Understanding covenants

Restrictions on what you can and cannot do in your house may take homeowners by surprise. Make sure you know what you’re buying. Emma Lunn reports.


Restrictions on what you can and cannot do in your house may take homeowners by surprise. Make sure you know what you're buying. Emma Lunn reports.

Buying a house is stressful at the best of times, but homebuyers are often shocked to discover a list of things that they are not allowed to do, buried in the small print of their title deeds.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

A restrictive covenant is a provision, or promise, contained in a deed to land which affects or limits its use. This is known as the "burden" of a covenant. The burden of a restrictive covenant tends to "run with the land", so successive owners or occupiers are also bound by the restriction. A covenant may also give a landowner, some say, over what is permissible on neighbouring property: this is called the "benefit" of a covenant. Conversely, "positive" covenants are a promise to do something, or to contribute money. Common examples include the obligation to build and maintain a fence, or contribute to the maintenance of a shared driveway.

Do covenants fit into modern life?

Covenants have been around for hundreds of years and, historically, were designed to maintain the image of an area or development. For example, one of the most commonly used covenants restricts the use of land to "a private dwelling house". This stops property being used as business premises and, depending on the wording of the covenant, can limit additional building on a plot of land. On the more unusual side, you might see covenants that impose a ban on keeping chickens at a property or on it being used as a slaughterhouse.

Advertisement - Article continues below

While these provisions might sound practical in theory, or mostly of the sort that wouldn't affect modern life, an increasing number of homeowners are finding that the limitations imposed by restrictive covenants are preventing them from doing things most people would take for granted. For example, some covenants prohibit everyday activities such as putting up a washing line, keeping pets, or parking certain types of vehicles outside properties.

The past year has also seen a number of issues regarding leasehold houses come to light. Onerous ground-rent clauses that leave owners with steadily increasing bills have grabbed the most headlines, but leaseholders are also angry at being forced to pay developers, or ground-rent investors, for permission to extend or alter their homes. Unfortunately, some of those who have investigated buying the freehold to their homes have found that freeholders will only sell if these restrictive covenants remain in the property title deeds. (This type of income source is understandably very valuable to freeholders). This can leave homeowners in the position of owning their home on a freehold basis, but still being obliged to pay a third party if they want to make alterations to their home.

Campaign group the HomeOwners' Alliance is highly critical of this type of covenant. "There are cases where the covenants seem to serve no purpose but to line the pockets of the developer, in cases where the developer will essentially let a homeowner break the covenant but only if they pay an often sizeable fee," says Paula Higgins, chief executive of the group. "Either the developer does not want sheds or conservatories to be built on the development or it does. To say homeowners can't erect one unless they pay £300/£400 just exposes the clause for what it is a moneymaking initiative."

The Homeowners Rights Network (HorNet), which represents home owners on private estates, is also unhappy with the way homebuilders use covenants. Many homes on private estates have a positive covenant which places a "rent charge" on the property. This obliges the homeowner to pay for the maintenance of estate land, which remains in private hands and yet is public open space. "The covenants are so written by the developers that they represent a blank cheque... [and] the management companies are usually embedded [essentially out of the owners' control], so there is no choice, and only a minority have residents' representatives as company members," says HorNet.

What to do before you buy a house

If you are buying a property, you should familiarise yourself with any associated covenants before proceeding with a sale. You can do this by applying to HM Land Registry for a copy of the registered title and title plan allow a few weeks for these documents to arrive. The title will include details of any positive covenants that benefit the land (in the section headed "Property Register") and any restrictive covenants that affect the land (in the section headed "Charges Register"). If your property is leasehold, the covenants should also be included in the lease. When you proceed with buying a particular property, your conveyancer will also prepare a "report on title", which should identify any covenants. If you're concerned about something you've identified in the title deeds, make sure your conveyancer examines the rules to establish whether a covenant is still enforceable. And if you identify something that is especially onerous, and which is likely still to be enforceable, you might think twice before going ahead with the sale on those terms.

Can you get rid of a covenant?

Covenants are enforced in the same way as any other contractual right. Where a covenant is breached, the person who benefits from the covenant may sue the person who has the burden of it (ie, the person who pays to repair a driveway could sue the neighbour who refuses to contribute). Generally speaking, whether a covenant is enforceable will depend on how long ago a breach occurred, if the covenant was intended to benefit a particular individual and whether the breach can be deemed a loss or nuisance, says Lily Canter in The Guardian.

Advertisement - Article continues below

Note that the age of a covenant doesn't necessarily affect its validity very old ones can still be enforceable, though often this isn't straightforward, continues Canter. When it comes to ancient covenants where there is doubt about who benefits from a restrictive covenant, or that person can't be traced, solicitors often suggest taking out restrictive covenant legal indemnity insurance. "Insurance is usually easily obtainable for ancient covenants which are there just as historical legacies. This allows thousands of house sales to go through smoothly each year, despite uncertainty over whether a covenant has been breached, or even where it is known that a covenant has been breached in the past," says Derek Ching of solicitors Boyes Turner. It is also possible to apply to HM Land Registry to register a release of restrictive covenants. For a covenant to be "extinguished", it must be "clear that the whole of the land which has the benefit can be precisely identified and that all the persons having an interest in the benefiting land have joined in". As HM Land Registry's Land and Property blog says, this is a "rare occurence".

Finally, you may decide to take your challenge to the Upper Tribunal (Lands Chamber). There would have to be a good reason for the tribunal to agree to discharge or modify a restrictive covenant. For example, it's, thankfully, generally accepted that the use of land in a particular area changes over time, and covenants that were relevant at one point in time may no longer be so in the current day, points out Adrian McClinton of solicitors Coffin Mew. The law allows parties to "discharge or modify restrictions on title where the original purpose of a restriction and the character of a neighbourhood have changed". However, be aware of the fees and loss of time that might be associated with this route. And if you think that a fee you have been quoted by a management company to breach a covenant (such as in return for being granted permission to build a conservatory) is excessive, you can go to a first-tier tribunal to challenge it, Ian Fletcher, the director of policy at the British Property Federation tells Canter.




Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Equity release

Equity release: how to tap your house for cash

The pros and cons of releasing equity from your home compared with moving to a smaller one
10 Feb 2020
House prices

Like it or not, UK house prices appear to be rallying

The UK housing market seems to be perking up. But that may not be a good thing, says John Stepek.
29 Jan 2020
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020

Most Popular

Stocks and shares

Do you own shares in Sirius Minerals? Here’s what you need to do now

Mining giant Anglo American has proposed a cash takeover of Yorkshire-based minnow Sirius Minerals. Unhappy shareholders must decide whether to accept…
20 Feb 2020

Gold is at its highest level in years – here’s how to invest

Gold's rise at a time when the dollar is unnervingly strong isn't unheard of – but it is curious. John Stepek explains what's going on, and what it me…
21 Feb 2020
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
21 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019