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Are you wondering if you can sell a property with a restrictive covenant? Not sure what it all means? You’ve come to the right place to find the answers to your restrictive covenant questions. Let’s get started…
In short, a restrictive covenant is a set of conditions that have been written into a property’s deeds or contract. They state what a homeowner can or cannot do with their house or land. Whilst these can cover a wide range of issues, the most common examples usually include:
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 ‘uniformity’ 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.
We’ll go into more detail now to give you a better understanding.
A change of use covenant 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.
Covenants that cover alterations and modifications prevents 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.
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.
Expensive clauses can 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 ‘whatever you build on this land, I retain the rights to 50% of its value’ or a charge will need to be paid to enable the land to be used for development.
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 – they were Quakers – and more than 120 years later, there’s 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.
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’s 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.
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’s 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 have been signed, you’ll be held accountable for any breaches of the covenant.
Furthermore, you’ll need to know where the ‘benefit of the covenant’ resides (it’s 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.
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’ll 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 £50,000 and, depending upon the covenant that has been breached, you could still be out of pocket.
The provisions of a covenant could (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’ll get a return on their loan.
If this does happen, try contacting the vendor or ‘successor in title’ and tell them that you’re not able to proceed with the purchase because of the covenant. They may be tempted to remove the restriction if it means they’ll get the sale.
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.
It’s 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 ‘benefit of the covenant’, as this isn’t 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.
Going ahead with home improvement work in spite of a restrictive covenant can be risky; even if you think the work you’re doing will genuinely improve your home. Always ask for legal advice because you could be forced to undo all the work you’ve done, and pay compensation to the beneficiary too.
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.
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.
Restrictive covenant indemnity insurance can 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.
If you are considering buying a house that’s got restrictive covenant insurance, check for a clause called the ‘escalator clause’. 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.
In some cases, very old covenants are considered to be unenforceable, either because:
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.
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.
If you’re a buyer, don’t instantly dismiss a property that has a restrictive covenant because it could be invalid and therefore unenforceable. If it is, it’ll save you time and money trying to get the restrictive covenant removed.
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.
If this should happen, you’ll need to apply to the Land Registry to have the covenant taken off your title deed. The process isn’t quick though; it can take up to 24 months to process.
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.
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.
However, a restrictive covenant which meant that only educational facilities could be used on the land had prevented work from progressing. The college – now called Scarborough TEC – moved out to the former University of Hull campus in 2017 and the site remained vacant ever since.
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.
Plans to develop the site moved ahead after the restrictions were removed by Scarborough Council’s Inclusive Growth Portfolio holder and the planning application details a site that will include 29 detached homes, 54 semi-detached homes, and 56 townhouses.
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 ‘clearly impedes the reasonable use’ of the plot in an area undergoing ‘substantial’ housing growth.
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 – each of them expected to be worth nearly £1 million – on the large plot. However, the land’s title deeds contained a restrictive covenant preventing more than one house being built on the site.
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.
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.
The developers insisted that the two new homes would have “no effect” on the value of other properties in Almoners’ Avenue and that the development had been carefully designed to “fit in” with the area.
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.”
Despite being permitted to build two properties on the land, Broadway Homes (Cambridge) Ltd. had to pay £24,000 compensation to two neighbours, and a further £11,000 split between other neighbours that opposed the building plans.
If a Restrictive covenant indemnity insurance policy cannot be obtained, you could try to get in touch with the person that holds the benefit of the covenant in order to obtain ‘retrospective consent’ for the work that has been done.
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’s 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.
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.
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 £880 upon application. If your application progresses to a hearing, there’s a fee of £1,100. If a decision is reached without a hearing, the fee is £275. If you need more time to carry out the Tribunal’s directions, you’ll have to pay a fee of £110. In addition, there’s a fee of £550 if a hearing is necessary to decide if someone is entitled to object to your application. If you’re successful, you’ll have to pay £220 for the paperwork concerning the Tribunal’s final decision. All that totals £3,135 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.
It’s fair to say that, yes, a restrictive covenant can negatively affect your house sale because it’s not what a buyer wants and there’s not a cheap way to resolving the problem.
Owing to buyers being cold towards properties that have a restrictive covenant, you’ll want to contact a cash buying company that will give you a guaranteed sale (without a chain), and a cash payment for your home.
A cash buying company is a property buying business that will quickly buy your home at a discounted price. The result is that you can sell your house fast without the hassle you’d have if you sold to a private buyer. It is possible to sell a property in just 30 days if you use a cash buyer, which may be what you need in order to avoid repossession. And because they’ll often be using their own money, no time is wasted sorting out mortgages and they won’t be in a chain so the sale should be straightforward. Not all cash buyers are cut from the same cloth, so you’ll need to do some checks before signing on the dotted line.
For your own security, check that the company is a member of the National Association of Property Buyers (NAPB) and The Property Ombudsman. This will give you independent help if there’s a dispute and also means that they have to abide by a code of conduct.
Get everything in writing, for extra peace of mind. This way, you can recheck any details and you’ll have evidence of the price that was offered to you for your property. And on that topic, make sure that the offer they give you for your property is fixed. It’s not uncommon for some less scrupulous companies to reduce their offer at the last minute, leaving you with little choice but to accept.
There are some ‘one man bands’ that pretend to be cash buying companies. The risk you face with these are only having one person to deal with enquiries, viewings, and completions; instead of a team dedicated to each stage as you’d get with the larger cash buying companies. Also, if you are dealing with a ‘one man band’, there’s a risk that they won’t have the money they’re offering to you. If they do have the funds, it could be that they’re sorting out a loan or mortgage. At the very worst, they may not have any capital and are trying to exploit homeowners that are trying to quickly release some equity. Wading through all of this takes time and holds up your sale; not what you need when you want a quick sale.
The method you choose to sell your house is entirely your decision, but do pay attention to online feedback. There are review websites (such as allAgents) that collate feedback on estate agents, online agents and fast sale cash buyers. Have a look at the comments left by people that have sold or are selling to see how they were treated and if they received a good service.
You’ll also want to find out how each of the different companies reach their valuation for your property. The amount that a fast sale company will offer to you for your property will depend upon the company. Some of the most reliable cash buying companies will use independent valuations to decide on a figure and show you the evidence that has enabled them to decide on that number. Meanwhile, others may not use such respected methods and flatter you with a higher offer on the phone; only to reduce it when they visit your property. It’s essential to ensure that the valuation you get is a ‘no obligation’ valuation; meaning you’re not forced to sell to that company just because they visited and valued it.
Equally, estate agents and online agents may suggest you pitch your property with an asking price at the top end of the valuation and then after being on the market for a while, they’ll suggest you lower the asking price. All of this takes time and holds up your sale. Who you choose to sell your house with will depend upon your timescales, situation and preferences.
We hope this article has helped you to understand restrictive covenants and see that solutions are available to either have the covenant lifted, or sell your property.
If you have any questions about selling your property to a fast sale specialist and cash buyer, we’ll be very happy to have a chat with you. Give us a call or send an email.