Restrictive Covenants on Title: Key considerations
Clare Munro and Annabel Philip in our Specialty Lines claims team look at Restrictive Covenants and the risks faced by developers when purchasing land affected by a Restrictive Covenant.
In case you missed it, we looked at how data is a powerful tool for managing risk which you can read here.
What is a Restrictive Covenant?
Restrictive Covenants are legal agreements between two landowners which are noted on the registered title of a property. They are often imposed by the Seller to restrict or limit how the land may be used by the Buyer and anyone else who acquires the land later. For example, to prevent building on the land or to keep a particular size or style of building.
It is not always easy to identify who has the benefit of the Restrictive Covenant as the Restrictive Covenant may have been imposed many years ago. A careful search of old conveyancing documents, the title of neighbouring land or pre-contract enquiries may assist.
It is important to note that Restrictive Covenants are not connected to the planning system. They can still prevent development even if planning permissions have been obtained and, therefore, can cause real problems with land that has been purchased for its development potential.
Enforcement of a Restrictive Covenant
Restrictive Covenants created on or after 1 January 1926 are enforceable if they are registered as a charge in the title register. The usual remedy is a claim for damages for a breach of Restrictive Covenant, but in some instances, an injunction may be sought if what is proposed is particularly unwelcome.
Removal of a Restrictive Covenant
It is possible to remove a Restrictive Covenant by negotiating a release with the landowner who has the benefit of the covenant. This could be costly though if the Restrictive Covenant benefits several parcels of land as multiple landowners may need to agree a release.
It is also possible to apply to the Lands Chamber of the Upper Tribunal, to have a Restrictive Covenant “discharged or modified”, if the Upper Tribunal is satisfied that one of the statutory grounds is established, for example, that the circumstances now (such as changes in the character of the neighbourhood) are such that the restriction ought to be deemed obsolete. An application may take time, however, and an applicant may be exposed to costs if an objector is successful in defeating the application.
In cases where a release might prove challenging, Restrictive Covenant Policy insurance may be available to protect a Buyer against any known title defects which are discovered during the purchase and/or development of land and properties.
Avoiding pitfalls
A party’s conduct plays a crucial role in applications to the Upper Tribunal which has shown an unwillingness to allow a developer’s application to discharge a restrictive covenant, where the developer had already completed development works in breach of that covenant.
Developers who commence work in deliberate breach of a Restrictive Covenant, with the intention of applying later to modify the Restrictive Covenant, are taking a significant risk
Conclusion
If land is being purchased for its development potential, a thorough investigation of the land’s title is recommended to identify any title defects which might impede the development so that any risks can be mitigated and delay or additional costs avoided.
If you would like to discuss in more detail the contents of this piece, please contact our Specialty Claims Team or if you would like to hear how our Legal Indemnities team can support you, please contact Legal Indemnities who would be delighted to hear from you.
