Land Covenants: Definitions, Potential Solutions and Liability
When purchasing your commercial property, there may be restrictive or positive covenants present on the title register of the property which affect the land you are purchasing.
Your solicitor will investigate the title register of the property and report to you on any pertinent covenants.
Definitions:
Positive Covenants:
A positive covenant imposes an obligation to carry out some positive action in relation to land and could require the expenditure of money.
An example is the necessity to repair, maintain or the erection of boundary fences.
The obligation to observe a positive covenant generally does not travel with the land.
Restrictive Covenants:
A restrictive covenant affecting land refers to an agreement in a deed that one party will restrict the use of its land in an agreed manner for the benefit of another’s land.
A restrictive covenant could limit the possible uses of the land, for example, to residential purposes only, or prohibiting specific trades or businesses.
The restrictive covenant may be enforceable by one party’s successors in title against the other’s successors in title, as well as between the original contracting parties.
The obligation to observe a restrictive covenant could travel with the land.
Potential Solutions and Liability for Restrictive Covenants:
Can I ignore the restrictive covenant?
The short answer is no, you must always seek independent legal advice.
It is not a defence to state that you were unaware of the covenants which affect the land. Contravening a restrictive covenant could lead to significant financial penalties with awards of damages and an injunction.
In the affirmative, you would be exposing yourself to potentially costly and protracted litigation which could be instigated by the covenantee.
I do not think the restrictive covenant is enforceable, can the Lands Tribunal assist?
Jurisdiction:
The Law of Property Act 1925 (LPA) s84 (1): “The Lands Tribunal shall… have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction….”
Powers of the Lands Tribunal:
The Act asserts potential grounds upon which the Lands Tribunal can discharge a covenant, pursuant to s84 (1) of LPA onwards. Please refer to the key areas in bold below:-
- “that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Lands Tribunal may deem material, the restriction ought to be deemed obsolete ss(1) (a)).
- that the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified, so impede such user ss(1) (aa)).
- that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction, whether in respect of estates in fee simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed, have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified ss(1) (b)).
- that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction ss(1) (c))”.
You could be required to provide a financial remedy to the covenantee:-
- “and an order discharging or modifying a restriction under this subsection may direct the applicant to pay to any person entitled to the benefit of the restriction such sum by way of consideration as the Tribunal may think it just to award under one, but not both, of the following heads, that is to say, either—
- a sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or
- a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.”
If you rely on ss (1)(aa) in particular, you are likely to be required to compensate the covenantee:-
“Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Lands Tribunal is satisfied that the restriction, in impeding that user, either:
- does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or
- is contrary to the public interest and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.”
Exclusions of the Lands Tribunal
It is worth noting there are some exclusions to the power of the Lands Tribunal when dealing with restrictive covenants.
Examples being royal parks, Crown or Duchy of Lancaster land and in respect of restrictions for the purposes of the armed forces or civil aviation (LPA s84 (11)). All of which are expressly excluded from any modification or discharge, for obvious reasons.
My restrictive covenant remains binding, can I speak to the covenantee and request the discharge of the covenant?
Your solicitor may initially negotiate with the covenantee and request the discharge. The covenantee may request consideration (something of value, such as money) in return.
This is likely to be the most cost-effective approach for resolving the restrictive covenant.
Can I just implement restrictive covenant insurance?
Not necessarily, your solicitor will advise on this point.
In each insurance policy, there is a statement of truth the seller must confirm prior to the implementation of the policy. An example is whether there is a knowledge of the breach of covenant. If the covenantee is on notice that you have, or propose to breach the covenant, said policy will be void. Therefore, you may only implement this policy if the covenantee is untraceable, unclear, or the covenantee is not on notice of the proposed breach. The policy will indemnify you for any damages and legal fees should the covenantee attempt to enforce their rights by virtue of the covenant against you.
The seller would usually be required to indemnify the purchaser for the cost of the policy however this depends on what is negotiated between the respective parties.
It is also important to note that insurance does not remedy the problematic covenant, it simply creates a mechanism to indemnify the relevant people should a claim arise.
Ancillary Guidance:
Every case is different, but covenants affecting the land can be a problematic if they are not understood correctly. It is therefore vital to seek expert legal advice to ensure you fully understand all covenants, their possible implications and potential impact on your intended use of the property.
Whether the restrictive covenant is enforceable could depend on a variety of contextual factors. For example, a factor could be the wording of the clause or whether the original covenantee is traceable. If the covenantee is a company, and said company has now dissolved, you may have grounds to seek the discharge or modification of the covenant.
The Lands Tribunal route should be avoided where possible as it likely to be the most protracted and costly route of remedy. Proceedings may even require the instruction of a surveyor to give their view on the requested grounds of discharge. In addition to this, there is no guarantee of success in your pursuit of discharging the covenant.
Be that as it may, it is important to not unilaterally elect to disregard a covenant, you must consult a solicitor to consider the implications and possible solutions for the same. If you have any questions regarding anything covered in this article, please call us on 02476 231000 or email enquiries@askewslegal.co. Please note that this article is for information purposes only and does not constitute legal advice.
