Planning and Development
Order Description
Scenario
You are the real estate advisor to a major landowner who owns a large site of 50 hectares on the edge of a large town. The site adjoins a major new road that has just opened to bypass the town.
As a result of the new road, a significant part of the site is suitable for a retail development of Class A1 non-food units of 18,850sq m (200,000sq ft), which the local planning authority have indicated they will support. This scheme is known as Phase 1 of your client’s proposed development project.
An adjoining site, part of the 50 hectares, (the additional development land) is suitable for the development of a food store Class A1 of 9,290sq m (100,000sq ft) and a number of major national retailers have expressed an interest in the site. However, the local planning authority say that the development of ‘out-of-town’ food stores is contrary to their planning policy. This scheme is known as Phase 2.
On your advice, the landowner has agreed a sale of the whole of the sites comprising Phases 1 and 2 to a specialist retail developer conditional upon the grant of planning permission. The sale includes the additional development land.
The balance of the site comprising approximately 30 hectares will be retained by your client for potential future development.
The agreed sale price comprises a sum for Phase 1 payable three months after the grant of planning permission and a further discounted sum payable on completion of the sale contract to reflect the potential ‘hope value’ of the additional development land being developed.
The contract for the sale of the land places an obligation on the developer to submit a planning appeal to the local planning authority should planning permission not be granted for Phase 1 within a specified time or if planning permission is granted for a substantially smaller scheme. In addition, the developer has an obligation to use his ‘best endeavours’ to secure planning permission for the additional development land within five years of the date of completion for Phase 1. Should planning permission be granted at any time within a period of 25 years for any use after the sale enhancing the value of the site (Phases 1 and 2), then a further overage sum becomes due to your client.
Question
Critically examine what is meant by overage and explain how an enhanced value of the site can be calculated and shared between the landowner and developer.
Explain in detail how such an overage provision can be ‘secured’, for the benefit of your client against future disposals of the developer’s interest to a third party.