Restrictive Covenants

What Is a Restrictive Property Covenant?

A restrictive covenant is an agreement that requires the buyer to either take or abstain from a specific action. In property transactions, restrictive covenants are binding legal obligations written into the deed of a property by the seller. These covenants can be either simple or complex and can levy penalties against buyers who fail to obey them.

Why are they used?

Covenants are designed to maintain specific standards for residents. Housing developers and property management companies will often add restrictive covenants to a Transfer Deed in order to prevent owners from undertaking work or other practices which could impact negatively on a neighbourhood or undermine a desired level of ‘uniformity’ and/or maintenance.

Alternatively, landowners may place restrictive covenants on the piece of land they are selling in order to protect value, minimise damage and retain a degree of control.

When is a restrictive covenant not enforceable?

A restrictive covenant will generally be enforceable between the original contracting parties as a matter of contract. There can be situations where this is not so, for example, where:

  • The covenant is too uncertain or ambiguous to be capable of enforcement
  • The covenant is prohibited by competition law and is unenforceable
  • The covenant is contrary to public policy, for example, it contravenes equality laws
  • The covenantee assigned the benefit of the covenant to a third party

Where the person seeking to enforce the covenant and the owner of the burdened land are successors in title to the original contracting parties, there are several pre-conditions that must be met for the covenant to be enforceable.

When is a restrictive covenant enforceable between successors in title?

For the covenant to be enforceable between the successors in title to the original parties the following rules for the passing of the benefit and the burden of the restrictive covenant must be complied with:

  • The covenant benefits land owned by the person seeking to enforce it
  • The person seeking to enforce the covenant owns the benefiting land
  • The benefit of the covenant has passed to the person seeking to enforce it

How do I challenge a restrictive covenant?

There are several ways of challenging a restrictive covenant.

  • Express release: It may be possible to negotiate the release or variation of a restrictive covenant.
  • Indemnity insurance: It is possible to obtain indemnity insurance to protect against the risk of a person with the benefit of a restrictive covenant seeking to enforce it.
  • Upper Tribunal (Lands Chamber): If an agreement cannot be reached with the beneficiaries of a restrictive covenant, or if insurance is not available, an application can be made to the Upper Tribunal (Lands Chamber), formally the Lands Tribunal, for the modification or discharge of a restrictive covenant.

Hagen Wolf has the experience and knowledge to support you on restrictive property covenants and the enforcing of or challenge of them – please do not hesitate to get in touch.