What is a restrictive covenant?
A restrictive covenant is a legal obligation imposed in a document either created historically in relation to property or in a current transaction by the Seller on the Buyer of a property. The restriction will be to do or not to do something and once created, restrictive covenants are generally recorded against the title of the property and then “run with the land” which means they also apply to subsequent owners of the property.
Examples of property restrictions
Common examples of restrictive covenants may include :-
- Restrictions on access over land
- Restrictions in leases such as changes to internal structures, type of flooring allowed in a flat, time for playing music or keeping of pets.
- Restrictions on any new building or residential developments on the land.
- A prohibition on using land for any trade or business activities.
What if there are restrictions or they have been breached ?
In cases where there are restrictions but these have not been breached and where such restrictions are understood and accepted by a buyer and his, her or their lenders, there may be no difficulty.
Problems can arise with property transactions where restrictions on the title or in a lease have already been breached, and the issue will then be how old is the breach, what type of breach is it, does the protected party know about the breach, what is the buyer’s lenders attitude to the possible risk associated with the property being bought after a covenant has been breached.
The answer in the above situation may be to obtain what is known as an indemnity policy which will cover liability for action taken relating to the breach and/or possibly for the breach to be rectified, if this is possible, such as if there has been a relatively minor breach in a lease. Such policies are widely available at competitive premiums and the seller may well be prepared to pay for the cost. The benefit of an indemnity policy can be passed to successors in title.
Clearly, there will be a more significant issue if existing covenants have not been breached but the existence of the covenants will impact either on the buyer’s use of or plans for the property or have an impact on the value of the property. It may be possible to get the restriction removed but this can be difficult in situations where the covenant has been recorded against the title to the property for decades and it can be very difficult to find out who now owns the benefit of the restriction.
As a last resort to resolving a restrictive covenant issue, but which will seriously delay a property transaction, an application can be made to the Lands Tribunal which, where certain criteria are in place, may be able to order that covenants are modified or removed, typically where the original reason for imposing the covenant can be shown as now irrelevant and where there is no public interest in it continuing and where monetary compensation might be a possibility for the beneficiary of the covenant.
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