Don’t be bound by Restrictive Covenants

30 Apr 2018

A restrictive covenant can cause a headache for homebuyers and more so developers of land alike. If you are buying, or looking to develop land affected by restrictive covenants you may be able to resolve any resulting issues by considering one of the options below with your lawyer, as soon as you become aware of the problem.

What is a restrictive covenant?

A restrictive covenant restricts the use of land in some way for the benefit of another’s land.

How does a restrictive covenant affect me?

When you purchase land, your solicitor will look at the title to the property and see if there are any restrictive covenants. If there is a covenant it may, depending on your plans for the property, affect your free use of the property. Common restrictive covenants are: i) one residential detached house only is permitted on the land ii) any extensions or building works need to be approved.

What if a restrictive covenant has been breached, or will be breached by my use of the property?

If it appears that the covenant may be breached by your plans for the property, the following options are available:

  1. Consent. You may be able to get consent from the person who can enforce the covenant to remove it. In this case you should ask them for a deed of release. They may well want to charge a premium for releasing the covenant, and so this can be an expensive process. It is also not always obvious who can enforce the covenant and in some cases it is more than one person.  If your request is denied however, this may mean that an insurer is unlikely to issue an indemnity policy (see 2 below).
  2. Insurance. Another option is to try and obtain restrictive covenant indemnity insurance to cover the breach, or the risk of someone breaching the covenant in the future. However, if the benefitting land is clearly identifiable, it is unlikely that insurance will be available unless it is a long standing breach. Furthermore, indemnity insurance is not available for all covenants. Some insurers are reluctant to issue a policy before planning permission has been granted. An indemnity policy does also have certain limitations for a development site, as not all plot purchasers will accept an indemnity policy.
  3. A court declaration. The court in this instance will look at (i) whether the freehold land is or would, in a specified circumstance, be affected by the restriction (ii) what the nature and extent of the restriction is and whether it is or would be enforceable.
  4. The Lands Tribunal. The Tribunal can discharge or modify a restrictive covenant in certain circumstances including where: i) the character of the property or the neighbourhood has changed so that covenant ought to be regarded as obsolete; or ii) discharging or modifying the covenant would not injure the persons benefitting from it.

Conclusion

In most cases there is a remedy, but the cost of resolving the issue can be varied depending on which of the above options is chosen. You should not take any action to resolve a covenant issue without first seeking the advice of a lawyer, as failing to do so may limit the number of remedies open to you.

For more information on this or any other similar issue, please contact the Property Development team.

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