When purchasing a property or planning to alter it, restrictive covenants can be a major source of worry.
These are rules that aim to restrict what can be done to the property. This article will assist you in comprehending Restrictive Covenants.
Table of Contents
What is Restrictive Covenants?
Restrictive covenants are legal clauses written into a title register (deed) that limit or forbid certain actions on a single property, multiple properties within a development or housing estate, or a plot of land.
These restrictions remain legally binding regardless of how many times the property changes ownership.
They apply to both freehold and leasehold properties, and both the land and property owners are liable, even if they don’t know about or were given incorrect advice regarding any covenants.
When talking about covenants, it’s important to distinguish between negative and positive covenants. Negative covenants limit or forbid an action, whereas positive covenants require an action to be taken.
Examples of Restrictive Covenants
Below are some of the clauses and conditions that prevent property owners from taking certain actions:
- Disallowing pets or livestock
- No commercial activity or disallowing certain types of businesses to use the property or land,
- Not building on certain parts of a site, building above a specified number of dwellings, building above a specified height,
- Denied access to certain parts of the property or land,
- Restricted or no vertical or horizontal extension requirements (even if the local authority were to grant planning permission to do so),
- Preserving scenic views,
- Prevention of conversion or alteration such as dividing a house into separate flats or self-contained units,
- Prevention of specific changes of use (from residential to commercial for example),
- Right to exclusive possession which prevents someone from entering another’s land without formal permission,
- No or restricted internal reconfiguration or subdivision,
- No or limited signs or flag poles,
- Limits on external fencing,
- Gate or entrance heights,
- No outbuildings, sheds, swimming pools or hot tubs,
- Loss of amenity value,
- Prohibiting nuisances,
- Excessive noise or other undesirable activities,
- Disallowing the use of the property for Airbnb,
- Holiday home,
- Serviced accommodation or rent-to-rent purposes,
- Bans on satellite dishes,
- Solar panels or CCTV cameras,
- Controls on appearance or aesthetic features such as style and colour of the external building, anything that would hurt the property’s heritage,
- Limits to the number or types of vehicles allowed on attached land,
- Limits on the presence of caravans or temporary housing,
- Controls on the number of occupiers,
- Limits on activities deemed to be “anti-social”
“Positive” Restrictive Covenants
Common with listed buildings, these are clauses and conditions that require certain actions to be taken. Positive covenants often involve the expenditure of money.
The goal is to maintain uniformity and a pleasant living environment. This helps to prevent disputes between homeowners and ensures that property values are not damaged.
It is important to note that these covenants may not be legally binding on future owners. Examples of positive covenants include:
- Painting external parts of the property;
- Using a certain style of windows and doors;
- Using a certain style of masonry such as traditional stone or reclaimed bricks from a certain period; and garden maintenance obligations (regular mowing of the lawn, cutting down excess vegetation/weeds, landscaping, and fencing types).
- Additionally, payment for works after a successful planning consent/change of use application may be necessary for the benefit of the development as a whole.
Positive and negative restrictions can apply to new buildings, older, listed properties and those located in conservation areas.
How do I Find Out What Restrictive Covenants Are on My Property?
Restrictive Covenants can be found in the Deeds or Section C of the Title Register, which can be downloaded for £3 from the HM Land Registry.
If there are many covenants or detailed explanations, the Deed may be accompanied by an attached document. In this case, the clauses in Section C are a summary.
HM Land Registry may have more information about the covenant in the Deeds that are included in the Title Register. The Charges Register may also refer to a transfer or conveyance document, which will contain the details of the covenant(s).
In some instances, the conveyancing solicitor may need to obtain evidence of historical conveyances to identify which covenants are still legally binding. Rarely, the solicitor may even ask for a physical inspection of the property.
The solicitor must locate where the “benefit of the covenant” lies. Usually, this is with the current freeholder (usually a Limited company). However, it could have been transferred to another corporate entity, trust, or individual.
It is important to note that landowners use restrictive covenants strategically to have a form of legal control.
This could be to protect future overage payments or to stop any development without a ransom payment to discharge the covenant.
The solicitor must draw attention to any worrying covenants (along with any past breaches) to ensure that the buyer is not held liable unknowingly.
Some mortgage lenders may refuse to provide funding if the covenant is seen as too risky – especially if it makes it difficult to sell the property (or associated land) in the future.
However, cash and auction buyers may be willing to proceed if finance is a problem.
Breach of a Restrictive Covenant
A breach of a restrictive covenant occurs when a property owner or developer does not follow the conditions laid out. This can result in financial penalties or damages, as well as a formal request to return the property to its original state.
If the covenant has been breached, the lease may be considered null and void.
The enforcement of the covenant usually takes the form of a court injunction that enforces its conditions.
Much of this depends on the individual situation and if the breach was deliberate.
Who Enforces Restrictive Covenants?
The beneficiary, also known as the covenantee, has the right to enforce restrictive covenants. This could be a private individual, company, trust, beneficiary under a will, or a trustee in bankruptcy.
To be legally binding, the clauses must “touch or concern the land and relate to its use, value, or nature”.
Before pursuing enforcement, the covenantee may want to ensure the clauses are valid. Additionally, the covenantee must act swiftly. If the case goes to the Upper Tribunal, for example, they could decide that the enforcement was left for too long.
This may be reinforced if a developer has already incurred significant expenses (such as planning and building costs) and the judge rules in their favour due to the delay.
Can A Neighbour Enforce a Restrictive Covenant?
If a neighbour is threatening to break a binding agreement, most solicitors would advise obtaining an injunction.
This type of court order immediately puts an end to any further action. It can also mandate the demolition of any structures built and/or the restoration of the property to its original state.
If the neighbour ignores the agreement, they could be held liable for any losses or damages incurred by the breach. This would include the decrease in the value of the land, as well as any other associated expenses.
How to Get Around Restrictive Covenants?
Restrictive covenants are usually included in property documents for a specific reason and trying to remove them can be difficult. However, there are two possible solutions…
Lack of Traceability of the Restrictive Covenant
The age of the covenant is irrelevant; however, if the beneficiary cannot be identified, it may be considered unenforceable.
Additionally, the original parties may no longer be alive or the company under which the covenant was registered may have been dissolved. It could also be argued that the covenant is outdated if it has been assigned to a third party or the land is not owned by the same beneficiary.
The solicitor should also check the Land Charges Development to ensure the covenant was registered correctly, with a “D2” classification. Furthermore, if the land is unregistered at the HM Land Registry, the covenant may be unenforceable.
Restrictive Covenant Drafting
A competent solicitor can evaluate the wording of the covenant to determine how legally sound and binding it is. The restrictive covenant should be clearly defined, stating something along the lines of: “the covenant binds the successors in title”.
If the terms of the covenant are too vague (possibly written in outdated legal language), enforceability may be called into question. However, some solicitors may want to have the clauses checked by a barrister to make sure this is the case.
Solicitors may also be able to prove that the covenant is against competition law or goes against public policy.
Negotiating Release or Modification of a Restrictive Covenant
If the restrictive covenant is enforceable, the most cost-effective approach is to speak directly to the beneficiary.
Much will depend on the effect of the covenant’s removal on the beneficiary’s interest. For example, if it has the potential to reduce the value of the property or land, there is a greater chance of dispute. Conversely, if it could increase it, there may be more room to discuss options.
It is usually best to try to reach a mutually beneficial outcome. This often involves providing some kind of financial “compensation” in the form of a portion of the profits resulting from obtaining planning consent or selling the development project.
The size of the share is negotiable and the removal of the covenant will affect it.
Some solicitors may suggest proposing the “Stokes’ percentage”, which is 33-35% of the increase in value of the development profit after the discharge.
This could be seen as a fair proportion of the profit and therefore be acceptable to the covenantee. Alternatively, they may be willing to accept a lower one-off payment. This may suit the developer better, especially if they are seeking finance and need to avoid any third-party interests.
Once an agreement has been reached, the beneficiary must sign a Deed of Discharge / Release or Modification, which must then be officially registered at the Land Registry.
How to Challenge a Restrictive Covenant
In the event the covenantee refuses to cooperate, the property owner/developer can take their case to the Lands Chamber of the Upper Tribunal (previously the Lands Tribunal). Section 84 of the Law of Property Act governs this process.
The claimant must demonstrate to the Tribunal that releasing or modifying the covenant will bring “practical benefits of substantial value or advantage.”
The most common grounds that could result in the Tribunal discharging or modifying the covenant(s) are:
- It is obsolete or irrelevant;
- It is a justified impediment to reasonable use or development;
- It is time-bound and removable when the stated period ends;
- It has insubstantial benefit to the covenant beneficiary;
- The development,
- Housing estate or neighbourhood has changed since the restrictive covenants were established;
- It is expressly or impliedly agreed to by the covenantee, or it causes no injury to residents and/or occupants in the immediate vicinity.
For example, the Tribunal may deem that population dynamics have changed, meaning releasing the covenant would be beneficial.
Similarly, the Tribunal may lift an older covenant that bans alcohol consumption or sustainable urbanisation.
Additionally, there is case law that highlights how a covenantee’s only purpose was to seek personal compensation, rather than to protect the amenity or value of the land. In this situation, the Tribunal ruled in favour of the claimant.
Powers of the Upper Tribunal Regarding Restrictive Covenants
The Upper Tribunal has a discretionary power. They will consider how much the covenant beneficiary objects to the plans, the extent of any potential loss, and if there is a disregard for the rights of others.
Usually, if the release of the covenant could disturb a peaceful environment, the chances of success are lower.
It is important to remember that taking a restrictive covenant to the Upper Tribunal may be futile. A good solicitor can advise if the covenant is in favour of the beneficiary.
Such litigation is costly and takes a minimum of 3 months (assuming there are no major disputes).
Additionally, the claimant pays all the legal fees, regardless of the outcome.
Discharging / Modifying Restrictive Covenant Practicalities
The Upper Tribunal will ask for a surveyor’s report and consider various factors, such as limited views, noise pollution, rights to light, access, and the impact on privacy. If the effects are not significant, the chances of a favourable ruling are greater.
The tribunal will also need coloured copies of plans that clearly show the area of land subject to the restrictive covenant, as well as the document(s) that formed the restriction.
To save money, Alternative Dispute Resolution or mediation can be used in an attempt to reach a private settlement.
It is also possible to apply to the County Court for an order to declare the covenant unenforceable.
Compensation Resulting from Restrictive Covenants
The Upper Tribunal has broad discretion to determine the amount of damages to be paid should they rule for the discharge or modification of a restrictive covenant.
There are no fixed rules for this, but typically, the amount of compensation is decided by looking at how much the proposed development would reduce the value of the property.
However, the amount of compensation is not likely to be excessive, as this would suggest that the project would cause a significant drop in value, and therefore would not be discharged or modified in the first place.
How Much Does it Cost to Remove a Restrictive Covenant?
Here’s a broad cost breakdown, as extracted from the Upper Tribunal (Lands Chamber) explanatory leaflet for applications to discharge or modify restrictive covenants (T608):
Category
Cost
Lodging Fee
£880
Restrictive Covenant Application Determination Fee (with Hearing)
£1,100
Restrictive Covenant Application Determination Fee (without Hearing)
£275
Application for Time Extension for Compliance to Rule or Extension
£110
Fee for Application Objection (where applicable)
£550
Fee for Drawing up the Tribunal’s Final Order
£220
Note that there may be circumstances in which you can get help with court fees. In addition to the costs mentioned above, the appointed solicitor will likely charge more than the standard conveyancing fees.
This will depend on the complexity of the case and how long it would take to come to a suitable resolution. In more difficult cases, there may be expensive barrister advice to add on.
Some law firms have fixed additional fees while others charge per hour. Be wary of this type of charging, as costs can quickly add up. There may also be firms that will continue to charge for advice even when the chances of success are low.
Before going ahead, claimants should consider the cost-benefit analysis to ensure that the project will be worth the effort.
Restrictive Covenant Indemnity Insurance
Specific indemnity insurance may be a good idea if it’s unclear who the covenant benefits.
Solicitors also recommend taking out such policies if the covenant is old or untraceable, the land has been sold as multiple tracts, or if the relevant documents are unclear.
If the beneficiary is found, this insurance will cover any legal expenses for defending against any breaches.
Some policies also cover the holder’s costs for building or demolishing structures or reverting the property if the enforcement action demands it.
It also provides remedies for the financial losses caused by a drop in market value due to the claim.
One of the key conditions is that the breach of the covenant must remain undisputed for over 12 months. Some insurers will also require that no contact is made with any potential objectors to the project.
Other insurers, however, may want to see a formal planning application to bring any potential objectors to the fore and reduce the risk.
The policy premium cost will vary depending on the type of covenant and the assessment of risk and complexity.
It is a single payment which covers successors in title (i.e. future buyers).
Usually, the seller pays for the policy if there has been a breach of the restrictive covenant on a property being bought.
Mortgage lenders may also ask for this to be in place. Note that it is not possible to get restrictive covenant insurance if legal action is underway.
This is because the applicant must notify the covenant beneficiary and notify the court, which eliminates the possibility of getting this type of insurance.
What if My Solicitor Does Not Make Me Aware of Restrictive Covenants?
The conveyancer has an absolute obligation to bring any restrictive covenants to light.
If anything is not reported correctly, the property owner can take their case to the Legal Ombudsman. Consequently, the solicitor may have to compensate for any losses that were caused by professional negligence.
Bear in mind that the maximum amount of compensation is £50,000. If the liability is more than that, the property owner may need to hire a litigation specialist who is regulated by the Solicitors Regulation Authority (SRA) or the Law Society.
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