometimes also referred to as an overage agreement. It is a concept that arises fairly regularly in land transactions, and understanding what it means could have a significant impact on the terms of your deal.

A clawback agreement is a contractual clause that allows the buyer of land to make an additional payment to the seller at a future point, after the original transaction has been completed. This additional payment is triggered by a specific event, commonly referred to as the trigger event. In most cases, that trigger event is the granting of planning permission on the land in question.

In simple terms, if a seller parts with land at an agreed price but that land later becomes significantly more valuable following the grant of planning permission, a clawback agreement ensures that the seller receives a share of that increased value. It is a way of protecting the seller's interests where the full potential of the land may not be known at the time of sale.

Careful consideration must be given to the drafting of any overage or clawback agreement. The terms need to be clear, precise, and properly tailored to the specific circumstances of the transaction. It is also crucial that the agreement is registered correctly at the Land Registry, so that any future buyer of the land is aware of the obligation and it remains enforceable.

If you are involved in a land transaction and would like advice on clawback or overage agreements, our agricultural law team would be happy to help. Please do not hesitate to contact us.