Posted on 27th February 2018

Buyers Should be Aware of Restrictive Covenants to Avoid Costly Mistakes

Martin Williamson, Director and Head of Commercial Property
Martin Williamson, Director and Head of Commercial Property

A restrictive covenant is an agreement that imposes restrictions on the use or occupation of land created in a deed transferring land or a separate deed of covenant. For example, the restrictive covenant may state that a homeowner must ‘not erect any fences within the properties boundaries’ or ‘build without the consent of another party’. There is always a party or parties who benefit from restrictive covenants and a party or parties who have the burden.

If the property is registered, then restrictive covenants can usually be found on the title register that is held at the land registry. The title register will often link to the documents, which contain the restrictive covenants, of which copies can be ordered.

Restrictive covenants bind future owners. This means that when the burdened land is sold, the restrictive covenant remains in place and the new owner is faced with the burden.

When purchasing a house, it is important to be aware of the restrictive covenants and how they will affect the property. For example, if a purchase is being made of a property with the intention to run a home-based business, it must be ensured that there are no restrictive covenants in place that would restrict this.

A restrictive covenant is often created in a document transferring land. For example, the transfer may include a clause stating the owners will ‘not to carry out any building works on or to the property’. Once completed, a copy of the transfer, containing the restrictive covenants, will be sent to the land registry.

If a breach of the restrictive covenant happens, then the land owner who benefits from the restrictive covenant can apply to the court for damages which could result in a substantial amount in compensation being paid out. The land owner could also apply for an injunction; this would stop a property owner from carrying out work. For example, if the restrictive covenant states that building work cannot be done on the land, and a property owner begins building a garage, an injunction would force all building work to cease. If the building works had already been completed, the court may order the garage to be demolished.

Restrictive covenants can be removed in a number of ways. One option is to speak directly with the land owner who benefits from the restrictive covenant. If the land owner agrees to the removal of the restrictive covenant, then both parties can sign a deed of release. This would end the burden of the restrictive covenant. The land registry will remove a restrictive covenant if there is evidence to show that the benefiting land and the burdened land have merged, in other words, if the land has become one under the same freehold title and are owned by the same person.

Another option is to apply to the Lands Chamber of the Upper Tribunal to have the restrictive covenant discharged, however this process can be very lengthy and costly, and is only available in certain circumstances.

In some cases, it may be impossible to trace the owner of the benefiting land. For example, if the covenant is very old, or if the land has been transferred and split numerous times. In these circumstances, the burdened land owner can take out indemnity insurance.

An indemnity policy can offer protection in case a restrictive covenant is breached. This could include covering the payment of damages, legal fees, demolishing and rebuilding, or any loss in value of the property. The price of indemnity insurance would depend on the value of the property and the time it takes to take out the policy. It is important to read any indemnity policy in detail, in order to be fully aware of what it covers. Usually indemnity policy can be passed on to subsequent owners.

Whether restrictive covenants continue to be enforceable by, and binding on, persons other than those who signed the original document creating them can be a complex area of law and it is always wise to take professional legal advice if it is thought that a property is bound by a covenant or a covenant needs to be enforced.

Please note: This article is intended as guidance only. No responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by Latimer Hinks. In addition, no responsibility for loss occasioned/costs arising as a result of any act/failure to act on the basis of this article can be accepted by the firm.