restrictive covenants property management guideYou don’t actually come across these too often, particularly within property management, but when you do they can cause real problems – these are restrictive covenants.

They’re a binding obligation linked with the actual land title which obliges only certain uses or purposes on this land and property, for example a house having a restriction for only one dwelling place when it is desired to build on the garden. Hence when land is being sold, these things can come to light through solicitors and cause problems with deals completing.

Although property management is then looking after interests afterwards, it’s important to understand the basics of these issues to at least ask the right questions at the outset and ideally as part of any property transaction. You can then factor in what needs doing.

Explained Through an Example

If you take the example of an old bank building to try and explain; this grand old building may be hundreds of years old and is now being sold to a new property developer eager to transform it into an upmarket restaurant, or possibly residential redevelopment.

There may be an important historic building next door as well, maybe a church or community venue. Way back in time a restrictive covenant may have been made with this bank building which says that it can’t be used in any other forms of non-banking use, to stop it being sold on to anyone and turning into a detrimental use that affects the use of the neighbouring Church property.

It’s kind of a way for one landowner to toe the line in what they do so it doesn’t adversely affect a neighbouring landowner, even though they’re completely different plots of land.

And this is an official thing that is part of the actual land ownership and title, ideally all registered with Land Registry.

Where the Problems Begin

Often these restrictive covenants go back decades, even centuries, with the purpose of protecting now outdated uses. In today’s modern world it may well be more reasonable to let them go and landowners move on with matters.

So okay, two hundred years ago it was probably quite reasonable to limit the way that a bank could change use to something else, but in today’s world where it’s no longer viable then sensible alternatives like a pleasant restaurant may be seriously worth considering.

But even when other factors allow this such as planning permissions and building control, these restrictive covenants can crop up as a legal-ownership matter that causes one landowner to hold another one to ransom and start demanding unreasonable terms.

How to Tackle Restrictive Covenants

If you’re in this situation, whether the landowner who suffers or benefits from these, or a third-party advisor, then here are some practical pointers on how to deal with them. Without getting bogged-down with the pure legality of these as above, the following are more bigger-picture factors to be aware of.

1. Discharge or Modification?

The first point is to look at is what you can actually do with this restriction from a legal perspective.

There is legislation such as the Law of Property Act 1925 which will allow notices to be issued to bodies like the Upper Tribunal to look at ‘changing’ such restrictions that seem unreasonable – even though a landowner may object, they have the power to change things.

One way is to simply modify the restriction, so to keep to it but water it down and make more practical. The other is ‘discharge’ which will totally remove the deemed obsolete restrictions.

The extent to which these will be allowed will depend upon the individual circumstances – how restrictive they are, what genuine benefit and burden they provide on the pieces of land, and if there will be any material changes to the character of land and neighbourhood.

Often you see a lot of restrictions for residential areas looking for change, although ones genuinely affecting the business use of a piece of land will be more favourable for change than just a property owner wanting to cash-in more on residential values, for example their rear garden for another property when the whole site has a single-dwelling restriction in place.

Therefore get to the bottom of what you’re trying to achieve, and run it past a good solicitor to judge the effort involved in formally applying for this to be changed.

2. A Negotiated Deal

A more straightforward way is to simply agree a deal with your next-door neighbour who is involved with this restrictive covenant, or agree for this to be changed without having the cost and procedure of an external body deciding the matter.

So in the above example, the adjacent church with a benefit of a restrictive covenant over the land may mean you must agree a settlement cost of so many thousands of pounds for them to give up these for your benefit – and don’t forget their costs in the matter needing to be documented as well.

As you begin dialogue you want of course to still look at the above formal way as back-up, and if you do agree something then the golden rule is to then document correctly. This will need a formal document that can then be suitably lodged with external bodies like Land Registry as an official change to this all.

3. Insurance Cover

If the cost and hassle of trying to resolve this is too much, whether direct agreement or formal release, and you think that no issues will be raised from this, then you could just live with it and arrange special insurance cover against any claims in the future.

So the other landowner may not even be aware of the situation, and not be bothered if they did – but because the formal restriction is still there then themselves or a new owner could always insist upon in future.

Special title indemnity insurance cover can therefore be arranged, particularly within any transaction where you don’t have the time to do otherwise. However this is often only permitted in advance without any potential issues or claims lurking away.

4. Other Consents

A final reminder is that there will be a host of other isuses and consents involved with a property or land deal and use that may or may not link with this particular one.

So popular ones involving the local authority are planning permission and building control, although there will be other special ones such as licences for leisure uses and HMOs.

There will also be other legal documents such as long leases and any side-licences with neighbouring land to take into account.

Restriction-Free Land and Properties

If you come across these restrictive covenants with any land titles, don’t panic – there are ways to try and remove and discharge then, or at least modify and work around them.

Once you bottom-out what they’re for and who is part of these, then you can begin seeing the best way forward. Don’t get too side-tracked with the legalities of this and high costs that can mount up with it, when in actual fact the above pointers can help manage the situation better.

And above all, apply some common sense. If this so-called land restriction actually has no sensible use or benefit, then there is a high chance you can do something about it for everyone’s benefit.

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