Buying and selling homes and land already has substantial contractual implications, with buyers being somewhat limited what they can do with the property due to planning permission limitations and so on. However, sometimes there’s an uplift clause, also known as a Hope Clause. This may not necessarily be a deal breaker, but it does mean you have to get a little extra advice on what to do when the contract has an uplift clause.
What is an uplift clause?
An uplift clause creates a contractual agreement whereby the person selling the property is guaranteed a part of the profits should there be a change of use or should development substantially increase the value of the property. An uplift clause must include:
- The triggering mechanism
- The percentage to which the seller is entitled to
- The length of time the uplift clause is valid for
- When and how payment should be made and to whom
In the vast majority of cases, the triggering mechanism is a change of use, usually from agricultural or garden to domestic. It may also be triggered by a successful planning application.
A typical percentage is around 25%, although 50% is not unheard of. In addition, periods of 25 years are common, but some have been known to extend the period to 80 years. When conditions become too burdensome, particularly in the case of a 50% handover of value, it’s often better to negotiate it down or walk away from the sale than simply accept it. Alternatively, you may wish to negotiate down the price or offer a higher price without the uplift clause.
Payment is key
The point at which you pay can be the most contentious clause. In some cases, payment must be made 28 days after a successful planning application. This can be burdensome, as it can suddenly increase the value of the property beyond your ability to pay the sum of money required. In addition, if planning permission is granted with impractical conditions, it may still increase the value of the land yet render impractical for you to develop it. Make sure you know How to apply for planning permission to ease the process.
In general, terms should be negotiated so that the payment is only due should the planning permission be acted upon, such as by digging foundations.
Conveyancing charges
The uplift clause is a contractual agreement between the original seller and the original buyer, so there is usually a set of terms in the Land Registry document that insist that you cannot sell the property again unless the same uplift clause is observed. Should that restriction be put in place, it can add extra conveyancing charges when selling the property as the original owner’s solicitor must essentially approve the sale and create a separate contract for the new owner.
In the event that the land has no realistic prospects for development, an uplift clause can add an unreasonable delay to selling the property. In these cases, it’s better if the uplift clause is struck from the agreement where possible. It’s worth reading up on An introduction to conveyancing to make sure you know what to expect.
Land Registry?
Uplift clauses from previous owners generally only appear in the Land Registry documents, so it’s important that you examine them carefully before selling or buying. It can cost as little as £3 to get a copy of the registry documents, so it’s well worth the investment to check whether a property has an uplift clause.