hughpinder
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| posted on 3/12/15 at 08:37 PM |
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Restriction on buying a house
Hello all
Can anyone tell me if this is legal?
I am buying a house. We have paid for the survey for the mortgage and structural survey and have received the contract. On the contract the seller has
a restriction that they will get 50% of any increase in value from development of the property for the next 125 years if we sell, and also that all
changes must be accepted by some old girl who lives miles away before they can happen . This restriction was inserted by the previous owner with a
provision that he must pass it on if he sells and that part of the contract is that we would have to pass it on too. Since one of the reasons we were
buying was that it has outline planning permission to add more windows and extend the property (its a barn in the lakes) we find it surprising that
this wasn't mentioned before!
Is this enforceable, if so we will walk away and accept a £2k loss on what we've done so far, rather than spend money instructing our solicitor
to try and change it which would cost us even more. The extension etc would cost £100k and it would mean giving half to them, which would mean we
would have to add 200k to the property value(it won't be anywhere near that)and have to give half the change in price to someone else! Or do we
just say no way and they have to change the contract?
If we can tell them this is not enforcable, is there any legal precedent we can quote?
Thanks for anyone who can advise us on whether its worth pursuing, or whether the clause is effectively unchangeable
Hugh
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Sam_68
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| posted on 3/12/15 at 09:08 PM |
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Yes, it's legal, and not unusual if a property has development potential.
It's referred to as an 'uplift clause' or 'overage clause'. If you Google either of those two terms, you'll find
plenty of information.
The usual intention is to prevent you making millions by demolishing (say) a bungalow on a huge plot of land and replacing it with a dozen new-build
plots, without the original vendor making any profit out of it... it's not usually intended to claw back a small uplift in the property
value resulting from you adding an extension or a loft conversion, or a double garage, or whatever, but (depending on the precise wording of the
clause and its clarity) you may need to take the advice of a Solicitor on whether it could be enforced in such a way, in this instance.
Edited to add:
Unlike restrictive covenants of the 'no caravans or commercial vehicles on your drive' sort (which are often imposed by developers to keep
a development looking tidy and uniform for the duration of marketing, and about which they really don't give a toss once the development is
complete), overage clauses are usually very enforceable indeed, and - as you'd expect where large sums of money can be involved - are
often keenly pursued.
[Edited on 3/12/15 by Sam_68]
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mark chandler
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| posted on 3/12/15 at 09:09 PM |
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Unfortunately I think you know the answer, you have been misled into committing money 
We did not like the restriction on our house about planting hedges out front as the estate was designed as open, however the building contractor
folded 20 years ago and everyone has defined their front gardens....
All you can do is feed a solicitor more money to see if it's enforceable, and question the wording as it must be quite hard to define additional
value so you can probally minimise some of the impact.
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Andi
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| posted on 3/12/15 at 09:12 PM |
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We are not allowed to make bricks commercially from our land..... Wtf?
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daniel mason
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| posted on 3/12/15 at 09:24 PM |
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If you do go ahead, there's several tradesmen in the lakes who use this forum.im just south of Kendal for example! (electrician) and
there's several others including joiners etc
Good luck!
[Edited on 4/12/15 by daniel mason]
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steve m
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| posted on 3/12/15 at 09:52 PM |
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If I was you, we would pull out, and sue them for your costs, for wrongly advertising as it was not explained when you viewed the property
steve
Thats was probably spelt wrong, or had some grammer, that the "grammer police have to have a moan at
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Sam_68
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| posted on 3/12/15 at 10:00 PM |
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The other thing to bear in mind (again, depending on the precise wording of the clause, and something you'd need to discuss with your solicitor)
is that with something like an extension, there usually isn't any immediate uplift in the value of the property.
ie. spending £100K on an extension will usually NOT add £100K to the value of the property.
You can (depending on the wording of the clause...) usually deduct the cost of implementing the work, including costs of design and obtaining
approvals, from the resulting uplift in value. So, for example, if you spend £100K on an extension that results in an increase in value of £75K, there
is actually a £25K negative uplift, so you don't owe anything to whoever the uplift clause benefits.
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perksy
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| posted on 3/12/15 at 10:00 PM |
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Hmmm that seems very naughty
To be fair if you knew this in the first place would you have gone to the expense of the survey etc
Think I'd be asking the Estate agent what they knew and then taking legal advice
[Edited on 3/12/15 by perksy]
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ravingfool
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| posted on 3/12/15 at 10:11 PM |
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You've already got a solicitor... Talk to them!
They should be advising you on this.
Also you may be able to recover your losses from the agents under the new regulations but you should make a point immediately of raising this with
them so they can't suggest you left it, pulled out for some other reason, and it's nothing to do with them.
Agents may not have known about it either but that doesn't seem to protect them from the ombudsman!
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Sam_68
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| posted on 3/12/15 at 10:14 PM |
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Sorry...
Further thing to bear in mind (having read your OP more thoroughly): uplift/overage clauses are often triggered by obtaining planning consent (and are
linked to the uplift in value engendered by the consent).
You mention that it already has Outline permission to do the work?
...in which case, the 'uplift' may have already occurred (when the Outline consent was granted), in which case it would the current vendor
who has benefited from the uplift in value, and therefore them who owes money to the old girl who originally wrote the clause into the
contract.
But as ravingfool has said, talk to your solicitor - that's what you're paying them for. 
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trextr7monkey
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| posted on 3/12/15 at 10:16 PM |
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We lived in the National Park for 7 years and pandered to the many whims of the LDNPA but we now live just a few miles outside. A very nice farm house
came up for sale a few years ago and a load of barns which had similar clauses attached which made them complete non starters as it seemed by
definition converting the barns would dramatically increase their value. It seems very greedy on the part of those selling!
http://www.flickr.com/photos/14016102@N00/ (cut and paste this dodgey link)
Our most recent pics are here:
http://s129.photobucket.com/albums/p211/trextr7monkey/
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Sam_68
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| posted on 3/12/15 at 10:21 PM |
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quote:
Originally posted by trextr7monkey
A very nice farm house came up for sale a few years ago and a load of barns which had similar clauses attached which made them complete non starters
as it seemed by definition converting the barns would dramatically increase their value. It seems very greedy on the part of those selling!
Off topic (ish), but it would be interesting to see what the legal view would be where this situation has now been defeated by the fact that it has
been made 'Permitted Development' to convert redundant farm buildings to dwellings.
If the overage clause had been written in the normal way, such that the overage payment is triggered by obtaining Planning consent, then the fact that
the work no longer needs consent would seem to be a loophole by which you could avoid making any overage payment.
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geoff shep
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| posted on 3/12/15 at 10:30 PM |
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And doesn't he say that they are only liable to cough up when they sell - not just when they have added potential value.
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Texan
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| posted on 3/12/15 at 11:07 PM |
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I feel for you. I own a mortgage company in the States so I'm always interested in how other people do things. I have never seen this exact
situation but I've seen more than a few screwy deals and surprises in the 40 years I've done this. I don't want to muddy up the
water on the situation you've got going but I've got a few questions if you guys wouldn't mind answering them.
But first, over here the real estate agent would be liable for your expenses because they didn't disclose the facts to you before you spent your
money. You wouldn't necessarily have to sue because you could report them and they could lose their licenses if they didn't pay up
&/or you could get compensation from a special Recovery Fund the govt. requires the agents to contribute to just for things like this. Do you
guys have a licensing requirement? If so maybe you could file a complaint with them. I'd definitely check there before spending money on a
solicitor.
You guys don't even write a contract until you've spent £2K on inspections? How do you know it's worth spending all that money if
you don't know if you can come to a meeting of the minds?
You said this was a "barn in the lakes" does this mean an actual barn that you will now have to convert into a house or is a barn just a
type of home?
This type of thing would be called a "deed restriction" over here and would indeed "run" with the property when sold although
I'm not sure that exact type of profit sharing arrangement thing would be legal here except on the original owners, but one of the largest
shopping malls in the Dallas area reverted to the original family intact with all the tenants and money stream a few years ago through a land lease so
possibly a sharing the profit aspect could be legal here too. Just glad I've never run into one.
Keep in mind that many things have cost but no, or little, value when we're talking about improving houses but you need to know what the
original owner defined as profit. Surely you would not have to be giving him increases in value checks along & along, but only when you sold and
"reaped" those profits. That's where a solicitor would come in handy.
Also do you mind if I talk about this over here, without mentioning names of course? It could be very instructional.
I drive therefore I am.
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Texan
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| posted on 3/12/15 at 11:08 PM |
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Double post
[Edited on 3/12/15 by Texan]
I drive therefore I am.
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hughpinder
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| posted on 3/12/15 at 11:59 PM |
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Thanks All, especially Sam_68.
The wording is actually the assessed increase in value, so my costs would not be included - If I spent £100k and the value goes up £100K I would still
owe £50k. Having re-read the contract several times it's actually worse than I thought - it is actually due on the change in assessed value when
planning permission is applied for, and who know if you would ever be able to sell at that value! An interesting point was made by Sam_68 about the
payment being due on making the application for planing, which is why I re-read the contract - that clause is in the contract, and has clearly not
been paid so I'll have to see where we stand there - (there is also an 'interest on monies owed at 4% above base rate' clause!). The
contract is neatly tied up as it even specifies the old girl or her estate, so we couldn't even just hope that she passes on and the condition
dies with her. At the moment I think we will not proceed with the purchase, but we'll see.
Texan, the property is a barn that was previously converted to a house. I have spent money in advance of the 'cheapest' route to speed up
the purchase -- you can do the 'search' and apply for copies of the deeds which should reveal the restrictive condition (Eden council
currently takes 8 weeks to do the search), which both cost very little, then get the structural survey done, apply for the mortgage (who also have a
survey done and charge an indemnity which came to half the money) and instruct solicitors, but if you do it all cautiously you can have months of
delay, and we wanted to get things moving quickly. There were no disclosed issues that we could see in the proper listing. We probably have a case
against the seller or estate agent, as the office of fair trading changed the rules a couple of years ago from the system where it was the buyers
problem to ask the right question, to one where it is the sellers/estate agent who have a duty to disclose anything that could affect the value of the
property, and this obviously does. If the property were cheap, they might have been able to argue that the restriction was allowed for in the price,
but it is actually at the top end of the market, we just really liked it and were prepared to pay at that level. It seems unwise to have pressed on
now of course! Unfortunately the contract is for 50% of the estimated increase in the estimated value at the time the planning is applied for and does
not allow for the cost of development. Obviously we do not find this in any way acceptable! I am quite surprised the previous buyer accepted it to be
honest (although maybe that was 30 or 40 years ago when property was cheap - I don't know)
Once again, thanks everyone
Regards
Hugh
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mark chandler
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| posted on 4/12/15 at 12:00 AM |
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Unfortunately in England you can get screwed over when buying houses, until you have exchanged contracts you are at risk.
On a rising market it's not unknown for the seller to increase the price at the last minute, you may have already committed a load of money and
to pull out can impact your ability to buy elsewhere or they get a better offer and just drop you.
It happened to me years ago in the 80's, we started off looking at 4 bed terraced houses, with our small deposit could get a mortgage, after
being shafted 3 times ended up with a 2 bedroom flat as the deposit was so erroded by this our purchasing power dropped by around 20% then after
exchange so committed the building society demanded £1,500 indemnity insurance before they would release the money so had to load my credit card.
It took literally years to get straight... It sometimes sucks in the UK
Most of the time it's great 
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ravingfool
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| posted on 4/12/15 at 12:27 AM |
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UK system is fundamentally different to the states as we do all our investigation of title before exchange of contracts.
The reason being that you don't want to commit yourself to purchase a property (or anything) until you've done your due diligence.
That means in the UK you can pull out at any time on either side for any reason until exchange.
In the US and frankly most other places you exchange, then do due diligence, and your excuses to pull out later are very restrictive and essentially
only on grounds of title defect as I understand it.
Sounds mad to me. There is so much defective property I wouldn't want to commit to a chain without everything being in place but I'm sure
our system seems odd to others.
With respect to this overage agreement don't worry until you've got some proper advice. It sounds bad yes, stop paying out money until you
really understand what the situation is but the tiny bit of wording you've referred to is completely meaningless out of proper context. You need
your solicitor to explain it to you and advise.
Nobody should be speculating for you because almost anything is possible and only by reviewing the whole title will it be possible to advise you
properly.
Hope it isn't as bad as you fear.
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Sam_68
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| posted on 4/12/15 at 01:00 AM |
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quote:
Originally posted by ravingfool
With respect to this overage agreement don't worry until you've got some proper advice. It sounds bad yes, stop paying out money until you
really understand what the situation is but the tiny bit of wording you've referred to is completely meaningless out of proper context. You need
your solicitor to explain it to you and advise.
Nobody should be speculating for you because almost anything is possible and only by reviewing the whole title will it be possible to advise you
properly.
^^^^ This, absolutely.
Incidentally, I've never heard of an overage clause that was triggered by application for Planning - that would seem bizarre. It's
usually upon grant of Planning.
And whilst not impossible, it would be most unusual to come across an overage clause on actual development that is based on gross uplift in
value, rather than net (ie. deducting the actual cost of implementing the changes that result in the increased value), so I'd definitely discuss
that one with your solicitor. Of course, purely the act of gaining planning permission can dramatically increase land value, without actual
development taking place - in extreme circumstances agricultural land might be worth £10K per acre, but an outline Planning Permission for residential
development could instantly add a couple of zeros to the end of that figure...
If the clause is genuinely so punitive as to be based on gross uplift, it tends to suggest that it was put in place to prevent further
development of the property by making it financially non-viable (which can happen when little old ladies decide that they want to prevent their
beloved home being 'vandalised' by developers/speculators after they've gone).
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Theshed
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| posted on 4/12/15 at 06:47 AM |
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This is one of those things that the internet can confuse rather than solve. This is what you pay a solicitor for. If you really want a locost
approach look at Cosmichome Ltd v Southampton City Council which might give you some comfort......
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owelly
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| posted on 4/12/15 at 08:09 AM |
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I spent £16,000 NOT buying three houses. One of those houses had a 'Clawback Clause' which sounds the same as we're talking about
here. I spotted it fairly early in the proceedings even though it was buried and changed the wording without the sellers noticing.....then got
gazumped. The guy who bought it turned the £300,000 farm into a £1,250,000 showhome and is now fighting with the original landowners....
http://www.ppcmag.co.uk
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geoff shep
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| posted on 4/12/15 at 09:33 AM |
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quote:
Originally posted by hughpinder
.... a restriction that they will get 50% of any increase in value from development of the property for the next 125 years if we sell....
He said - if we sell. So surely it doesn't matter how much it is extended, unless it is sold.
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loggyboy
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| posted on 4/12/15 at 09:39 AM |
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I didn't think a contract can be passed on. What ever was agreed with the previous own can surely be struck out of yours.
[Edited on 4-12-15 by loggyboy]
Mistral Motorsport
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hughpinder
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| posted on 4/12/15 at 01:45 PM |
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Unfortunately the solicitor confirms it is actually as bad as it sounds, and has been really well tied up by the original contract, but also that the
seller obviously new about the clause and did not tell us, so we have a good case for recovery of costs if we want to go for it. The solicitor is
going to see if we can do a deal with the old dear to pay for the restriction to be removed at some reasonable price - as far as we are concerned this
is the only way we can continue with the purchase (unless they knock about 1/3rd off the price), and we would expect the cost of the buy out to be
knocked off the purchase price. Even the mortgage valuation was based on the property being freehold, and I don't believe that to be the case
with this condition in place.
Regards
Hugh
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