Using restrictive covenants to secure overage payments
In the recent case of Cosmichome Ltd v Southampton City Council, the High Court considered the suitability of using a restrictive covenant to secure an overage payment.
Overage is a deferred payment that a seller may be entitled to demand after completion of a disposal of a property if a specified condition is met.
An overage obligation must be protected by the seller so that it can be enforced against successors in title to the buyer of the property as well as the buyer itself because the obligation to pay may arise after the original contracting buyer has sold the property on. Without adequate security in place, overage provisions can prove virtually worthless…
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The Court of Appeal has found in favour of a business tenant and decided that a periodic tenancy had not been created in the intervening period.
Careful drafting is usually required for restrictive covenants to be enforceable, although Prophet plc v Huggett provides the exception to the rule.
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