An investigation into the use, and valuation methodologies, of development overages in agricultural land transactions

Focussing on the agricultural land sales market this paper investigates the use of development overage provisions, also referred to as clawbacks, in land sales. Land transaction data was collected from agents in the agricultural land agency sector and analysed to ascertain the extent of the use of overage provisions and the terms contained therein. The paper makes three contributions. Firstly, it identifies the wide spread use of overage provisions in agricultural land sales and seeks to determine whether the inclusion of an overage provision has an adverse impact on the final sale price. Secondly it provides insight into common terms, trigger events and methods of security, particularly focusing in on the valuation mechanisms when the overage is triggered. Thirdly it seeks to make a tentative step towards standardising valuation procedures for untriggered overage provisions by interpreting those currently in use. For the long term purpose of understanding whether there could be a market place for untriggered overage provisions, which could ultimately lead to the securitisation of these provisions, in order to create a new real estate investment product.