Successful property developers have a good eye for a promising opportunity but they must also navigate the complexities of legal restrictions on how land may be used. What looks like a perfect site could be subject to restrictive covenants that could stop a development in its tracks.
What are restrictive covenants?
‘Restrictive covenants can be a huge headache for developers’ says Thomas Lewis, an Associate in the Dispute Resolution department at WBW Solicitors in Exeter. ‘They are binding agreements between landowners that can stop land being used for specific purposes for decades, sometimes centuries, after they were entered into.’
The right to enforce a restrictive covenant can pass from one owner to another when the land which benefits from it is sold, which means that what looks like an archaic restriction on activities common in the 19th century can stop a development in the 21st century. Even planning permission for your development could be trumped by a restrictive covenant.
Examples of typical restrictive covenants include:
- not building on certain parts of a site;
- not building more than a specified number of dwellings on a site;
- not building above a specified height; and
- not using the land for specific trades or businesses.
Some restrictive covenants require consent from the landowner with the benefit of the covenant. These can cause particular problems if it is not clear who currently has that benefit, especially where land has been sub-divided and sold on.
What are the penalties for breaching a restrictive covenant?
If you ignore a restrictive covenant and carry on with the development, you could be subject to a court injunction requiring you to stop work. You could even be required to demolish completed buildings, especially if the court thinks you have deliberately ignored the restriction without trying to negotiate a release or using the proper statutory process (see below). In some cases, the court will order you to pay damages instead of granting an injunction, but it is unwise to rely on that being the outcome.
What can you do about restrictive covenants?
Your solicitor will start by checking whether the covenant is still enforceable. The rules on this are complex and depend on when the covenant was entered into, how it was worded and whether it has been correctly registered.
Assuming the covenant is enforceable, there are three options for dealing with it.
- Applying to court – there is a statutory process for getting covenants altered or removed if the court is satisfied that they are obsolete or prevent a reasonable use of the land, or that the person with the benefit has agreed or will not be adversely affected. This really depends on the specific situation and your solicitor will advise you about how likely you are to succeed with a court application.
- Negotiation – if you know who has the benefit of the covenant, you may be able to negotiate with them to release it, usually in return for a payment. Sometimes adjacent plots of land are subject to matching covenants and if this is the case, you may be able to agree a mutual release.
- Insurance – depending on how old the covenant is, you can usually take out indemnity insurance to cover costs and losses you would incur if you developed the land in breach of the covenant and it was enforced against you. The premium will depend on the insurer’s assessment of the risk and it is vital that you disclose all material information. Most insurers will refuse to give cover if you have already approached the person with the benefit of the covenant, so you must discuss with your solicitor in advance whether insurance is likely to be a better solution than negotiation.
Building in breach of a restrictive covenant or buying land without realising that it is subject to restrictions could be extremely costly. Getting good legal advice at the outset will help you avoid costly mistakes and, in many cases, will enable you to cover yourself against the risk of losing a great development opportunity.
For further information, please contact Thomas Lewis in the Dispute Resolution team on 01392 260129 or email firstname.lastname@example.org. WBW Solicitors has offices in Newton Abbot, Paignton, Torquay, Bovey Tracey, Exeter, Launceston, Exmouth, Sidmouth and Honiton.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.