Restrictive Covenants 101: Do They Affect Your House Sale?
:quality(80))
How much does it cost to remove a restrictive covenant? Here's how to sell with a property covenant...
Restrictive covenants - they're not the first thing you think of when buying a house, neither are they hot on your radar as a seller. Besides, as a buyer you have far more pressing issues on your mind, like dealing with the sale of your own property and planning out what you plan to do with your onward purchase. So, it's little surprise that in the midst of organising solicitors and managing agents, that small details like property covenants fall by the wayside.
And what's more, because they're not something sellers are all that keen to disclose, it's often the job of your surveyor or solicitor to do the investigating. But that being said, restrictive covenants are something you can look into yourself. And it's advisable you do, as they're a fine detail that you cannot afford to overlook. In fact, in many cases they can 'make-or-break' your property sale; often restrictive covenants are the reason behind buyers pulling out last minute (i.e. chain break).
Therefore, when it comes to doing your due diligence, property covenants are something you can't afford to let slip. You see, they don't just apply to character properties (a common misconception) - a lot of council houses, pieces of land and even new builds have them in place too. So before you set your heart on your onward purchase, read on to discover the true cost of removing restrictive covenants as well as their impact on your property sale.
After something specific about or restrictive covenants or just looking to define restrictive covenant indemnity insurance?
What is a restrictive covenant?
As complex as they might sound, restrictive covenants are actually pretty straight forward. Essentially, they're set of terms and conditions that a seller writes into a property's deeds. Ts & Cs that have the power to not only determine how you modify a house, but also how you use it too.
Think of them as a legally-binding hurdle that aims to prevent the misuse of land, as well as safeguard an area's heritage and uniformity. One that you as a homeowner really do have to take note of, be you a buyer or a seller. Why? Because restrictive covenants aren't all that attractive, meaning that they can very often reduce a property's appeal and in turn, affect its value. Hardly ideal if you're after a quick sale.
What's more, you don't just find restrictive covenants on one type of home. Period homes are just as likely to be hiding these property covenants as new builds, bungalows and even flats located above a shop. What's more, these kooky restrictions also apply to plots of land too. Something that not only makes it hard for developers, but also anyone wishing to turn a house into a holiday cottage or simply erect an good-sized extension.
Then consider that in most cases, a covenant is bespoke to each property and spotting one doesn't exactly become a walk in the park. Each comes equipped with its own set of restrictions and guidelines that you as the owner must comply with. Fail to do so and you could face legal action.
Some examples of common restrictive covenants
When it comes to restrictive covenants, there's no 'one size fits all'. In fact, it's rare that you'll find two which are alike. So, before you start rifling through your title deeds, it'd be a good idea to educate yourself on the types of covenants that you could come across. Also understanding how they impact a property wouldn't go a miss either. Speaking of which, here's some of the most common restrictive covenants you're likely to come across...
Change of use - this covenant restricts how a property can be used. So for instance, turning a residential house into a commercial property or transforming what was a house into a holiday let. All of which could be a major tipping point if you're looking a house to repurpose or leverage to generate a second income.
Alterations and modification - a covenant like this limits or prevents an owner from making alterations to their property. This could be anything from building an extension or replacing the front garden with a driveway. Although you wouldn't initially think it, this is especially something to watch out for in new build communities. Developers are often sticklers for uniformity and therefore use restrictive covenants to prevent against even the smallest of alterations. Satellite dishes, security cameras and front door colours for instance.
Land usage - Much as it sounds, this covenant works to prevent certain types of building taking place on a piece of land. Really strict covenants could even restrict building altogether, including wooden or prefabricated structures which don't require foundations. If a covenant like this does allow you to build, you'll likely be heavily restricted. By this we mean you'll be only granted permission if conditions X, Y and Z are met.
Livestock - If you're into keeping animals, then this is another restrictive covenant to watch out for. Yet again, you're most likely to find this cap on livestock woven into the sale of many new build developments. So if you're a fan of pets of fresh produce, this is definitely a condition worth looking into.
Expensive clauses - When a property's for sale along with access to a decent chunk of land, this is another clause to watch out for. You see, there's nothing to stop a previous seller for putting their own restrictive covenant on land that comes with a purchase. This could be restrictions (as per above) or it could be more focused on the monetary side. In other words, a covenant something along the lines of: "whatever you build on this land, I retain the rights to 50% of its value" or perhaps you need to pay a charge in order to 'free up' the land for development.
Is a restrictive covenant enforceable?
While you'd assume that all restrictive covenants are enforceable, especially with such a forceful sounding name, that's not always true. In fact, in some cases they can be nothing more than an outdated record. In which case you can breathe a sign of relief and carry on with your plans. Question is though, how do you tell if a restrictive covenant is enforceable? Read on to find out...
SCENARIO 1: The covenant is invalid Before spending any sort of money on removing a restrictive covenant, you first need to make sure it's valid. If not, it won't be enforceable - i.e. nothing for you to worry about.
This is usually the case if the person who enforced the covenant has died and the responsibility for the covenant hasn't been passed on. However, it could also happen if the person who made the covenant is no longer the lawful owner of the land. If a covenant ticks one of these boxes, your job is easy.
Simply apply to the Land Registry to have it taken off your title deed and that's pretty much it. Just bear in mind that the process to do so takes around 18 and 24 months to process - this may be longer now because of COVID. Although, if your property is a new build that you've lived in since new, this is likely not the case, as any covenants will be enforced through a company and written into the contract when you initially bought the house.SCENARIO 2: The covenant is active - In the case the covenant is still active, your approach will be slightly more complex. Reason being that the party who issued it does have control over it. All of which means it's legally enforceable and that if you breach it, you could be subjected to legal action (gulp)!
Therefore, in this situation it'd be down to you to negotiate a fair deal. Now, while the likelihood that this will involve money is high, it's not finite. In some cases, debating the covenant may simply mean negotiating the terms of the agreement. So perhaps restrictions on building or something to do with rights of access. However, that's not to say that you won't be held to ransom here - you likely will.
But in the case that you're successful, you'll then have to apply through the Land Tribunal for it's removal. All of which comes at a cost, especially if it progresses to a hearing. Extra time comes at a cost too, so bear in mind that the other may party may be aware of this and attempt to use it against you. Just a thought.
FYI: If you're at all worried about modifying your home, before you even think about applying for planning permission, check your title deeds! This is where the majority of the information around any restrictive covenants will be held. Reason we say so is because when granting planning permission, the council don't consider restrictive covenants. In fact, in most cases they don't even look at your title deeds.
So by not checking early, you risk investing a good chunk of time and money into obtaining the permission, only to find that it's completely worthless. In other words, the council gives you permission to build, but yet you can't because of the restrictions imposed by a covenant. In the end this probably means you'll have to make changes to your design or worse, scrap your plans altogether.
How much does it cost to remove a restrictive covenant?
What with property covenants being so varied, the cost of removing them can differ quite substantially. So now you're clear on whether a restrictive covenant is enforceable, here's a rundown of all the costs you could face...
The ransom (i.e. the fee demanded by the other party) = This varies, as it purely depends on whether you're after the covenant completely lifting or just slight changes to be made. How good you are at negotiation also plays a key part.
Statutory application fee = The fee to apply for the removal of a covenant is £880
Hearings = If your case progresses to a hearing, you can expect another cost of £1,100. If no hearing is needed this falls to £275.
Extra time = Requesting extra time to complete the removal of your covenant can cost another £110.
Additional hearings = If a hearing is required to conclude if someone else has the right to object to your application, this will set you back a further £550.
Success = In the event that you're application is successful and the covenant is lifted, you'll be liable to pay £220 to cover the costs of paperwork surrounding the final decision.
Additional legal costs = As with everything legal, no case is identical, so you could incur even more costs if the legals are particularly complex.
FYI: If you're at all worried about modifying your home, before you even think about applying for planning permission, check your title deeds! This is where the majority of the information around any restrictive covenants will be held. Reason we say so is because when granting planning permission, the council don't consider restrictive covenants. In fact, in most cases they don't even look at your title deeds.
So by not checking early, you risk investing a good chunk of time and money into obtaining the permission, only to find that it's completely worthless. In other words, the council gives you permission to build, but yet you can't because of the restrictions imposed by a covenant. In the end this probably means you'll have to make changes to your design or worse, scrap your plans altogether.
How much does it cost to remove a restrictive covenant?
What with property covenants being so varied, the cost of removing them can differ quite substantially. So now you're clear on whether a restrictive covenant is enforceable, here's a rundown of all the costs you could face...
The ransom (i.e. the fee demanded by the other party) = This varies, as it purely depends on whether you're after the covenant completely lifting or just slight changes to be made. How good you are at negotiation also plays a key part.
Statutory application fee = The fee to apply for the removal of a covenant is £880
Hearings = If your case progresses to a hearing, you can expect another cost of £1,100. If no hearing is needed this falls to £275.
Extra time = Requesting extra time to complete the removal of your covenant can cost another £110.
Additional hearings = If a hearing is required to conclude if someone else has the right to object to your application, this will set you back a further £550.
Success = In the event that you're application is successful and the covenant is lifted, you'll be liable to pay £220 to cover the costs of paperwork surrounding the final decision.
Additional legal costs = As with everything legal, no case is identical, so you could incur even more costs if the legals are particularly complex.
What happens if there's breach of restrictive covenant?
Another aspect of restricted covenants which is bordering on unpredictable is what happens if you breach it. Just like with how much a restrictive covenant costs, the consequences of breaching it can differ immensely. However, the extent of the consequences will usually be based upon factors like...
The extent to which you breached the covenant.
How strict the covenant is
Whether you've breached it on purpose or without intention.
How rigorous the other party is or if you ever get found out
In this situation, the best case scenario would be for you to be ordered to amend your work so that it falls in line with the covenant guideline. If you can do so without incurring a fee even better. However, the worst case scenario would be for you to be forced to pull everything down, be it a house, extension, fence - whatever. And be ordered to pay a form of compensation or fee to cover the damages (usually in the £thousands).
Handy tip: How to get around restrictive covenants (handy tip!)
As with anything legal, the secret is building a strong case. Do so and you're far more likely to convince the Tribunal to rule in your favor. So what we'd suggest is giving them good cause to do just that by seeking the backing of your local council or housing association.
Now obviously this does depend on your situation. If the covenant is to do with an illegally built extension, don't waste your time. But if it's trying to prevent you from building in an area of town where housing supply is short, seek their backing, especially if the plot is not greenbelt land or issued a long time ago. Housing associations and councils have changed a LOT over the past 50 years and will likely have a different opinion now to what they had in the 70s.Besides, what council is going to say no to the ability to charge another portion of council tax? See what we mean...
FYI: If you haven't been able to persuade the Tribunal on abolishing the covenant, you can still apply for its modification. A slightly softer approach that may lever you into a somewhat better position.
But what about restrictive covenant insurance?
In the event you can't get the covenant removed and would like to sell, you'll have to consider a form of restrictive covenant insurance (AKA Restrictive Covenant Contingency insurance/ Restrictive Covenant Indemnity insurance). Essentially a way of selling a house which has been built on a land where a covenant is in place. In other words, built illegally.
Unlike your standard insurance policy, restrictive covenant insurance policies last a lifetime and can be passed on from owner to owner. What they essentially do is cover the value of loss along with any legal expenses caused by a third party attempting to enforce a covenant. Developers are usually ones to watch when it comes to restrictive covenant insurance.
A common scenario would be that a developer has bought some land (with a covenant) and gone about building a property. Their original intention was to track down the owner of the deeds to negotiate its removal, but after exhaustive searches, they cannot be found. Therefore, the property they've built has to be sold with a restrictive covenant indemnity policy to make it legal. Saying that though, they may not find it that easy to sell as a house with restrictive covenant insurance is worth less in the eyes of most buyers.
FYI: If you are thinking of buying a house that's got restrictive covenant insurance, consider this. There is a clause that you should look out for. Called the 'escalator clause', this loophole is designed to protect the owner of the policy (perhaps you) against the rate of inflation. For the first ten years, the limit of indemnity can be automatically increased by 10% year on year. However, after the ten years is up, you may be required to pay a fee to have this period extended.
Can restrictive covenants affect your house sale?
In short, yes.
Restrictive covenants can indeed put you on the back foot when selling on the open market. Why is simple. As we mentioned above, restrictive covenants are anything but the first thing on a buyer's wish list. Neither are they cheap issues to resolve either, especially if the one who issued the covenant chooses to be awkward.
And speaking of awkward, that's unfortunately what selling a house with a restrictive covenant is like. Even the more minor covenants you come across as part of new build estates, can make life harder when it comes to securing a sale. Reason being that a house isn't just a box - it's a portrait of who we are, only it's made of bricks and mortar of course. Therefore, being limited in what you can do, isn't really a selling feature either. But saying that, not all buyers are this picky. We should know because we're one of them.
As a cash buyer of property backed by a team with over 50 years' experience in selling homes, property covenants don't phase us. In fact, it's a regular occurrence if like us you buy ANY house in ANY condition and ANY location for 100% cash! What's more, we're quick to act too. We can have you moved and your money in the bank in as little as 7 days! And that's all without paying a penny in solicitor's costs.
:quality(50))