Sharing the developer’s profit
25 June 2010
RSLs are increasingly funding regeneration schemes by way of profit sharing with developers. This inbrief guides RSLs on what to watch for in negotiating and documenting overage payments in order to secure maximum profits
What is overage?
The social housing element of regeneration schemes is increasingly funded through cross subsidy from market sales, rather than through traditional grant funding. Typically the RSL transfers part of the regeneration land to a private developer (generally the part that overlooks the park, far away from the sewerage plant and the railway tracks where the social rented housing will be!). The developer pays the RSL the open market value of the land, builds housing for market sale on that land and contracts to pay the RSL a share (for example 50%) of the sale receipts in excess of an agreed base sale price (for example £150,000 per home). RSLs enter into overage agreements all the time to secure a share of the developer’s profits to cross-subsidise the affordable housing elements of the scheme.
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