Community infrastructure levy – where are we now? Katherine Hall Public sector equality duty (PSED) Anja Beriro Publishing compliance data on payment of invoices Alex Kynoch Overage clauses and drafting issues Kasra Powles

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Index
Page
Community infrastructure levy – where are we now?
Katherine Hall
2 – 7
Public sector equality duty (PSED)
Anja Beriro
8 – 12
Publishing compliance data on payment of invoices
Alex Kynoch
13 – 14
Overage clauses and drafting issues
Kasra Powles
15 - 20
The articles in this newsletter are for general information only. They do not represent legal advice. You
should always take legal advice before pursuing any course of action discussed in this newsletter. If you
would like to discuss any of this issues raised in this newsletter please call us +44 (0)115 976 6000.

3. 2
What does the future hold?
The Community Infrastructure Levy (CIL) has been in place for almost six years. The intention of CIL was to
replace Section 106 agreements with CIL payments for developers, leaving only affordable housing to be dealt
with through Section 106 agreements. This has not materialised due to a slow uptake of CIL and identification
of some practical issues with CIL.
In November 2015 the government announced a review of CIL and Liz Peace was tasked with leading and
chairing an independent group (the Group) conducting the review. The stated purpose of this review is “to
assess the extent to which CIL does or can provide an effective mechanism for funding infrastructure, and to
recommend changes that would improve its operation in support of the Government’s wider housing and
growth objectives.”
The Group’s specific remit includes consideration of:
 the relationship between CIL and Section 106 in the delivery of infrastructure, including the role of
the Regulation 123 list and the restriction on pooling planning obligations
 the impact of CIL on development viability, including any disproportionate impact on particular types
or scales of development
 the exemptions and reliefs from CIL
 the administrative arrangements and governance associated with charging, collecting and spending
CIL
 the ability of CIL to fund and deliver infrastructure in a timely and transparent way
 the impact of the neighbourhood portion on local communities’ receptiveness to development
 the geographical scale at which CIL is collected and charged.
The Group carried out a consultation, which is now closed, and is due to report this month.
We provided a consultation response which highlighted a number of areas of concern. A summary of our
observations to the Group is set out below.
1. The relationship between CIL and Section 106 in the delivery of infrastructure
We have found that CIL is met cautiously by developers and, where possible, they develop in non-CIL charging
areas. Due to the time lapse between planning consent and commencement of development there can be
significant delay in receiving CIL monies which will necessarily impact on delivery of key infrastructure.
The pooling restrictions, with the mysterious limit of five contributions do nothing to assist and can severely
impair planning authorities’ ability to secure critical infrastructure.

4. 3
Furthermore, developers’ are failing to appreciate that CIL may be payable in addition to site specific
Section 106 planning obligations and this will not trigger double dipping.
2. The impact of CIL on development viability
We are not aware of a lack of viability being an issue in relation to developing a CIL policy, but have observed
in parts of the East Midlands CIL zones which have zero or very low CIL charging rates. This will undoubtedly
impact on delivery of infrastructure.
Equally, whilst developers are accustomed to assessing viability of a proposed development, they appear
unable to calculate the amount of CIL payable and assess the likely impact of CIL on viability. They assert,
when applying for exemptions and reliefs, that CIL itself makes the proposed development unviable without
an exemption or relief.
3. Exemptions and reliefs
Exemptions and reliefs are no doubt welcomed, but can cause delay in commencing development due to
difficulties securing the exemptions. For example, the discretionary Exceptional Circumstances Relief (ECR)
and phased payment policies offered by some planning authorities are subject to requirements which can
lead to these difficulties.
Specifically, ECR is subject to a requirement for evidence from the developer that CIL makes development
unviable, and that granting ECR will not trigger unlawful state aid. Additionally the discretionary nature of
ECR, and the fact that it is only valid for 12 months (subject to commencement of development), means that
it is often not considered to provide sufficient certainty for developments which may take several years to be
completed.
Similarly, charitable relief is dependent on ownership and use of the site, in whole or in part, for charitable
purposes. This can create difficulties for mixed use/multi-ownership sites where only part of the site is to be
used for charitable purposes but development is to commence on the commercial aspect of the development
first, and/or the land ownership is to be transferred to the charitable organisation at a later stage of
development.
4. Administrative arrangements
The Group also considered the issue of ‘other sources of infrastructure funding’, and whether changes to CIL
could allow it to be more effective. Currently, Regulation 60 only permits planning authorities to apply CIL to
reimburse expenditure already incurred. It does not permit planning authorities to borrow against future CIL
receipts. It would be helpful to extend this power to enable planning authorities to do so, assisting those
authorities who face delays in receiving CIL receipts and enabling earlier delivery of critical infrastructure.

5. 4
If the power is extended in this way, planning authorities would need to implement safeguards to ensure
borrowing was based on realistic expectations of what CIL receipts may be received and ensure account is
taken of the deductions for local monies and administration fees when calculating the amount available to
borrow against.
CIL has altered the role of planning authorities. They are not only required to assess CIL liability and to
collect in CIL receipts, but also to produce detailed annual reports which must be published. Furthermore,
planning authorities are required to undertake enforcement for non-compliance. These are additional
responsibilities being placed on planning authorities at a time of continually diminishing resources.
5. The ability of CIL to fund and deliver infrastructure
The delay between issuing planning consent, and development commencing on site, can create a significant
lag in receipt of CIL monies which will necessarily impact on delivery of required infrastructure in and around
the development. Additionally, exemptions, reliefs and phased payments can further exacerbate the
position.
As noted above, the pooling restrictions with the mysterious number of five contributions do nothing to
assist, and often severely impair, planning authorities’ ability to secure critical infrastructure.
The pooling restrictions are retrospective in nature and apply to all obligations completed since April 2010.
Not all planning authorities and developers have grasped their implications until more recently. The
restrictions necessitate a comprehensive review of all Section 106 agreements in place since April 2010. This
is a large draw on diminishing resources and is often a very manual process depending on the quality of
record keeping and monitoring.
Additionally, generalised terms within Section 106 agreements such as “adjacent to”, “within the vicinity of”
and “within the District of” mean that contributions received in these circumstances count towards
infrastructure required in a broader area than envisaged. This can be detrimental to securing infrastructure
on future developments.
Furthermore, the pooling restrictions have caused severe difficulties for developments of all sizes. They have
particularly impacted on multi-phase/multi-owner sites where it is not possible to secure key infrastructure
within five contributions and lateral thinking is therefore needed.
CIL and the pooling restrictions also impact on commercial agreements for the sale of development land and
conditionality provisions which is a point yet to be fully grappled with by parties to commercial land
agreements.

6. 5
For planning authorities, there is a risk that CIL alone does not generate sufficient income for the required
infrastructure either due to the rate it feels appropriate to charge and/or through the loss of local monies
and/or developers’ reluctance to develop in CIL charging areas.
In London, developers not only have to contend with the CIL/Section 106 requirements of the planning
authority but also with Mayoral CIL.
6. Local monies
All CIL receipts are subject to deductions for administration fees (5%) and local monies (up to 25%). These
deductions are mandatory, although planning authorities can agree with parish and town councils to retain
these monies on their behalf and expend the monies with their agreement. The take up of neighbourhood
plans has been relatively slow to date.
It is difficult to establish how much involvement local communities have had in relation to issues of local
viability. While we have observed some challenges to viability exercises, we are aware that the industry does
not tend to act collectively due to commercial confidentiality and this may lead to less challenge than could
be provided.
It would be helpful if local monies could be retained not only where there is no town or parish council, but
also where there is a pressing need for key infrastructure which should be prioritised against local
infrastructure requirements.
7. The geographical scale at which CIL is collected and charge
We have observed CIL Zones which have zero or very low CIL charging rates. This will undoubtedly impact on
delivery of infrastructure because very often some of the sites in these zones have the most complex
infrastructure problems. Although low CIL charging rates are intended to help, the absence of contributions
makes it more difficult to deliver the infrastructure which in turn would contribute to the viability of such
sites.
Equally, we have observed developers rushing through schemes to beat CIL deadlines and while, to date,
there is no evidence of CIL preventing development, it is not without its problems.
Affordable housing is a key policy requirement for most planning authorities and yet we are seeing
renegotiation of affordable housing requirements where core strategy affordable housing rates were devised
without taking into account CIL. Furthermore, we have noticed affordable housing levels being reduced
and/or claw back provisions being included to allow for future uplift, even where it is highly unlikely that any
uplift will be achieved.

7. 6
In addition, we are aware of developers specifically looking to develop land in areas where CIL has not been
introduced.
The Group’s review also raises the question of whether the Examination in Public (EIP) process is suitably
robust and whether there should be a requirement to review charging schedules at set times. It is our
submission that the EIP works as well as it can, and there should be a requirement to review the charging
schedules. However, it is acknowledged that this is a large exercise, particularly for smaller planning
authorities, and there may be grounds for looking to conduct larger exercises across the new mayoral
governance areas on a regular basis so that CIL can be used as a tool to strategically direct development.
8. Are the CIL regulations and guidance easy to use and understand?
The Community Infrastructure Levy Regulations 2010 have been amended several times since their inception
in 2010. The Regulations are rigidly drafted, leaving little discretion for developers/applicants or planning
authorities alike. For example, when a developer unintentionally triggers a disqualifying event and the full
CIL payment becomes due and payable immediately the planning authority has no discretion to allow a
payment plan for these monies. But, on the other hand, planning authorities are criticised for actions which
may delay development.
The standalone guidance has recently been incorporated into the Planning Practice Guidance which may
provide uniformity, but requires sifting through other, unrelated matters to get to the CIL elements. The
search process for the Planning Practice Guidance would benefit from enhancement.
To summarise, CIL has to date received limited take-up and developers have either chosen to develop outside
of CIL charging areas, or have rushed to secure their consent and planning obligations before CIL is adopted
by planning authorities.
While the intention of encouraging local involvement in development is admirable, there remains a great deal
of apathy.
A huge amount of work is involved in achieving an agreed CIL charging rate, and even more work needed to
secure CIL receipts against developments to ensure delivery of the required infrastructure. This is a resource-
hungry system which is not user friendly to either planning authorities, developers or local communities and
has, to date, failed to deliver benefits commensurate with the efforts involved.

8. 7
A report on the Group’s findings is expected by the end of this month. We wait with interest to see whether
the Group will recommend changes to the CIL regime which could address some of the weaknesses that we
have discussed above. In any event, we will report further on the findings when they are available.
Katherine Hall | +44 (0)115 908 4887 | katherine.hall@brownejacobson.com

9. 8
The public sector equality duty (PSED under section 149 of the Equality Act 2010 (the 2010 Act) is one of a
dwindling class of legislation that is effective across the whole of Great Britain. The 2010 Act replaced a
number of separate pieces of legislation governing the protection of certain characteristics and prohibiting
certain types of conduct. Under the 2010 Act the following characteristics are protected:
 age
 disability
 gender reassignment
 marriage and civil partnership (this characteristic is covered only by the first limb of the duty under
PSED – that is, to eliminate discrimination and other prohibited conduct)
 pregnancy and maternity
 race
 religion or belief
 sex
 sexual orientation.
As with previous legislation, the prohibition of certain conduct affects a wide range of individuals and
organisations. PSED is a new positive duty on public authorities to have due regard to the need to:
 eliminate discrimination, harassment, victimisation and any other conduct that is prohibited by or
under the 2010 Act
 advance equality of opportunity between persons who share a relevant protected characteristic and
persons who do not share it. This involves having due regard to the needs to:
o remove or minimise disadvantages suffered by persons who share a relevant protected
characteristic that are connected to that characteristic;
o take steps to meet the needs of persons who share a relevant protected characteristic that
are different from the needs of persons who do not share it; and
o encourage persons who share a relevant protected characteristic to participate in public life
or in any other activity in which participation by such persons is disproportionately low. In
meeting the needs of disabled persons that are different from the needs of persons who are
not disabled steps should be taken, in particular, to take account of disabled persons’
disabilities.
 foster good relations between persons who share a relevant protected characteristic and those who
do not share it. This includes having due regard to the need to tackle prejudice and to promote
understanding.

10. 9
It is arguable that ‘due regard’ connotes a more specific demand than simply have general regard for
something1
.
PSED applies to the majority of functions of public authorities. Public authorities are defined by a list in
Schedule 19 of the 2010 Act. On some occasions the definition of public authority can include private
companies undertaking work on behalf of public bodies (for example a private company running a prison)2
.
Schedule 18 of the 2010 Act includes a list of bodies that, while not public authorities, do exercise public
functions, but are not subject to PSED. These include the House of Commons and GCHQ. Schedule 18 also
states that functions in connection with proceedings in the House of Commons or the House of Lords are
exempt from PSED.
Some functions of public authorities are exempt from PSED. These are set out in Schedule 18 of the 2010 Act.
In brief, these are:
 certain functions relating to the provision of education in schools and accommodation, benefits,
facilities or services in certain residential establishments
 immigration functions in relation to the protected characteristics of age, race, religion or belief.
Race means race relating to nationality or ethnic or national origins and
 judicial functions.
There is further guidance as to what constitutes a public function in case law and in non-statutory guidance
published by the Equality and Human Rights Commission.
Public procurement regime
The Public Contracts Regulations 2015 (the PCR 2015) govern the procurement of goods, works and services
by contracting authorities in England, Wales and Northern Ireland. What must be remembered is that the
definition of public authority under the Equality Act 2010 is not the same as a contracting authority under the
PCR 2015. ‘Public authority’ encompasses a wider range of bodies than ‘contracting authority’. Contracting
authorities are defined in the PCR 2015 as “the State, regional or local authorities, bodies governed by
public law or associations formed by one or more such authorities or one or more such bodies governed by
public law, and includes central government authorities, but does not include Her Majesty in her private
capacity.” There are two further definitions that assist with this:
 ‘central government authorities’ are defined as:
“the Crown and all bodies listed in Schedule 1 (whether or not they perform their functions on
behalf of the Crown), but does not include Her Majesty in her private capacity”; and
1
Section 149(3) of the 2010 Act
2
Section 149(2) of the 2010 Act

11. 10
 ‘bodies governed by public law’ are defined as:
“bodies that have all of the following characteristics:-
o they are established for the specific purpose of meeting needs in the general interest, not
having an industrial or commercial character;
o they have legal personality; and
o they have any of the following characteristics:
 they are financed, for the most part, by the State, regional or local authorities or by
other bodies governed by public law;
 they are subject to management supervision by those authorities or bodies; or
 they have an administrative, managerial or supervisory board, more than half of
whose members are appointed by the State, regional or local authorities or by other
bodies governed by public law.”
What these definitions do is require many bodies, such as wholly-owned local authority companies, to comply
with the public procurement regime but they omit many private companies that are contracted to deliver
public services. For example, the same private company running a prison that is classed as a public authority
under PSED would not be a contracting authority under the PCR 2015. What this means is that although a
public authority may be covered by PSED, it will not be required to award contracts in a way that complies
with the public procurement regime.
The public procurement regime is an EU-based system that aims to ensure the free movement of goods and
workers throughout the EU. It does this by requiring contracting authorities to follow certain processes and
adhere to certain principles when procuring contracts that are over specific financial thresholds. Some of
these principles are called the General Principles, from the Treaty on the Functioning of the EU. These key
principles are:
 transparency of process and award of contracts
 equal treatment of suppliers and bidders
 proportionality in the application of procedures and in decision making, and
 mutual recognition of qualifications and standards from other EU member states where appropriate.
Of the four principles, the two that are most important when looking at the relationship between public
procurement and PSED are transparency and equal treatment, although proportionality will also come into
play. Equal treatment of bidders is in relation to how bidders are treated in comparison to each other rather
than in relation to protected characteristics. There are three ways in which PSED may be relevant to a public
procurement procedure:
 in the scenario where bidders are individuals with protected characteristics and due regard must be
given to the situations to which PSED applies (this is unlikely to occur on a regular basis)

12. 11
 in the questions that are asked by the contracting authority at both selection and award stages
 in the manner in which a contract is performed by the successful bidder.
If there was a scenario where bidders needed to be treated in a particular manner because of a protected
characteristic, that would be governed by PSED. The General Principle of equal treatment would come into
play to ensure that any positive treatment of a bidder due to a protected characteristic was reasonable and
was undertaken in a way that was transparent so that other bidders were able to understand why the
treatment was being given.
Selection criteria
Selection criteria are those criteria against which bidders are evaluated at what is known as the pre-
qualification (the PQQ) stage of a procurement process. In England and Wales selection criteria are covered
by regulations 57 and 58 of the PCR 2015. The legislation sets out certain grounds on which bidders either
must or may be excluded from taking part in the procurement exercise. They go onto describe what may be
included as selection criteria:
 suitability to pursue a professional activity
 economic and financial standing
 technical and professional ability.
Under regulation 107 of the PCR 2015 contracting authorities in England, Wales (to the extent that a
contracting authority in Wales is not acting under devolved powers3
) and Northern Ireland (see footnote 3 as
well) are required to use the Cabinet Office standard pre-qualification questionnaire (PQQ)4
. This should be
used for all above threshold procurements and may be used for light touch regime procurements valued at
above the normal threshold for services but below the light touch threshold.
One of the questions in the standard PQQ relates to equality. This question requires bidders to state whether
there have been any findings of unlawful discrimination by an employment tribunal or any complaints upheld
by the Equality and Human Rights Commission. If bidders answer yes to either of these then they are asked to
give a summary of the investigation and the outcome and any remedial steps taken. Bidders may be excluded
if they do not satisfy the contracting authority that the same issue will not arise again.
The equality question is optional and should only be used when appropriate. Contracting authorities need to
consider whether the subject matter of the contract requires equality legislation compliance to be taken into
account. For example, a contract for the supply of stationary probably does not warrant the ability to
3
Regulation 1(8) of the PCR 2015 states that Part 4 of the PCR 2015 (which includes regulation 107) does not
apply to a contracting authority if its functions are wholly or mainly either Welsh or Northern Ireland
devolved functions
4
https://www.gov.uk/government/publications/public-contracts-regulations-2015-requirements-on-pre-
qualification-questionnaires

13. 12
exclude bidders on the ground that they have been found in breach of equality legislation. Although, some
contracting authorities would argue that they require all of their suppliers to be fully compliant with their
legislative duties and that they are meeting PSED by asking these questions to encourage improvements.
Award criteria
Once the selection, or PQQ, stage is completed, the following stage (or stages) of a procurement process
require contracting authorities to assess bidders against criteria that will allow the contracting authority to
award the contract to the bidder that scores most highly against those criteria (including price). Unlike the
selection criteria used at the PQQ stage, the award criteria will be specific to the contract that is to be
awarded.
Contract terms
It is now a requirement of a public procurement exercise that all documents are produced, at least in draft
form, when a contract notice is sent to OJEU5
. This includes the draft contract. Contract terms are a good
way to ensure that certain obligations remain with a supplier during the term of the delivery of the works,
goods or services. Regulation 70 of the PCR 2015 states that contracting authorities can include special
conditions relating to the performance of a contract, provided that they are:
 linked to the contract subject matter
 indicated in the call for competition or the procurement documents.
Conditions may include “economic, innovation-related, environmental, social or employment-related
consideration.” Clearly it could be argued that conditions relating to equal opportunities, where appropriate,
would fall within these headings. For example, having terms requiring compliance with legislative provisions
or reporting structures that included information about equal opportunities could be included.
Equality considerations: before commencing procurement (i.e. strategy), at each stage of the
procurement process (e.g. planning, requirements, specification, selection, award) and throughout the
contract lifecycle
While there is no longer a duty to undertake an equality impact assessment in England (Wales still does have
this requirement) it is arguable that the requirement to have ‘due regard’ to the general duty might include
when formulating procurement strategy and business cases for services.
Anja Beriro | +44 (0)115 976 6589 | Anja.Beriro@brownejacobson.com
5
Regulation 53 of the PCR 2015

14. 13
Crown Commercial Service has issued a Procurement Policy Note (03/16) on the publication of payment
performance statistics (the Note) under the Public Contracts Regulations 2015 (PCR). The Note does not apply
to contracts for healthcare services which are covered by the National Health Service Procurement, Patient
Choice and Competition) (No. 2) Regulations 2013 or to maintained schools and academies as these are
exempt from the publication requirement.
Subject to the exceptions set out above, Regulation 113 of the PCR require contracting authorities to include
terms requiring the payment of undisputed invoices within 30 days in all public contracts. If an authority fails
to do so, a term is implied into relevant contracts by the PCR. This applies to payments from contracting
authorities to contractors and from contractors to their subcontractors.
Regulation 113 also requires contracting authorities to publish statistics on the internet showing how far the
contracting authority complied with this 30 day payment requirement in the previous financial year. In
addition, contracting authorities must have regard to guidance issued by the Cabinet Office (this guidance
would include the Note).
The information to be published must, by virtue of PCR 113, includes:
a) the proportion of invoices that were paid in accordance with those obligations, expressed as a
percentage of the total number of invoices that were, or should have been, paid in accordance with
those obligations
b) the total amount of any liability (whether statutory or otherwise) to pay interest which accrued by
virtue of circumstances amounting to a breach of those obligations
c) the total amount of interest actually paid in discharge of any such liability (including any which had
accrued before the beginning of the period to which the statistics relate).
Regulation 122 confirms that the publication requirements are slightly different for the year ending 31 March
2016, and this is explained further in the Note:
 After March 2016, all in-scope organisations must publish, on an annual basis and covering the
previous 12 months, (i) the percentage of their invoices paid within 30-days and ii) the amount of
interest paid to suppliers due to late payment.

15. 14
 After March 2017, all in-scope organisations must publish, on an annual basis and covering the
previous 12 months, (i) the percentage of their invoices paid within 30 days ii) the amount of interest
paid to suppliers due to late payment and iii) the total amount of interest that the contracting
authority was liable to pay (whether or not paid and whether under any statutory or other
requirement), due to a breach of Regulation 113.
The Note does not set out a format for the publication of the information but suggests that best practice
would be to maintain previous years’ information online to enable a comparison between different years.
Any contracting authorities which have not yet published the statistics set out above should do so as soon as
possible. The Cabinet Office Mystery Shopper service will be monitoring compliance with this requirement
(and presumably naming and shaming non-compliant authorities) so the primary risk is reputational. It is
difficult to foresee how a breach of this requirement could lead to a claim under the PCR - perhaps a
contractor might claim that they would have bid differently had they known that the contracting authority
regularly failed to pay invoices within 30 days but this would be difficult to demonstrate in practice.
Alex Kynoch | +44 (0)115 976 6511 | Alex.Kynoch@brownejacobson.com

16. 15
In this article we are going to review the main elements of agreeing overage agreements that local
authorities need to take into account when agreeing overage terms.
What is an overage?
First things first, what is an overage agreement? It is essentially a contractual obligation on a party buying
land (the developer) to make a further payment to the seller when a certain trigger event happens. This is a
useful tool to use when negotiating for the sale of land that is undeveloped and that is being purchased for
potential development by a developer, but: (a) the developer does not yet know what development will take
place or the extent of it; and/or (b) the developer wants to spread their payments out and not pay the full
potential land value up front.
From the point of view of public bodies, this could be useful in complying with s.123 obligations or general
obligations to obtain best value if there is any impasse with a developer in negotiating a price for any of the
reasons stated above. It can also protect against the risk of embarrassment should the developer achieve a
significant profit from quickly re-selling the land or constructing a more valuable development than
anticipated at the time of purchase.
Type of agreement
There are a number of ways that an overage payment can be secured by a seller. As stated above, the
requirement to pay is a contractual one agreed between the two parties. But, if you rely purely on the
contractual obligation without any security, there is a risk of being unable to recover payment in the event of
a breach. This is particularly the case if the developer being contracted with is a special purpose vehicle
(SPV) with few assets to pursue.
Protection by legal charge on the title being sold is one method of protection, but this is often resisted by
developers. Any funder of the development is likely to want a first legal charge on the property being
developed so use of a legal charge to protect an overage agreement might render a site difficult to develop.
Local authorities should also be exercise caution before seeking to utilise restrictive covenants or ransom
strips as another method of protecting an overage payment. The use of a restrictive covenant requires some
retained land that benefits from the restrictive covenant. Otherwise, the restrictive covenant will be
unenforceable. The case of Cosmichome Limited v Southampton City Council [2013] EWHC1378 also makes
clear that a restrictive covenant cannot be used as a way of securing a positive payment, because the
purpose of a restrictive covenant is to restrict certain behaviours. A ransom strip would require careful
monitoring to ensure that prescriptive rights do not develop over time and, in itself, the retention of a

17. 16
ransom strip without any background agreement dealing with future payments will not protect payment or
ensure that best consideration is achieved on the sale of the original site.
The most common method of protecting an overage is by way of a positive covenant in a contract protected
by a restriction on title. This prevents the property from being disposed of by a purchaser without the
consent of the beneficiary under the overage agreement – in this case, the local authority. A positive
obligation in the contract would also require that the restriction is removed, or consent is provided, upon
payment being made. We will therefore consider the drafting issues arising from this type agreement in the
remainder of this article.
Trigger events
Whilst the length of term for the overage agreement and the overage percentage (i.e. the percentage of any
increase in value that will be payable to the beneficiary) are the headline points that everyone looks out for,
there are a number of other key terms that need to be agreed that are of equal importance.
The first of these is the trigger event -the event that has to occur to trigger the requirement on the
developer to make the overage payment.
Common trigger events for overage agreements include the implementation of a planning permission or sale
of the land with the benefit of a new planning permission by the developer, both of which are relevant where
the overage agreement is specifically trying to extract an additional payment in connection with a
development. The date of granting a planning permission is one that the seller might want to agree, but this
is likely to be resisted by the developer on the basis that the date of obtaining the planning permission is not
necessarily the same date that they decide to proceed with the development. Moreover, it will not be the
date on which they actually realise the increase in value. It is only when the developer has begun actual
implementation works that it is likely to have its funding in place, and when it sells the land on to a third
party that there will actually be cash available to pay the overage.
However, if the local authority’s main concern is to ensure that it has not sold the land at an undervalue and
is not going to be embarrassed by the purchaser ‘flipping’ the land on at a profit very soon after completion
of a sale, then it will be important to ensure that disposal of the land (with or without planning permission) is
an a trigger event for paying overage.
Where a landowner is selling land to an SPV for development, then you will also want to consider another
trigger: the change of control of the company or sale of a certain percentage of shares in the SPV to a third
party. This helps to avoid the risk of the developer simply selling the shares in the company, rather than
transferring the land and thereby avoiding the overage payment, although this is more difficult to monitor as
a Land Registry restriction will not prevent the sale of shares.

18. 17
Planning permission and relevant development
Where the overage agreement makes reference to ‘planning permission’, care needs to be taken in defining
what that constitutes “planning permission”. For instance, is outline permission sufficient? Or does a
developer need to obtain a detailed planning permission? What about works done pursuant to permitted
development rights where no application is actually made for permission?
A further relevant question is who needs to make the planning application in order for it to be a planning
permission relevant for overage? In Microdesign Group Limited v BDW Trading Limited [2008] the party
benefitting from an overage payment applied for planning permission in order to try to inflate the value and
therefore the overage payment. Although the contract was silent on who must apply for a planning
permission for it to trigger the overage agreement, the court held in favour of the developer. Accordingly,
the overage was calculated on the basis of the developer’s planning permission, rather than the beneficiary’s
planning permission. This seems fair, but highlights how careful thought and drafting will help to avoid
uncertainty and unnecessary litigation.
Being specific about what type of development triggers overage is also important. T can be by reference to a
specific type of development, or by reference to all types of development but excluding certain permitted
developments. Referencing a development pursuant to an existing planning permission would also be helpful
in ensuring clarity. Reference to the Use Classes Order is also a common way of identifying types of
development that trigger, or are permitted by, an overage agreement.
The case of Harris v Berkeley Strategic Land Limited [2014] EWHC 3355 offers a perfect example of a lack of
sufficient detail in the drafting of an overage agreement. In this case, overage would be triggered by
development of ‘residential accommodation’ (amongst other types of development) on land sold to the
developer. There was an argument over whether 60 flats in a care home development were ‘residential
accommodation’ within the relevant definition in the overage agreement. The developer defending the claim
argued that the 60 units were Use Class C2 residential ‘institutions’ - and so this was not a development that
would trigger the requirement to pay the overage. The court held that, even if there was a planning
distinction between C2 and C3 developments, the development was one that involved units of residential
accommodation and so was caught by the overage agreement. The overage agreement did not specify that a
development had to be C3 (i.e. what might be commonly considered to be residential development rather
than a care home development) but referred more generically to residential accommodation. This case
provides a perfect warning of why simply saying ‘residential development’ as being a trigger is not sufficient
and more thought should be put into what is actually intended.

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Type of disposals
A common trigger for payment of overage is the disposal of the relevant land with the benefit of a new
planning permission. Again, it can appear to be a case of referring simply to disposals, but careful thought
needs to be applied to those categories of disposal which are relevant, and what the impact of that disposal
is on the overage agreement.
The obvious trigger for overage is a sale or transfer of the whole or part/plots with the benefit of planning
permission.
However, some thought should also be given to what happens if a lease is granted. A distinction may need to
be applied between long term leases granted for a premium, and shorter term leases granted at a market
rent. Developers may wish to exclude the latter, but sellers would want to include the former to ensure that
a buyer cannot avoid the overage payment by granting a long lease for a premium and then the long tenant
carrying out the development instead.
Developers would also want to exclude the grant of easements, leases or transfers to utility providers as
typically these will be for no value but would also be necessary as part of the wider development.
The grant of mortgages or charges to lenders is another typical exception requested by developers, as lenders
are unlikely to enter into the necessary deed of covenant confirming they will be bound by the overage.
When drafting the agreement, you should ensure that any disposals by a lender exercising the power of sale
trigger the overage so that restrictions should reflect this.
In addition, consideration should be made of whether the overage falls away once a disposal has been made,
and any overage payment has been paid, or whether the overage should bind the land for the duration of the
overage agreement. In the latter case, there could be multiple triggers down the line for subsequent
developments and, unsurprisingly, this is an option that developers do not favour. However, if the overage is
a one-time only trigger, then there is a risk of a developer pursuing a ‘soft’ application that does not result in
a significant increase in value, settling the overage liability and then applying for and obtaining more
valuable planning permission and avoiding any further payment to the beneficiary.
Market value or revenue linked?
Once it is established that overage has been triggered by a developer and that a payment is due, the level of
payment must be calculated. In higher value disposals, this is where a significant portion of the negotiations
are likely to take place and expert advice should be obtained to ensure that the maximum value (or simply a
fair value) is extracted from the developer.

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It is quite common to link the payment to the increase in the market value to the property resulting from the
relevant trigger event. The parties would agree to value the property as at the date that the overage
payment is triggered, once with the benefit of the planning permission, once without the benefit of the
planning permission, and the difference in the two values used for the purpose of calculating the overage
payment. An alternative mechanism is for a payment to be made by reference to profit or revenue received
by a developer due to carrying out the development. In either case there is a need for co-operation between
the parties – whether in agreeing the valuation of the land or reviewing the developer’s accounts in order to
agree the overage payment. It is therefore essential that an adequate dispute resolution clause is inserted
into the contract to deal with situations where there the parties cannot agree.
There is also likely to be extensive debate about the development costs that can be deducted before the
overage payment is made. It is not unreasonable for certain costs to be deducted, as a developer incurs them
to achieve the increased value or the revenue that the previous landowner is seeking to benefit from.
However, careful thought needs to be placed on those costs that can be deducted, and who determines those
costs. If a developer is given free rein to deduct any costs at its discretion, then there is a risk that some
costs are included that were not essential to achieve the increased value. Therefore, a mechanism should be
agreed that gives the benefiting party the ability to either cap or approve eligible costs, review accounts and
invoices to ensure validity of costs, or at least ensure that only ‘reasonable and properly incurred’ costs are
factored in to the calculation.
Great care needs to be taken over any formulae used in calculating the eventual payment, particularly on
larger development where there are a number of factors taken into account when calculating the overage.
Again, there is case law that can identify the risks here, with the case of George Wimpey UK Ltd v VI
Components Ltd [2005] EWCA Civ 77. In this case the overage formula was so complicated that no one noticed
when part of the formula was missed off on the twelfth round of negotiations, which resulted in an
unexpected windfall for the seller.
Summary
There is certainly no such thing as a one-size fits all overage agreement and so adequate time and thought
needs to be applied to negotiations of all parts of the overage, not just the payment percentage. Other key
elements of an agreement to be considered:
 how is the overage going to be protected? A restriction should be placed on the title to prevent sales
without consent being required
 what type of development will trigger the requirement to make an overage payment and are both
parties clear on the specifics of this?
 what type of disposals of the land will trigger the requirement to make an overage payment? It may
be that certain disposals are to be permitted without triggering the payment requirements, such as
to utilities providers or highways agency

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 how is the payment calculated? Reference to a surveyor to calculate the increase in the land value or
an accountant to review the income and expenditure accounts kept by the developer might be
necessary
 is the formula accurate? Work it through using different figures to ensure you get the outcome you
want.
Particularly in the case of more complicated overage agreements, it is worth getting advice from land agents,
valuers and solicitors during the heads of terms stage to ensure all issues are covered off early on, rather
than during the drafting of the documents, which can cause delays later on in the deal.
Kassra Powles | +44 (0)115 908 4806 | Kassra.Powles@brownejacobson.com