Deed of covenant: Does it make it hard to sell?

Explaining what a deed of covenant is, why it's required and whether or not it can make your property hard to sell...

When selling a property, we all want to get the most hassle and stress-free sale possible, with as few complications as possible.

So when you add a strict deed of covenant into the sale, the process can start to look a little more complex…

But what is a deed of covenant? How much does it cost? And will it make it hard for you to sell your property?

We’re going to answer all these questions for you, as well as giving you other selling options if you’re struggling to sell your leasehold with a strict deed of covenant!

What is a deed of covenant?

A deed of covenant is a legal document, which mainly affects leasehold properties, stating that the leaseholder must agree to undertake a certain obligation, or set of obligations, which have been set by the freeholder.

The deed of covenant is mainly used to protect the freeholder and management company, as it legally bounds the leaseholders to the specified clauses.

Covenants can be both positive and negative, with positive being to create a good living environment for everyone within the development and negative stopping leaseholders from doing certain things within the property.

Positive covenants:

• Paying service charges on time

• Look after communal areas

• Committing to the maintenance of the exterior of the property

• Agree to be part of the committee discussion and allow larger works on the development

Negative covenants:

• Not allowed to sub-let

• May not be allowed to own a pet in the property

• There may be restrictions on making excessive noise after a certain time

• May not be allowed to run a commercial business from the property

• May be restrictions on accessing certain parts of the development

You may also come across something called a direct deed of covenant. This is where a leaseholder has been given permission by the freeholder to sublet, meaning that a separate deed of covenant must be drawn up for the subtenant.

On signing the deed of covenant once you’ve sold your leasehold property, both the positive and negative covenants will be passed on from you, the seller, to the buyer (new leaseholder).

Why is a deed of covenant required?

When a freehold is sold, the positive covenants don’t pass with the land, but with a leasehold title, the positive covenants automatically pass to be legally binding for both the freeholder and new leaseholder.

On buying a leasehold property, the deed of covenant acts as a direct contract between the freeholder and the new leaseholder, allowing the freeholder to go directly to the leaseholder to collect ground rent and service charges, and also allows them to enforce new covenants onto the leaseholder directly.

Also, a majority of leases now say that a deed of covenant is required on any transfer, assignment or subletting of a property. This is because the deed is one of the obligations in the lease and so without entering into the deed, this is a breach of the lease.

Most leases will state that a deed of covenant is necessary on transfer, underletting or assignment of a leasehold property. In most cases, an actual signature, which has been witnessed, will be required.

How long does a deed of covenant last?

If the deed of covenant is attached to the land, then it will ‘run with the land’. This means it continues to apply to the land regardless of whether lands nearby have been sold on.

Deed of covenant fee

It will need to be checked with the freeholder whether or not they will charge a fee for issuing a deed of covenant, which may form part of the administrative charge that is made when forwarding the leasehold pack to the conveyancer.

Sadly, there isn’t actually a set fee for the deed of covenant fee, but it’s generally not more than £300.

The fee for the deed of covenant will be in addition to the conveyancing fees paid, which can make it a costly process for your buyer for your leasehold property.

Does a deed of covenant make it hard to sell?

In short, yes. Depending on what the deed of covenant contains, it can make the sale process quite tricky, with buyers not wanting to adhere to its potentially strict rules.

In general, leasehold properties can be quite challenging to sell, with a short lease or terms of the lease often causing the property to be less desirable.

Add on top of that a deed of covenant banning sellers from having pets or stopping them from being able to turn their property into a rental property, with sub-letting banned, and you find yourself in a tricky selling situation.

Also, conveyancing for a leasehold property takes longer than for a freehold property, adding another complication into the mix.

However, that’s not to say that you won’t be able to find a way to sell your property, you just might have to try a slightly different sales method compared to selling on the open market with an estate agent…

Part exchange

Part exchange is a scheme where you’re able to trade in your property as part payment towards the cost of a new build property. As a result of part exchange, you only have to pay the difference between the value of your current property and your new build property.

This option allows you to completely avoid estate agents and their fees. You’re also able to avoid being part of a chain, with the new build developer acting as a chain-free buyer.

Part exchange is a great selling option if you’re wanting to sell your leasehold property and get a brand-new house in exchange.

However, whether or not you’re eligible for part exchange will be down to your chosen developer. Generally speaking, developers don’t like to take on leasehold properties as they’re harder to sell on.

Your house also can’t be worth more than 70% of the value of the new build and there may also be problems with your build, meaning you’re waiting over a year to move into your new property.

You will also still have to pay legal fees, removal costs and the other fees associated with moving house.

Also, even if your house is eligible, you will get a lot less than the market value for your property, meaning it’s not the most ideal option for everyone.

Auction

Auction is another option if you’re struggling to sell your leasehold property with a strict deed of covenant.

At auction, you’re met by lots of buyers who are looking to buy a property fast, with them exchanging and putting down a deposit on auction day.

There will be minimal work for you to do, as the auctioneer will take control of negotiations and advertising, with you needing to be willing to host an open day for potential buyers to have a look around.

However, due to the nature of the fast sale, a lot of buyers will be looking to get your property at a discounted price.

On top of this, you will need to pay the auctioneer’s fees, as well as room hire, marketing costs and legal fees, leaving you with a lot lower for your property than you may have hoped.

There is also no guaranteed sale – if your reserve price isn’t met, then your property will not sell.

Also at auction, you will be faced with the same problem on the open market – if there’s a strict deed of covenant, then buyers will likely be put off, or want a BIG discount.

Cash house buyer

A final option for selling your leasehold property with a strict deed of covenant is to use a cash house buying company. These companies act in the way a cash buyer would on the open market, meaning they have the funds to buy your property, without needing house repayments, or the sale of another property.

Cash buyers are also able to complete in a quicker timescale, as they have the money readily available, and there’s little paperwork involved, with some cash house buying companies handling it all, only asking you for a signature.

Although most cash house buying companies specialise in quick sales, you will also have the option to choose the timescale yourself.

The sale is also a guaranteed sale, unlike through other options where the sale can fall through at any point.

If this option sounds like the right choice for you, then let us be your cash buyer!

Here at The Property Buying Company, we’re a cash buyer of houses buying any property in any location and condition. We can complete in a fast timescale of your choice, and we cover all your fees – even the legal ones!

We only require one quick viewing to check our cash offer is accurate and we’re a guaranteed buyer, meaning once you’ve accepted our cash offer, that’s the guaranteed amount you will get in FULL in your bank!

You can choose the timescale to suit you, but our average completion time is between 2-3 weeks, although we have been known to do 7 days before…

We’re also a member of the National Association of Property Buyers and The Property Ombudsman and we’re rated excellent on Trustpilot, with over 1000 reviews, meaning you can feel you’re in safe hands.

Forget struggling to sell your leasehold property with a strict deed of covenant and give us a call or fill in our online form for a no-obligation cash offer, which we could have in your bank as soon as next week…