NHS estates: overage and clawback update

It is very common for NHS bodies to include overage and clawback provisions on the sale of surplus premises. In fact, it is a requirement of HBN 00-08 (Estatecode) that the inclusion of overage or clawback is considered on all sales. 

Overage is generally used to allow the NHS body to share in a future uplift in value of the land being sold, for example, on the grant of a future planning consent for alternative use or for a greater density of development. Clawback, which is also sometimes known as anti-embarrassment wording, is a method of ensuring that if the subject property is sold on undeveloped, then the NHS shares in any value increase (and so prevents the embarrassment of former NHS land being sold on for a profit). Overage and clawback arrangements normally require complex legal drafting, in order to ensure that when the relevant circumstances arise, the payment becomes legally due and the buyer cannot escape the obligation. There are some developers that are happy to agree overage but less enthusiastic about actually paying it…

Overage and clawback are both normally imposed for a period of time, usually for between 5 and 15 years following the sale, after which the provisions fall away. The usual method of protecting the arrangements is by a chain of deeds of covenant and the entry of a restriction at the Land Registry. However, a recent case in the Upper Tribunal (Lands Chamber) makes clear that the interaction between the restriction release wording in the overage deed and the overage period is extremely important. 

Carlton Vale Limited v Gapper [2023] UKUT 141 (LC)

The Carlton Vale case concerned an overage agreement and a number of points came before the Upper Tribunal for consideration. Most relevant for NHS bodies, and their lawyers, was the issue of release of the restriction at the end of the overage period. 

The overage agreement provided for the protection of the Land Registry restriction to be removed at the end of the overage period of five years. As it happens, at the end of that period, an overage payment was owed by one party to the other and had not yet been paid. The beneficiary (Mr Gapper) naturally sought to withhold release of the Land Registry restriction until the overage was paid. 

Based on the wording of the agreement, the Upper Tribunal ordered that the restriction should be released, notwithstanding that overage was payable but had not been paid. This removed a significant protection for the beneficiary and a powerful means of ensuring that payment was received. 

Careful drafting needed…

A number of commonly used overage agreement precedents would have allowed the removal of the restriction in the same circumstances as in Carlton Vale – that is, where the overage period has ended but there is overage outstanding. It is important that NHS bodies entering into overage or clawback arrangements on surplus land disposals include provisions that fully protect their position and ensure that the Land Registry restriction remains in place until any overage that is due has been paid (even though the end of the overage period may have ticked over). 

At Hill Dickinson LLP our market leading health real estate team regularly advise NHS bodies on complex land disposal projects, including the imposition of overage and clawback. We always respond to the latest case law to ensure that our client’s position is protected and in-line with best practice to ensure that any loopholes are closed, for the benefit of the NHS.

For more information contact Andrea Proudlock, James Atkins or Rebecca Wakefield.