Equity Release – Your Top 10 Questions Answered In our Residential Conveyancing department we are often asked by our clients to give them advice when they are considering Equity Release Schemes. In this Blog, Arlie Asbury, one of our Licensed...
What is a Restrictive Covenant?
It is fair to say the majority of legal titles will contain covenants that affect a property. Not surprisingly, clients do not have the faintest idea what any of these mean, as often, they are drafted using convoluted language.
In simple terms, covenants come in three forms, they are either positive in nature and therefore require the homeowner to do something affirmative, such as maintaining the boundaries to the property in a particular manner. Alternatively they are restrictive, which are far more common. Typical examples of restrictive covenants is to use the property as a private dwelling house or now more commonly placed on development sites, is not to erect a satellite dish at the front of the house. The main difference between the two is that restrictive covenants “run with the land” and therefore are binding on future purchasers of the property. Thirdly, covenants can be personal, but these are only binding between the original parties to the agreement.
It is very important for a purchaser to read through the covenant section to make sure there are no restrictions which will affect their use and enjoyment of the property. Crucially, a purchaser will need to make sure that they will be able to observe and perform the covenants, since often they will remain legally enforceable and the benefit of the covenant may have passed onto another company/individual, otherwise known as a “successor in title”.
More importantly, if a buyer is purchasing with the assistance of a mortgage, their lender will be keen to ensure both the security offered by them and the value of the property will not be adversely affected due to a beneficiary of a covenant coming to enforce the benefit of a covenant. Under the Council of Mortgage Lenders (CML) part one guidance, however most lenders will be satisfied, if nobody has come to enforce the benefit of a covenant for more than 20 years.
What is the point of Restrictive Covenants?
Frequently clients ask what the point of the covenants is and who has placed them on the property register in the first place. Often most covenants are historic and many older properties are affected by restrictive covenants which are unenforceable as nobody can trace who has the benefit of the same.
However, developers typically add covenants to the property register through the original Transfer Deed entered into between them and the initial buyers, as they are keen to ensure individual plots on an estate remain uniform and are maintained in a particular way. Landowners may also place restrictive covenants on the part of the land they are selling, in order to protect the value and enjoyment of the land they retain.
Covenants can become obsolete over time and a property owner can ask for one to be modified or released. However, this can be a lengthy and unsuccessful process.
Instead indemnity insurance is widely used by property lawyers, as a means of overcoming existing breaches and is readily available from specialist insurance providers.