A “covenant” is simply a promise made in a deed. Land may be burdened by covenants which affect its use in some way, or may have the benefit of covenants which give the owner some control over what is done on neighbouring properties. Covenants can therefore be very important to both the burdened and the benefiting land, and may have a significant impact on land value: for example, if a piece of land contains a covenant preventing use other than as a single residential dwelling this may reduce the value of the burdened land (as there is very little development potential) but increase the value of the land which benefits from the covenant (as there is control over what can be done next door).
When you purchase property it is essential that you are aware of any covenants which burden that property, as they may impact on your plans: the land may come with planning permission for a six-storey office block, but this is potentially worthless if a covenant prevents building above two storeys.
Different types of covenant
Covenants may be positive (requiring some action to be taken and often involving expenditure) or restrictive (preventing something from being done). The test is one of substance rather than wording: for example, a covenant “to use the property only as office premises” is a restrictive covenant (not to use other than as office premises) even though it is phrased in a positive way. The distinction is very important as positive and restrictive covenants do not bind land in the same way.
For example, A owns a plot of land. He sells a part of it (the blue land) to B and retains the green land for his own purposes. B has a right of way over a road running across the green land. B enters into the following covenants:
- Not to construct any building on the blue land which exceeds a height of 9m (restrictive)
- To plant eight beech trees on the blue land (positive)
- To pay half the cost of maintaining the road (positive)
As between A and B, all of these covenants will be enforceable: A has the benefit of the covenants and B has the burden of them. However, what happens if either A or B sell their land to someone else? Will the benefit and the burden to pass to the new owners?
Passing the benefit of the covenants
The benefit of a covenant is deemed to be annexed to the land, so that the benefit of all non-personal positive and restrictive covenants will run with the land. This means that if A sells the green land to X, X will be able to enforce all of the covenants directly against B. It also means that if A sells the green land in two parts, to X and Y, both X and Y will be able to enforce the covenants against B.
Passing the burden of covenants
The burden of restrictive covenants will run with the land provided that certain requirements are fulfilled, as set out below. This means that if B sells the blue land to J, the current owner of the green land will be able to enforce the restrictive covenant not to build over a height of 9m directly against J. If B sells the blue land in two parts, to J and K, the covenant will be enforceable against both J and K. However, if any of the requirements are not fulfilled, the covenant will continue to be enforceable as against B but will not be enforceable against his successor in title. The requirements are that:
The covenant “touches and concern” the burdened (blue) land
This will always be satisfied to the extent that the covenant restricts the use of the land in some way.
The covenant was entered into for the benefit of the retained (green) land
To "benefit" other land a covenant must either affect the value of the adjoining land or have an impact on its enjoyment. The important point is that it must actually be for the benefit of the adjoining land, based on its use at the current time (not its use when the covenant was created). Even if the transfer uses all the right words, if the covenant does not in fact benefit the adjoining land, it will not work as a restrictive covenant. For example, if the green land is currently used as a two-storey private residence, the restrictive covenant will benefit that land as constructing a tower-block would reduce the enjoyment and value of the green land. However, if there is currently a large factory on the green land it‘s difficult to envisage any reduction in either enjoyment or value.
The parties intended that the covenant should run with the land and not be a purely personal matter
A personal covenant is a covenant by one person to another that is not expressed to be for the benefit of the other’s land. For example, the covenant "not to construct any building on the blue land which exceeds a height of 9m" will be personal unless there is wording in the transfer that makes it clear it is intended to benefit the green land. This wording usually will be included, but it’s always worth checking for.
Anyone buying from B has notice of the covenant
In order to be binding a restrictive covenant must usually be registered, either as a Land Charge for unregistered properties or on the registered title. However, where the land is registered be aware that the Land Registry does not generally register the benefit of restrictive covenants, only the burden. This means that the title to the blue land should contain a clear statement that the blue land is subject to this restrictive covenant in favour of the green land, but the title to the green land will often make no reference to the covenant at all.
It is worth remembering that just because a covenant has been included on a registered title it is not automatically binding. There are two reasons for this. The first is that it must still be a valid restrictive covenant using the tests set out above. The second is a more technical reason; when the Land Registry first registers an area of land they do not check that any restrictive covenants have been properly protected under the Land Charges system, which governs the enforceability of restrictive covenants over unregistered land. It follows from this that any covenant on a title that predates first registration of the property is potentially challengeable: if you can show the restrictive covenant was not properly protected by a Land Charge at the right time, the Land Registry will remove it from the title.
The burden of a positive covenant does not usually run with the land. This means that if B sells to J, the covenant to plant the trees will not be directly enforceable by A against J. However, there are some exceptions to this rule and also some ways to get around it.
Benefit and burden
A positive covenant to pay a contribution towards the upkeep of anything over which an easement has been granted will be enforceable against successors, to the extent that the easement is used. This means that if J makes use of the road, A will be able to enforce the covenant to pay half the cost of maintaining it; however, if J stops using the road, the covenant will no longer be enforceable.
Chains of covenant
In the absence of an express provision the contrary, a covenant continues to bind the original parties even after the land has been sold. This means that even though A cannot enforce the planting covenant against J, he can still enforce against B. For this reason, when B sells to J he will seek an indemnity from J in respect of any claim that A brings against him (note that this ability to enforce against B applies to all covenants, not just positive ones). This has the indirect effect of making the positive covenant enforceable as A can claim against B who will claim against J, and so on for a longer chain. However, this is very cumbersome in practice, it quickly becomes difficult to trace former owners and as soon as one of the links on the chain is removed (a company is wound up or an individual dies) it ceases to be effective.
For more significant positive covenants, particularly in the context of large commercial properties, the owner of the benefitting land may impose a requirement that the burdened owner does not sell the land without first obtaining a direct covenant from the buyer to the owner of the benefitting land – so in our example, J will covenant directly with A to plant trees. This can be enforced by placing a restriction on the title of the blue land preventing any registration of a sale of that land without evidence that the direct covenant has been entered into with the current owners of the blue land. This may be a satisfactory solution where the benefitting and burdened land are unlikely to be subdivided but can become very complex for large sites as it may result in the buyer of the burdened land having to covenant directly with numerous owners of the subdivided benefitting land.
Assuming a covenant is valid and enforceable, what happens if someone breaches it? The important question is whether the person suing will get an injunction stopping the breach (ie preventing the action being taken or requiring that something be done) or damages for losses caused by the breach.
This will depend on the facts of the case and particularly on how the parties have behaved. If you want to enforce a covenant that you think someone is going to breach or has started to breach, then the key is to act as quickly as possible. The longer you delay the less chance of getting an injunction. Similarly, if you plan to defy a restrictive covenant, you need to be careful as there is always the risk a court will oblige you to demolish. If you get damages they will be based on the loss of value to your property.
What can you do if a restrictive covenant prevents your intended use?
Double check that it’s binding
Does it benefit an area of land? Can this land be clearly identified from the original deed? It is often worth trying to find out what land might have the benefit by looking at the titles of adjoining properties. If you can work out what land has the benefit, it makes it much easier to consider how enforceable the covenant is now.
Have all the validity tests been met? Look at the drafting and check whether it was correctly registered at the relevant time.
Have the benefitting and burdened land been in common ownership at any time since the covenant was given? If so the covenant will have died though the title may not reflect this.
Just ignore it
Assuming that the covenant was validly granted and has been properly protected at all times, once the person who gave the covenant has sold the land the covenant is still only enforceable to the extent that it benefits the adjoining land. Though this may be a risky strategy, the best answer in some cases is simply to ignore it and hope no-one will try to enforce it. The owner of the benefiting land may not currently know they have the benefit of the covenant, or may be too slow to enforce it. The slower they are, the less likely they are to get an injunction (and the risk of damages may be more acceptable).
If you can identify who has the benefit of a covenant, it may be worth trying to negotiate a surrender. However, you do need to be very careful with this approach:
- If you discuss the covenant with someone who has the benefit of it, you will find it very difficult to obtain insurance (see below).
- If they do not co-operate and you decide to go ahead with the development anyway, there is a higher risk of being injuncted. Once you have started to negotiate, it would be risky to go ahead with the development before the negotiations had dragged on long enough for you to be able to show that they were being so unreasonable that this was your only option.
- If they have a valid covenant that benefits their land, they are entitled to enforce it and are not obliged to negotiate.
There is a formal procedure you can use for removing covenants. The grounds for applying are the same grounds that would entitle you to ignore it as being no longer enforceable, but if you are successful it will be removed from your title and you get certainty on the point. The downside is the usual one of time and cost. Also, if you lose, you remove uncertainty in a less helpful way.
It is generally possible to take out insurance against any restrictive covenants that you intend to breach in a development and it may be the most cost-effective solution but there are two important caveats:
- If you need planning for a development, insurance companies will often refuse to insure you until you have planning permission. This is because they think that the publicity around the planning application may flush out anyone who intends to object on the basis of a restrictive covenant. It is usually a pre-condition of the insurance that no one has discussed the covenants with the parties who you think have the benefit of them.
- It is usually a pre-condition that no one has discussed the covenants with the parties who you think have the benefit of them.