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Beware of Overage Payments When Developing Renewables Projects

21 November 2012

UK - Landowners looking to develop renewables projects on their land must be aware that there could be overage clauses affecting their land. If the land was purchased in the last 50 years, previous owners may be entitled to a percentage of future capital land value increase as a result of gaining planning permission.

The terms vary on the overage restrictions but generally a clause is designed to bind a purchaser and other future owners to pay the vendor a percentage of the uplift.

For example, a clause may require the purchaser to pay the vendor 50 per cent of the difference between the existing agricultural use value of the land and the value of the land with planning permission for non-agricultural development; such payment to be made on the commencement of development.

Mark Newton, head of renewable energy at Fisher German, comments: “When considering a renewable energy project a landowner may find their land has an overage restriction preventing proposed development unless an overage payment is made to the vendor of the land. If so, it is essential that professional valuation advice is sought to ensure negotiations over the overage payment amount can be negotiated and concluded efficiently.

“We have seen an increase in the number of landowners approaching us for renewable energy valuations for overage claims as well as an increase in due diligence work for lending institutions. Valuations often include the provision of detailed discounted cash flows, analysis of comparable evidence and the production of residual and investment methods of valuation. This takes into account inter alia current power purchase prices for ‘green’ electricity, Feed-in Tariffs or Renewable Obligation Certificates (ROCS) and also outgoings such as rates, insurance and servicing.

“The valuation of overage for renewable energy projects and the negotiations of the payments due is a specialist area and we urge people to seek professional advice to ensure they receive the best deal.”

TheCropSite News Desk

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