18 Jun 2026
By Eoin McFadyen, Solicitor at Gilson Gray.
When buying or selling commercial property, the agreed price is not always the end of the story. In many transactions, a property’s true value could depend on what may happen after completion, particularly where there is future development potential.
That is where a clawback agreement comes into play.
Clawback provisions can be a common feature of Scottish property transactions and are designed to protect a seller’s interest where a property could become significantly more valuable in the future. For buyers, they can also help unlock deals that might otherwise stall due to uncertainty around development value.
This article explains what clawback agreements are, when they are commonly used, and the key issues parties should consider when negotiating them.
A clawback agreement is a contractual arrangement that entitles a seller to receive an additional payment if a specified event occurs after the property has been sold.
In practical terms, it allows the seller to “claw back” part of any increase in value achieved after completion.
The additional payment is usually triggered by events such as:
Clawback arrangements are particularly common where land has potential for residential, commercial or mixed-use development, but that potential has not yet been fully realised at the date of sale.
Clawback provisions are most often used where a property has possible development value, but the extent of that value is uncertain at the time of the transaction.
From a seller’s perspective, clawback helps avoid a situation where land is sold too cheaply, only for the buyer to secure planning permission shortly afterwards and benefit from a substantial uplift in value.
From a buyer’s perspective, clawback can make a transaction commercially viable by avoiding the need to pay full value upfront for development potential that may never materialise.
The most common scenario involves land sold without planning permission but with possible realistic development potential in the future. The seller may agree to a lower initial price in exchange for a right to share in any future uplift once planning consent is obtained.
Local authorities, charities and other public bodies frequently use clawback provisions when disposing of land. This helps demonstrate that they are achieving best value if the property is later developed at a profit.
Clawback can also feature alongside option agreements or conditional missives, particularly where development timescales are uncertain or phased over several years.
Some clawback arrangements remain in place for well over a decade, especially where strategic land is expected to appreciate significantly over the longer term.
Although every agreement is bespoke, most clawback provisions address four key issues:
Trigger Events
The agreement must clearly define the event that triggers payment. Common examples include:
Calculation of the Clawback Payment
The agreement will also specify how the additional payment is calculated. This is commonly structured as:
The drafting should clearly explain how the uplift is assessed, when valuation takes place, and which assumptions apply.
Duration of the Clawback
Clawback rights usually apply for a fixed period, often 10 or 20 years.
Sellers generally seek longer protection periods, while buyers will usually push for shorter time limits to preserve future flexibility and marketability.
Security
To ensure the obligation remains enforceable, sellers will often require security over the property.
In Scotland, this usually includes a standard security being registered against the property. This ensures future owners of the property are aware of the clawback agreement.
Because clawback provisions can affect a property for many years, careful drafting and negotiation are essential.
Trigger events should be tightly and precisely drafted.
For example, parties should consider whether minor planning variations, technical consents or temporary permissions could unintentionally trigger payment obligations.
Ambiguity can create significant commercial and legal risk.
Clawback liabilities can affect:
Buyers should ensure that any proposed structure is acceptable to funders and commercially workable in practice.
Security arrangements may complicate:
Negotiations often focus on agreeing mechanisms for release once certain milestones are reached.
Buyers will usually seek to deduct costs incurred in achieving the uplift before any clawback payment is calculated.
These may include:
The treatment of deductible costs is often heavily negotiated.
The parties should also consider:
These issues can significantly affect the long-term marketability of the property.
Clawback agreements are often discussed at heads of terms stage, but their implications can last for decades.
Once secured against title, they may affect future financing, development and resale opportunities long after the original transaction has completed.
Poorly drafted provisions can lead to:
Obtaining legal advice at an early stage can help ensure the agreement strikes an appropriate balance between protecting future value and preserving commercial flexibility.
Clawback agreements are a well-established feature of Scottish commercial property transactions, particularly where development potential exists but cannot yet be fully valued.
When properly structured, they can provide a practical solution for bridging valuation gaps and allocating future risk between buyer and seller. However, because they can affect the use, value and marketability of property for many years, careful drafting and early negotiation are essential.
Whether acting for a buyer or seller, understanding the commercial and legal implications of clawback provisions is critical to achieving a workable and commercially sustainable deal. We can support you with this.
| Eoin McFadyen Solicitor, Real Estate |
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any contained in this blog, please seek solicitor’s advice from Gilson Gray.
