Buying land to develop – Beware of restrictive covenants!

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If you are considering purchasing land with a view to building or developing the land in some way, part of the legal process will involve the investigation of the seller’s title, which may reveal covenants affecting the land and restricting development. You should ensure that your proposed use or plans for the land will not be restricted in case action is taken against you for breach of a covenant.

Restrictive covenants are agreements whereby one party has agreed to restrict its use of the land in some way for the benefit of the other person’s land. They are then attached to the land and are enforceable against future purchasers.

Restrictive covenants may restrict the land in a number of ways, including, for example:

  1. Limiting the use of the land;
  2. Restricting the number of buildings that may be erected;
  3. Restricting the height of the buildings; and
  4. Preventing trades to be carried out.

In new developments, there will often be a number of restrictive covenants which are designed to prevent neighbours causing a nuisance to each other, such as:

  1. A covenant against keeping poultry; or
  2. A covenant against building any extension without the seller’s consent.

Positive covenants are generally agreements whereby one party has agreed to carry out a positive action in relation to land, such as:

  1. Expenditure of money;
  2. Works of repair or maintenance.
  3. Erection of buildings or boundary fences.

They are personal and do not attach to the land. Therefore, they are more difficult to enforce against future purchasers and often involve additional covenants from each new purchaser to observe and perform the covenants.

Many developers building a number of dwellings on a piece of land, decide to grant long leases to purchasers instead of freehold transfers and one of the reasons for this is because it is easier to enforce positive obligations in a lease rather than under a freehold transfer. Each new purchaser is bound by the terms of the lease and failure to comply with the covenants may result in the lease being forfeited and the land reverting back to the Landlord!

If you are in breach of a covenant and action is successfully taken against you, the remedies available include damages or an injunction.

There are a few options to deal with a restrictive covenant:

  1. Negotiating an express release of the covenant – the availability of this depends on the circumstances.
  2. Indemnity insurance – although if there has been an attempt to contact the person with the benefit of the covenant, the insurance may be invalid. An insurance would pay:
  1. The insured’s legal costs in defending the action;
  2. Pay damages to the person with the benefit of the restrictive covenant; and
  3. Pay compensation to the insured if the development or activity cannot continue.
  1. An application may be made to the Upper Tribunal (Lands Chamber) for the modification or discharge of the restrictive covenant.
  2. The person with the benefit of the covenant may need to establish that the covenant is in fact enforceable – for example the wording may be too ambiguous!

A recent 2015 case highlighted the importance of restrictive covenants and the impact they may have on a land owner’s title. In ‘Birdlip Ltd v Hunter & Hunter’, a company was prevented from building further dwellings even though they had obtained planning permission for two further dwellings. Although the covenant was more than 100 years old, it could still be established who had the benefit of the covenant. You can read further details of the case by following the link below, which is just an example of how restrictive covenants can prevent development and should be carefully considered as part of the purchasing process:

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2015/808.html&query=Birdlip+and+Ltd&method=Boolean