Restrictive covenants on title: key considerations for developers

Knowing how to identify and navigate these covenants is critical to a project’s success. Here’s what developers need to know and consider.

Restrictive covenants are legal agreements that are noted on the registered title of the property that limit how the land can be used including for example: prohibiting certain types of uses, hours of use etc. Since 2003, restrictive covenants need a formal notice registered on the property’s title to have legal standing. This entry ensures the covenant remains binding against future owners.

Restrictive covenants must be registered to be enforceable. This can occur through either an agreed notice with the landowner’s consent or a unilateral notice, which does not require landowner consent but still holds priority. The benefit of a covenant, which allows for enforcement, is typically not registered on the benefiting property’s title, though it can be identified through neighbouring title records or pre-contract inquiries.

Securing complete release of covenant rights

Firstly it is important to note that the land owner with the benefit of the restrictive covenant is not obliged to agree a release. If the land owner agrees to the release then it may demand a premium to do so. When multiple properties have the benefit of a covenant, obtaining a release from the original covenant holder may be insufficient. Releases will likely need to be negotiated with each neighbouring owner who holds the covenant’s benefit, which can be time-consuming and costly.

Indemnity insurance and potential objections

Indemnity insurance is often used to manage the risk of covenant enforcement. However, insurers typically assess past objections to planning applications as a risk factor. If the local council has not disclosed who objected to the planning application, as sometimes occurs, securing insurance can be challenging. In these cases, developers may need to work closely with the council to access the information that insurers require.

Strategies to manage restrictive covenant risks

To navigate restrictive covenants effectively, developers can consider the following approaches:

• Early due diligence and beneficiary identification: carefully examine title records early to identify potential beneficiaries. Russell-Cooke can assess the impact of the covenant on the proposed project.
• Negotiating releases: when multiple parties hold enforcement rights, developers may negotiate releases individually to reduce legal risks.
• Indemnity Insurance: in cases where releases are challenging, insurance can be sought to cover enforcement risks, though insurers often require confirmation of no past planning objections.
• Tribunal applications as a last resort: if other options fail, developers may apply to modify or discharge the covenant through the Upper Tribunal (Lands Chamber) if it no longer serves its original benefit although this approach has timing implications.

We recently acted for a developer purchasing land intended for a residential development. However, the title contained a restrictive covenant stating: “Not to use the Property or any building erected thereon for any purpose other than for a use within classes B1 and/or B2 and/or B8 of the Town and Country (Use Classes) Order 1987.” This restriction meant that only light industrial, general industrial, or storage/distribution uses were permitted, which did not align with the developer’s planned use.

Complicating matters, the land had previously been sold off in parcels to numerous different owners, each holding the benefit of the restrictive covenant and thereby retaining the right to enforce it. Whilst the main beneficiary indicated that consent might well be forthcoming, a full and absolute release required each adjoining owner to also be a party to the deed. Given the impracticality of negotiating with numerous owners, we recommended that our client obtained an indemnity insurance to cover potential enforcement risks.

Restrictive covenants can pose unique challenges, especially when multiple parties hold the benefit. Developers must assess the implications of restrictive covenants early and take proactive steps; whether negotiating releases, securing insurance, or exploring tribunal applications. Working with Russell-Cooke from the outset can help navigate these constraints and support successful project outcomes.

By understanding these restrictions and developing a clear action plan, developers can make informed decisions to mitigate risks and move forward confidently.