Overage and manifest error: Always pack a parachute!

The Case in Brief: A Corporate Disagreement with Rural Relevance

The legal agreement in WH Holding required any dispute about payments to be resolved by an independent expert. This mirrors the typical structure of overage clauses in land sale documents, which commonly include expert determination provisions.

In this case, the expert was asked to decide whether certain share transactions triggered payments owed under the contract and, if so, how those payments should be calculated. The expert’s approach blended two different calculation methods rather than following the contractual formula strictly. West Ham argued that this amounted to a manifest error, meaning the decision should not be binding. Both the High Court and the Court of Appeal agreed. 

What Counts as a “Manifest Error”?

Challenges to an expert determination are relatively rare. However, the Court of Appeal clarified and repeated in its judgement that a determination can be set aside if there is a mistake that is:

• Obvious
• Easily demonstrated without lengthy investigation and
• Significant enough to change the outcome

This is a deliberately high threshold.

Crucially, the court noted that the relevant contractual provisions were commendably clearly drafted. That clarity made it straightforward to identify where the expert had gone off track.

For landowners, this is a vital point: the clearer the overage clause and the valuation process as to what is or is not included in the calculations, the easier it is to enforce and protect the right to receive payments.

Why This Matters for Landowners

In a property context, overage typically arises where land is sold for current use value but seeks to collect additional value at a later stage where development potential has arisen - perhaps housing, commercial use, diversification, or strategic promotion.

However, a landowner’s ability to benefit from overage is only as good as the drafting. Poorly prepared agreements create problems such as:

• Ambiguity over when overage is triggered
• Unclear definitions of what counts as a “disposal”
• Vague formulas for calculating uplift
• Unrealistic or missing valuation assumptions
• Misunderstandings about deductible items, costs, or any retained land.

A practical example from recent experience

We have had experience of a situation where a developer purchased land that was subject to an existing overage. The view was taken on acquisition that the overage had been so poorly drafted that if operated it would be likely to produce a low valuation amount. From that perspective, it’s existence was of limited concern and a notional value was ‘priced in’ to the sale price. 

When planning permission was granted, the overage was calculated but produced a figure far below that which the landowner had expected, which clearly would have been a source of extreme disappointment. 

In contrast to WH Holding, the issue stemmed from how the original overage agreement had been drafted, rather than this being an error in the valuation methodology.

The landowner’s only potential remedy in this situation would have been to allege manifest error in the expert’s assessment. However, this never materialised and the expert’s determination held. The key point is that based on this case and others, the threshold for manifest error is high.

Key lessons for landowners preparing an Overage Agreement

1. Invest in clear, robust drafting - avoid ambiguity. Define all triggers, calculations, deductions, timeframes and disposal events with precision
2. Don’t rely on the expert to “fix it later” - experts apply what is written. If the document is unclear, the outcome may be unpredictable and difficult to challenge
3. Expect disagreements - overage often involves long timescales, shifting values and different incentives between buyer and seller. Clarity is your best protection
4. Use specialist advisers – overage in a rural / agricultural context is deceptively complex and it is not advisable to simply run off a template without giving serious thought as to how overage might be activated and determined.

Conclusion

For landowners, particularly those selling land with potential for future development, overage can be a valuable tool for securing long term value. But it must be approached with care.

The WH Holding decision shows that while courts will set aside expert decisions in rare cases of manifest error, they will not come to the rescue of a poorly drafted overage mechanism. The best protection is to ensure the agreement is robust from the outset, so that any expert determination is straightforward, defensible and reflective of the parties’ intentions.

If it is likely or theoretically possible that development may occur on land intended to be sold then the safest approach is to obtain sophisticated, early, advice. A well drafted and protected overage clause is the landowner’s strongest safeguard for securing value for future generations.