Deed of Covenant

What is a Deed of Covenant?

Largely affecting leasehold properties, a Deed of Covenant is a legal document which states that the leaseholder agrees to undertake an obligation or series of obligations laid out by the freeholder (or landlord).

The Deed is essentially the document that lays out the covenants (or promises) that should be adhered to when a new leasehold property owner takes control.

Having this document in place serves to protect the freeholder and management company as leaseholders are legally bound by the clauses.

Covenants are broadly divided into 2 types, positive and negative:

Positive Covenants

Leaseholders are required to carry obligations, often aimed at creating a pleasant living environment for all residing within the development.  These can include:

• Agreeing to certain funds being spent on maintenance;
• Agreeing to larger works (often subject to committee discussion);
• Paying service charges promptly;
• Keeping communal areas in good condition;
• Agreeing that the external parts of the property are maintained (essential repairs and painting for example).

Negative Covenants

Leaseholders are effectively barred from certain acts across the property such as sub-letting, holiday or service accommodation lets.

Owning pets, subletting, running a commercial business, or making excessive noise after certain hours of the day are other common negative covenants.

There may also be restrictions on accessing certain parts of the development where the leasehold property is located.  These are known as easement restrictions.

What Does Signing a Deed of Covenant Mean?

When the Deed of Covenant is signed upon sale of a leasehold property, both the positive and negative covenants are passed from the seller to the new buyer (and leaseholder).

In effect, it’s a contract issued by the freeholder that obliges the new leaseholder to abide by the covenants.

Breaching any terms contained within the Deed of Covenant could result in a claim in damages and quite possibly a court injunction.

With leasehold properties within the freehold being so different, every Deed of Covenant may have its own nuances.

This is why it’s crucial to have a qualified conveyancer/conveyancing solicitor with suitable expertise to closely examine this and other legal documentation before you sign.

For example, it’s worth checking if there are any attached certificates of compliance and what the implications would be if so.

Problems could sometimes arise if one is dependent on the other.  For example, if there is a restriction on the Register of Title, a certificate of compliance be required before formal registration can happen.  Here, it must be demonstrated that specific clauses have been adhered to.

As with the house sale contract and other key legal documents, the Deed of Covenant must also be signed in the presence of an independent witness (over the age of 18).

Direct Deed of Covenant

If a leaseholder was to sublet their property (with the freeholder’s permission), the Deed of Covenant may state that a separate Deed of Covenant may be required between the subtenant and the landlord.

This is known as a Direct Deed of Covenant as it does not impose any obligations on all the other leaseholders.

Deed of Covenant Fee

You would need to check whether the freeholder will charge a fee for issuing a Deed of Covenant (to add to the other house sale costs).

This may form part of the administrative charge that some make when forwarding the leasehold management pack to the conveyancer.

Unfortunately, there is not a set fee for this (but it usually does not exceed £300).

There are likely to be further fees charged by conveyancers.  These costs will often directly correspond to the complexity of the document itself.  For example, if the lease documentation is older, more detailed legal work may be necessary (at a proportionate cost).

The deed of covenant is likely to be considered a disbursement, or a supplementary cost to standard conveyancing fees.  Note that there may also be Notice of Transfer and Notice of Charge fees.

Deed of Covenant Template

During the conveyancing process, the seller’s solicitor will usually forward a draft Deed to the buyer’s solicitor to review.  On the back of any enquiries and ‘ironing out’ of any issues, the buyer’s solicitor will then create the final Deed.

Within the Deed, the freeholder would typically be referred to as the Covenantor and the leaseholder as the Covenantee.

Click on the image below to view a PDF sample template.  We would never advise copying and pasting the contents of this sample without qualified legal advice.

The Deed of Covenant will typically be attached to the lease or form part of the same documentation leasehold management pack.  It will be included in the leasehold management pack alongside the LPE1 Law Society Leasehold Form.

Broadly, the Deed of Covenant will contain the following (add more from doc):

• Freehold and leasehold details (address, postcode and HM Land Registry title numbers);
• Background information on the contents of the Deed
• Parties to the agreement (full names and addresses of the covenantor* and covenantee**);
• Definitions and references are provided, particularly to terms that may be repeated or potentially ambiguous;
• Details on the terms of the covenant which will be specifically drafted by the conveyancer which state what will be the requirements of the Deed.  Each clause will be drafted so there is nothing can legally be called into question;
• An execution clause and signature area to ensure that the terms contained are legally binding.

*covenantor = the person(s) / company that agrees and signs the terms of the Deed of Covenant.

**covenantee = the person(s) / company that issues the Deed of Covenant.

Do I Need to Sign a Deed of Covenant?

Most leases state that a signed Deed of Covenant is compulsory upon any transfer, assignment, or underletting of a leasehold property.

A wet signature will typically be required (this may also need to be independently witnessed).

Not signing the Deed effectively means a breach of contract.  In such circumstances, the freeholder will often refuse to accept any service charges or ground rents (as this could affect their ability to enforce future covenants in the lease).

The consequence will be that these payments accumulate.  Furthermore, there could be additional financial penalties and interest charges down the line.  When it comes to selling the property, the freeholder can lawfully claim for this amount before allowing for things to happen.

Regardless of this, Property Solvers recommend that the document should only be signed after consultation with a suitable conveyancer / conveyancing solicitor.