Restrictive Covenants – The Complete Guide

Restrictive Covenants Meaning

Restrictive Covenants are legal clauses within a Title Register (Deed) that limit or forbid certain actions on a property, multiple properties (within a development or housing estate) or a plot of land.

The majority of these restrictions “run with the land” and not the owners personally. This means that, regardless of how many times the property changes ownership, there is a legal obligation to uphold and adhere to whatever the covenant mandates.

Restrictive covenants are applicable to both freehold and leasehold properties.

Land and property owners are equally liable even if they are unaware or have been unsuitably advised of the presence of any covenants.

For the purposes of avoiding confusion, it’s worth noting the two types of covenants – negative and positive:

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 / 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 / horizontal extension requirements (even if the local authority were to grant planning permission to do so)
• Preserving scenic views
• Related to the above, prevention of conversion / 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 entering another’s land without formal permission
• No or restricted internal reconfiguration / subdivision
• No or limited signs or flag poles
• Limits on external fencing / gate / entrance heights
• No outbuildings/sheds / swimming pools / 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 / aesthetic features such as style and colour of the external building
• Anything that would a negative effect on the property’s heritage
• Limits to the number or types 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 stipulate that certain actions must be taken. Positive covenants usually involve the expenditure of money.

As with negative covenants, the aim is to instill uniformity and a pleasant living environment. Keeping certain standards in place means that fewer disputes will emerge amongst homeowners, and, crucially, ensure that property values are not hampered.

Note that such covenants may not necessarily be binding on subsequent owners.

Examples 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
• Garden maintenance obligations (regularly mowing the lawn, cutting down excess vegetation / weeds, landscaping, fencing types)
• Payment for works after a successful planning consent / change of use application (for the benefit of the development as a whole).

Note that positive and negative restrictions can apply to new build, older and listed properties as well as those located in conservation areas.

How do I Find Out What Restrictive Covenants Are on My Property?

Restrictive Covenants are found in the Deeds or Section C of the Title Register, the latter of which is downloadable for £3 at HM Land Registry.

Here’s an example of how a Restrictive Covenant may look:

If there are a number of covenants or extended explanations, an attached document may accompany the Deed.  In such cases, the clauses found in Section C serve as a summary.

HM Land Registry sometimes holds more details of the covenant within the Deeds retained with the Title Register. The Charges Register may also refer to a transfer or conveyance document – which will contain the specifics of the covenant(s).

Other times, it may be necessary for the conveyancing solicitor to obtain evidence of historical conveyances to determine what covenants are still enforceable.  There are rare occurrences where the solicitor may request a physical inspection of the property.

The solicitor will need to look where the “benefit of the covenant” resides. In most cases, it will be with the current freeholder (usually a Limited company). However, you may find it’s been transferred to another corporate entity, trust or individual.

It’s worth noting that landowners tactically use restrictive covenants to have a form of legal control.  This can be to protect a future overage payment or to prevent development from happening without some kind of ransom payment to discharge the covenant.

Ultimately, the solicitor will need to flag up any concerning covenants (alongside previous breaches) to ensure that the buyer does not become unwittingly liable.

Some mortgage lenders may also raise concerns and refuse to underwrite if the covenant is deemed to be too risky – particularly if it poses a difficulty to sell the property (or associated land) in the future. Note that cash and auction buyers may be willing to proceed should financing prove to be too much of an impediment.

Breach of a Restrictive Covenant

A breach of a restrictive covenant is where a property owner or developer does not act in accordance with the provisos.

Such actions can lead to financial penalties / damages.  There may also be formal demands to revert the property back to its original state. If the covenant has breached the terms of the lease, it could be indefensibly terminated.

However, much will depend on the individual situation and whether the breach was intentional.

Enforcement typically comes in the form of a court injunction that upholds the covenant.

Who Enforces Restrictive Covenants?

It is the beneficiary – also known as the covenantee – that has the right to enforce the restrictive covenant.  This can either be a private individual, company or trust. A beneficiary under a will or a trustee in bankruptcy also has such rights.

The covenantee will need to demonstrate that the covenant, in legal speak, must “touch or concern the land and relate to its use, value or nature”.

Prior to seeking enforcement, the covenantee may wish to confirm that the clauses are drafted in a way to make them legally binding.

The covenantee must also act quickly.  Should the case end up in the Upper Tribunal, for instance, it may be decided that enforcement was left for too long.  This may be reinforced where a developer has incurred significant expense (in the form of planning and/or build costs) and the judge rules in his/her favour due to the inaction.

Can A Neighbour Enforce a Restrictive Covenant?

Should a neighbour threaten to breach a binding covenant, most solicitors would advise obtaining an injunction.

Such injunctive relief immediately stops any further work. It can often also rule for demolition and/or reverting the property back to its original state.

If the neighbour ignores the covenant, they could face a claim in compensatory damages for breach.  This will reflect the loss in value of the land caused by the breach in addition to a range of associated costs.

How to Get Around Restrictive Covenants

Restrictive covenants are by and large incorporated into property documentation for a clear reason and attempting to remove them can be a challenge.

There are, nonetheless, 2 possible workarounds…

Lack of Traceability of the Restrictive Covenant

Although its age is immaterial, a covenant may be deemed unenforceable if the beneficiary cannot be tracked down.

The original parties may also not be alive or the company under which the covenant is registered may have been dissolved.

In a similar vein, there’s a strong argument for the covenant’s obsolescence if has been assigned to a third party or the land is not owned by the same beneficiary.

The solicitor can also check the Land Charges Development to ensure the covenant was registered in the correct manner. “D2” is the correct classification.

Also, the covenant may be unenforceable if the underlying land is unregistered at the HM Land Registry.

Restrictive Covenant Drafting

A good solicitor can examine the wording of the covenant to see how legally watertight and binding it is.

There must be a clear description of the nature of the restrictive covenant, stating something along the lines of: “the covenant binds the successors in title”.

If the terms of the covenant are too ambiguous (perhaps due written in old-fashioned legalese), enforceability may be called into question. However, some solicitors may wish to run the clauses past a barrister to make sure this would definitely be the case.

Solicitors may also be able to demonstrate that the covenant is prohibited by competition law or contradicts public policy.

Negotiating Release or Modification of a Restrictive Covenant

If the restrictive covenant is evidently enforceable, the first (and most cost-effective) step is to approach the beneficiary direct for an open conversation.

Much will depend on how much the covenant’s removal will have on the beneficiary’s interest.  For instance – if it’s likely to devalue the property or land – there will be more chance of dispute.  If the opposite could be the case, there may be more scope to discuss options.

Here, the idea is generally to aim for a mutually agreeable position. This typically involves some kind of monetary “compensation” in the form of a share in future profits arising from successful planning consent and/or the sale of the development project.

How much of a share is open to discussion and, of course, the financial impact of the covenant’s removal will influence things.

Some solicitors may suggest posing the “Stokes’ percentage” – 33-35% of the increase in value of the development profit after the discharge.  With this being a fair proportion of the profit, the share could be negotiated.

Alternatively, the covenantee may be willing to accept a lower lump sum payment upfront.  This may be a better option, particularly for the developer that’s seeking finance and wants to avoid any third-party interests.

After reaching an agreement, the beneficiary will need to sign a Deed of Discharge / Release or Modification.  This must then be formally lodged at the Land Registry.

How to Challenge a Restrictive Covenant

In situations where the covenantee refuses to cooperate, the property owner / developer can take the 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 the covenant’s release or modification will secure what the law calls “practical benefits of substantial value or advantage”.

The most common grounds that could result in the Tribunal discharging or modifying the covenant(s) include it/them being:

• Obsolete or irrelevant;
• A justified impediment to reasonable use or development;
• Time-bound and removable when the stated period comes to an end;
• Of insubstantial benefit to the covenant beneficiary;
• Within a development, housing estate or neighbourhood that has notably changed since when the restrictive covenants were established;
• Expressly or impliedly agreed to by the covenant beneficiary;
• Of no injury to residents and/or occupants in the immediate vicinity.

Commonly-cited examples include where the Tribunal deems that population dynamics have changed meaning that releasing the covenant will be beneficial. Similarly, it would make logical sense to lift an older covenant that bans alcohol consumption or sustainable urbanisation.

Interestingly, there is also case law that highlights how a covenantee’s sole purpose was to seek personal compensation – rather than protect the amenity or value of the land.  The Tribunal ruled in favour of the claimant.

Powers of the Upper Tribunal Regarding Restrictive Covenants

The Upper Tribunal’s power is discretionary. The court will examine much the covenant beneficiary objects to the plans, the extent of the potential loss and any disregard for the rights of others.

Generally, the chances of success reduce where the release of the covenant means disturbing a peaceful environment.

Remember, discharging a restrictive covenant through the Upper Tribunal could end up a futile endeavour. A good solicitor can advise whether the covenant clearly favours the beneficiary.

Such litigation is indeed expensive and takes a minimum of 3 months (assuming there are no significant disputes).  Furthermore, the claimant incurs all the legal fees, regardless of whether the case is won or lost.

Discharging / Modifying Restrictive Covenant Practicalities

The Upper Tribunal will request a chartered surveyor’s report and examine a range of factors including limited views, noise pollution, rights to light, access, reduction in privacy.  If the effects are negligible, the chance of the court’s positive decision are higher.

The tribunal will also require coloured copies of plans that clearly identify the area of land affected by the restrictive covenant alongside the document(s) that created the restriction.

Sometimes a more cost-effective way of doing things is to seek out Alternative Dispute Resolution or mediation with the goal of reaching a private settlement.

It is also possible to seek an order to declare that the covenant is unenforceable from a County Court.

Compensation Resulting from Restrictive Covenants

Should the Upper Tribunal rule for a discharge or modification of a restrictive covenant, the court has broad discretion to dictate what level of damages are payable.

There are no hard or fast rules. However, most will examine how much of a drop in value would occur as a result of the proposed development.  The Tribunal then decides the level of remuneration accordingly.

However, the amount of compensation is not likely to be too high. Anything too excessive would indicate that the project would cause a significant devaluation and therefore unlikely to be discharged / modified in the first place.

How Much Does it Cost to Remove a Restrictive Covenant?

Extracted from the Upper Tribunal (Lands Chamber) explanatory leaflet for applications to discharge or modify restrictive covenants (T608), here’s a broad cost breakdown:

*Note that there may be circumstances where you can get help with court fees.

In addition to the above costs, the appointed solicitor will probably charge extra in addition to standard conveyancing fees.  Much here depends on the complexity of the case and how long it would take to reach a suitable resolution. With tricky cases, there may be costly barrister advice to add on.

Some law firms will charge fixed additional costs and others may charge by the hour.  Be careful with the latter, as costs can have a tendency to spiral. There are also unscrupulous firms that will proceed to charge for advice when it is evident that the chances of success are slim.

Much therefore comes down to how lucrative the opportunity development opportunity really is.  Before going ahead, claimants must engage in a genuine cost-benefit analysis that confirms the project would be worthwhile.

Restrictive Covenant Indemnity Insurance

Specific indemnity insurance may be suggested when it is not clear who has the benefit of the covenant. Solicitors also suggest taking out such policies if the covenant is old / untraceable, the underlying land has been sold on as multiple tracts or if the relevant documentation is non-specific.

Should the beneficiary appear, it covers any legal costs to defend against any breaches.

Certain policies also compensate the holder’s costs for planning and execution of any building / demolition works or reverting the property back should the enforcement action demand so. There may also be remedies for the financial losses as a result of the drop in market value resulting from the claim.

One of the main requirements is that the covenant breach must be unchallenged for over 12 months.

Some insurers will also request that no contact is made with any possible objector(s) to the project. Conversely, others may need to see a formal planning application as a means of bringing any potential objectors to the fore and controlling risk.

As each covenant has its own peculiarities, the policy premium cost will depend on the assessment of risk and complexity. This is a one-off payment that covers successors in title (i.e. future buyers).

The seller usually covers the cost of the policy if there’s been a breach of the restrictive covenant on a property being purchased. Mortgage lenders may also request for this to be in place.

Note that it will not be possible to obtain restrictive covenant insurance if litigation is underway.  This is because the applicant will need to notify the covenant beneficiary and give notice to the court which effectively nullifies the ability to access this type of insurance.

What if My Solicitor Does Not Make Me Aware of Restrictive Covenants?

The conveyancer has an unequivocal duty to flag any restrictive covenants.

If anything is not reported in the appropriate way, the property owner can seek recourse with the Legal Ombudsman.

As a result, the solicitor may have to pay compensation for losses incurred as a result of professional negligence.

Note that there is a limit of £50,000. Should the liability be higher, the property owner may need to instruct a Solicitors Regulation Authority (SRA) or Law Society regulated litigation specialist.