Are you wondering if you can sell a property with a restrictive covenant? Not sure what it all means? You\u2019ve come to the right place to find the answers to your restrictive covenant questions. Let\u2019s get started…<\/p>\n
In short, a restrictive covenant is a set of conditions that have been written into a property\u2019s deeds or contract. They state what a homeowner\u00a0can or cannot do with their house or land. Whilst these can cover a wide range of issues, the most common examples usually include:<\/p>\n
Often, covenants are designed to uphold certain standards for residents. Housing developers and property management companies will add restrictive covenants to a Transfer Deed so as to prevent owners from undertaking work or other practices that could negatively impact an area or undermine a level of \u2018uniformity\u2019 to properties. This can extend to prohibiting the fitting of satellite dishes, parking a large vehicle such as a caravan in the front garden, keeping livestock, or allowing a garden to become overgrown.<\/p>\n
We\u2019ll go into more detail now to give you a better understanding.<\/p>\n
A change of use\u00a0covenant restricts how a property can be used. This could involve turning a residential house into a commercial property, or transforming what was a house into a holiday let. These covenants could prove to be a deal-breaker if the buyer wants to use the property to generate a second income.<\/p>\n
Covenants that cover alterations and modifications\u00a0prevents the homeowner from altering their property. This could be anything from building an extension or replacing the front garden with a driveway, to painting the front door. This is especially something to watch for in new build communities since developers will strive to achieve uniformity and will use restrictive covenants to prevent alterations being made.<\/p>\n
A land usage covenant prevents certain types of building from taking place on a piece of land. Really strict covenants could even restrict building altogether, including wooden or prefabricated structures that don’t require foundations.<\/p>\n
Expensive clauses\u00a0can occur when a property is put up for sale along with access to a large amount of land. You could find that a restrictive covenant is in place that is focused on the financial aspect. A covenant stating \u2018whatever you build on this land, I retain the rights to 50% of its value\u2019 or a charge will need to be paid to enable the land to be used for development.<\/p>\n
There are a number of alcohol-free areas across the UK, with perhaps the most famous being Bournville near Birmingham. George and Richard Cadbury built the village to house workers \u2013 they were Quakers \u2013 and more than 120 years later, there\u2019s still an alcohol ban in Bournville. In fact, it boasts the only alcohol-free branch of Tesco in Britain. This is because of a restrictive covenant that was placed on the land when it was sold to developers.<\/p>\n
According to HM Land Registry data, London had the highest number of restrictive covenants in the country, at 41,785 (as of August 2021). This was followed by Greater Manchester with 5,286 and Merseyside with 2,860. Greater London was the strictest region, with nearly 42,000 restrictive covenants on properties used by its nine million inhabitants, meaning there\u2019s approximately one restrictive covenant for every 90 properties. The Land Registry data also showed that the lowest number of restrictive covenants was in Blaenau Gwent with 43, followed by Powys at 35 and Merthyr Tydfil with just 27.<\/p>\n
A restrictive covenant is applicable to all future purchasers of the property; not just the original purchaser. If you are thinking of buying a house, it\u2019s important that your conveyancing solicitor examines the property deeds to flag up the presence of covenants before you close the transaction. When the title deeds\u00a0have been signed, you\u2019ll be held accountable for any breaches of the covenant.<\/p>\n
Furthermore, you\u2019ll need to know where the \u2018benefit of the covenant\u2019 resides (it\u2019s usually with the current landowner) or whether it has passed onto another individual or a private company. They will be responsible for enforcing any breaches, answering your queries and responding to applications.<\/p>\n
Your solicitor is responsible for highlighting any covenants that are in place, so if they miss one, you can complain to the Legal Ombudsman and the solicitor could be forced to pay compensation because, as mentioned, you\u2019ll be held accountable for any breaches of the covenant after the title deeds have been signed; even if you breached the covenant unwittingly. If you do lodge a complaint with the Ombudsman, keep in mind that they can only award up to \u00a350,000 and, depending upon the covenant that has been breached, you could still be out of pocket.<\/p>\n
The provisions of a covenant\u00a0could (for example) prohibit the building of an extension; making the property less desirable to potential purchasers. In some cases, mortgage lenders could refuse to lend money on properties where a covenant is perceived to adversely affect the future saleability. This is because they need to know they\u2019ll get a return on their loan.<\/p>\n
If this does happen, try contacting the vendor or \u2018successor in title\u2019 and tell them that you\u2019re not able to proceed with the purchase because of the covenant. They may be tempted to remove the restriction if it means they\u2019ll get the sale.<\/p>\n
Fortunately, not all properties will be governed by a restrictive covenant, but you will need to know if a property that you wish to buy has any conditions in place before you complete the purchase.<\/p>\n
It\u2019s the responsibility of your solicitor or conveyancer to undertake detailed local searches during the conveyancing process. Your conveyancer will also need to find out who owns the \u2018benefit of the covenant\u2019, as this isn\u2019t always the person selling the land to you. It could reside with another interested party or a private company that is responsible for administering all covenants and any breaches.<\/p>\n
Going ahead with home improvement work in spite of a restrictive covenant can be risky; even if you think the work you\u2019re doing will genuinely improve your home. Always ask for legal advice because you could be forced to undo all the work you\u2019ve done, and pay compensation to the beneficiary too.<\/p>\n
If you own a property and breach a restrictive covenant, you could be forced to undo any offending work (such as having to take down an extension), pay a fee or face legal action.<\/p>\n
However, if you breached a covenant more than 12 months ago and have not faced a challenge and then you choose to sell the property, restrictive covenant insurance can protect what you have done. Seeking legal advice would be a wise decision.<\/p>\n
Restrictive covenant\u00a0indemnity insurance\u00a0can only be obtained when a covenant has been breached for at least 12 months without complaint. The policy will last in perpetuity and the great thing is that it can usually be passed on to future owners of the property. The cost of restrictive covenant insurance policies will depend upon the number of covenants that have been breached and the perceived level of enforcement risk. What they essentially do is cover the value of loss along with any legal expenses caused by a third party attempting to enforce a covenant.<\/p>\n
If you are considering buying a house that’s got restrictive covenant insurance, check for a clause called the \u2018escalator clause\u2019. This is designed to protect the owner of the policy against the rate of inflation. For the first ten years, the limit of indemnity can be automatically increased by 10% year on year. However, after the ten years has expired, the policy owner might be asked to pay a fee so as to have this period extended.<\/p>\n
In some cases, very old covenants are considered to be unenforceable, either because:<\/p>\n
There are some instances where a covenant is not enforceable in certain situations; such as if the land is unregistered and the original developer did not register appropriate protections.<\/p>\n
Even where a property is registered, checking that a reference in the Charges Register to the property being subject to restrictive covenants contained in an earlier sale would identify if the covenant became binding on first registration. If you are concerned about restrictive covenants on a property you are planning to buy or sell, ask for legal advice.<\/p>\n
If you\u2019re a buyer, don\u2019t instantly dismiss a property that has a restrictive covenant because it could be invalid and therefore unenforceable. If it is, it\u2019ll save you time and money trying to get the restrictive covenant removed.<\/p>\n
A restrictive covenant might be deemed invalid if the person that enforced the covenant has died and the responsibility for the covenant hasn’t been passed on to someone else. However, it could also happen if the person who made the covenant is no longer the lawful owner of the land.<\/p>\n
If this should happen, you\u2019ll need to apply to the Land Registry to have the covenant taken off your title deed. The process isn\u2019t quick though; it can take up to 24 months to process.<\/p>\n
It does happen. There has been an instance of a 64-year restrictive covenant that had previously prevented a large housing development on the site of a former Scarborough college being overturned.<\/p>\n
The Grimsby Institute Group, which owns the former Yorkshire Coast College site, first revealed plans for 139 homes in February 2019 and outline planning permission was granted in July 2021.<\/p>\n
However, a restrictive covenant which meant that only educational facilities could be used on the land had prevented work from progressing. The college \u2013 now called\u00a0Scarborough\u00a0TEC \u2013 moved out to the former University of Hull campus in 2017 and the site remained vacant ever since.<\/p>\n
A report prepared by council officers said that both pre-16 and post-16 education facilities have increased in the town with the opening of the CU Scarborough campus and Scarborough UTC. As a result, it believed there to be a surplus of educational facilities in the borough. When the site was originally sold by Scarborough Council to North Yorkshire County Council in 1958, it was envisaged that its use would be strictly for an educational purpose. However, now the site is deemed surplus to requirements in favour of the housing development. Scarborough TEC, which previously occupied the college building, applied to the authority to lift the covenant.<\/p>\n
Plans to develop the site moved ahead after the restrictions were removed by Scarborough Council\u2019s Inclusive Growth Portfolio holder and the planning application details a site that will include 29 detached homes, 54 semi-detached homes, and 56 townhouses.<\/p>\n
In another case, a High Court judge ruled in 2018 that a restrictive covenant preventing the construction of two new homes on a site currently occupied by one property \u2018clearly impedes the reasonable use\u2019 of the plot in an area undergoing \u2018substantial\u2019 housing growth.<\/p>\n
Developer Broadway Homes (Cambridge) Ltd. had planning permission to demolish a 1960s detached house on Almoners’ Avenue in Cambridge. The company had consent to build two new homes \u2013 each of them expected to be worth nearly \u00a31 million \u2013 on the large plot. However, the land\u2019s title deeds contained a restrictive covenant preventing more than one house being built on the site.<\/p>\n
The company convinced the judge that the one-house restriction should be lifted, despite bitter objections from neighbours on the estate. Objectors accused the company of being a “speculative” property developer intent on maximising profits from the plot, arguing that Broadway was aware of the one-house restriction when it bought the property and land, but now wanted to wriggle out of it.<\/p>\n
The court heard that other detached houses on the estate were subject to the same restriction and that residents were concerned that the metaphorical floodgates would be opened for more developments. Objectors told the Upper Tribunal that “The neighbourhood of Almoners’ Avenue and surrounding streets are united in strong opposition” to the scheme.<\/p>\n
The developers insisted that the two new homes would have \u201cno effect\u201d on the value of other properties in Almoners’ Avenue and that the development had been carefully designed to \u201cfit in\u201d with the area.<\/p>\n
Ruling on the dispute, Judge Stuart Bridge said building two homes on the large plot would be a “reasonable” use of the land. “Cambridge is currently undergoing substantial growth and is being expanded by the provision of a large number of new homes, many of which are to the south of the city,” he remarked. “The development accords with the city plan and its vision for the future; it cannot be said that it would not be in the public interest in the widest sense. The proposal is to use the land for housing, and the land is situated on a residential housing estate. The applicant has satisfied us that what is proposed is a reasonable use of the land for private purposes.”<\/p>\n
Despite being permitted to build two properties on the land, Broadway Homes (Cambridge) Ltd. had to pay \u00a324,000 compensation to two neighbours, and a further \u00a311,000 split between other neighbours that opposed the building plans.<\/p>\n
If a Restrictive covenant\u00a0indemnity insurance\u00a0policy cannot be obtained, you could try to get in touch with the person that holds the benefit of the covenant in order to obtain \u2018retrospective consent\u2019 for the work that has been done.<\/p>\n
However, if that person either cannot be traced, refuses permission, seeks compensation for the breach or charges a prohibitive fee, you can apply to the Lands Chamber of the Upper Tribunal to modify or discharge the restrictive covenants that are in place. This process can be both costly and time consuming and there\u2019s no guarantee of success. If you are successful, your costs will not be paid by the beneficiaries of the covenant. And if their objection is successful, you may be forced to pay their costs.<\/p>\n
An application to remove or modify the restrictive covenant can take between 18 and 24 months to go through. If the party controlling the covenant can still enforce the ruling, consider negotiating, but be prepared for them to want compensation.<\/p>\n
The Lands Chamber of the Upper Tribunal can assist you if there are any legal problems. The cost of lifting restrictive covenants involves a statutory fee of \u00a3880 upon application. If your application progresses to a hearing, there\u2019s a fee of \u00a31,100. If a decision is reached without a hearing, the fee is \u00a3275. If you need more time to carry out the Tribunal\u2019s directions, you\u2019ll have to pay a fee of \u00a3110. In addition, there\u2019s a fee of \u00a3550 if a hearing is necessary to decide if someone is entitled to object to your application. If you\u2019re successful, you\u2019ll have to pay \u00a3220 for the paperwork concerning the Tribunal\u2019s final decision. All that totals \u00a33,135 and there may be other legal costs to consider, but these will vary with each individual case. More details of the costs are on the GOV.UK website.<\/p>\n
It\u2019s fair to say that, yes, a restrictive covenant can negatively affect your house sale because it\u2019s not what a buyer wants and there\u2019s not a cheap way to resolving the problem.<\/p>\n
Owing to buyers being cold towards properties that have a restrictive covenant, you\u2019ll want to contact a cash buying company that will give you a guaranteed sale (without a chain), and a cash payment for your home.<\/p>\n