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Overage Payments

Overage Payments- Court implies obligation to sell
The High Court has implied an obligation to market and sell into an overage agreement, to prevent the overage payment being delayed indefinitely.
The overage agreement obliged the buyer to apply for and use all reasonable endeavours to obtain planning permission for a residential development, but did not oblige the buyer to market or sell the houses, once developed.
The buyer attempted to play this omission to its advantage, as the overage payment was linked to the sale of the newly constructed houses. Once the development was complete, the buyer occupied one of the houses himself and let out the remainder on short-term tenancies, arguing that he could delay his obligation to pay the overage indefinitely.
The court held that a term should be implied into the agreement to require the buyer to market and sell the houses within a reasonable time. Without the implied term the agreement would lack practical or commercial coherence.
This decision is a reminder to parties negotiating complex overage provisions to consider all the possible outcomes of the development process and to provide for them in their drafting. The court will apply a stringent test when deciding whether to imply a term into an agreement, especially where it has been heavily negotiated, and there can be no guarantee that the courts will agree to fill in a gap in a commercial agreement (Sparks v Biden [2017] EWHC 1994 (Ch)).

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