A restrictive covenant is a private agreement between land owners where one party will restrict the use of its land in some way for the benefit of another's land. Restrictive covenants, once agreed between the parties, are placed in the title deeds to the property. They bind the land and not the parties personally. In other words, the restrictive covenant 'runs with the land'. This means that the covenant continues even when the original parties to the covenant sell the land on to other people. Restrictive covenants also continue to have effect even though they were made many years ago and appear to be obsolete. They are enforceable by one landowner against another, provided they are restrictive or 'negative' in their effect and effectively allow a form of private planning control.
An example of restrictive covenants on a housing development are deed restrictions that protect property values by preventing any deviation of the appearance of units within the development from a standard. Frequently, restrictive covenants will also control some of the activities that take place within the boundaries of the properties they apply to.
A restrictive covenant can be enforced by the courts if a beneficiary of the covenant objects. The agreement is enforced by granting an injunction forbidding the landowner to break the agreement. The Lands Tribunal has powers under section 86 of the Law of Property Act 1925 or Article 5 of the Property (Northern Ireland) Order 1978 to dissolve or relax covenants that appear to be out of date or unreasonable. To insure against the risk will generally be the option, but cover may not always be available
A person who is affected by a restrictive covenant has two options to protect themselves against any action for breaching it:
- Obtaining insurance cover, known as 'indemnity insurance', in respect of any attempt to enforce the covenant
- Seeking a declaration from the Lands Tribunal that the covenant is invalid
It will generally be cheaper and quicker to insure against the risk of action for breach than seeking a declaration from the Lands Tribunal, but cover may not always be available where the beneficiaries of the covenant may have notice of a breach or planned breach.
Where there is a restrictive covenant not to build on certain land, if the owner of the land wishes to build, they must obtain permission from the person having the benefit of the restrictive covenant.
If you choose to ignore a restrictive covenant, you could potentially face a claim in damages for the breach in addition to any injunctions granted. There are two types of damages that can be awarded:
- Compensatory damages to reflect the diminution in the value of the benefited land by reason of the breach
- Damages awarded in lieu of an injunction
The court may take into account what the parties would have negotiated for the release of the covenant and whether or not the claimant may have tacitly acquiesced to the breach by failing to prevent breach while having knowledge of it.
Discharge and modification of restrictive covenants
Making an application
Under Section 84 of the Law of Property Act 1925 or Article 5 of the Property (Northern Ireland) Order 1978, a person interested in certain types of land can apply to the Lands Tribunal to have any restriction on that land cancelled or modified.
Even if the applicant succeeds in discharging (the technical term for cancelling) or modifying a covenant, they will not get their costs from any objectors. This is because the applicant is seeking an indulgence from the Tribunal to release them from an otherwise binding obligation. In addition, if the application fails, the successful objector will usually get an award of costs.
The Tribunal may discharge or modify the restriction if it is satisfied that one or more of the requirements for discharge are present. The requirements for discharge are:
- The restriction ought to be deemed obsolete because of changes in the character of the property or the neighbourhood, or there are other circumstances of the case which the Tribunal may deem material. Alternatively, the continued existence of those circumstances would restrict the reasonable use of the land for public or private purposes without any practical benefit to other persons; or
- The persons entitled to benefit from the restriction have agreed to the discharge or modification; or
- The proposed discharge or modification will not affect the persons entitled to the benefit of the restriction:
What must be in the application
An application to discharge or modify a restriction must contain all the information set out in the Lands Tribunal Rules 1996 or the Lands Tribunal Rules (Northern Ireland) 1978 as amended, including an identification of the land which is subject to the restriction, and the land which has or may have the benefit of the restriction. The identity of any person known or believed to have the benefit of the restriction must also be set out in the application. The grounds for discharge or modification must be stated. It is very important to clearly state the reasons why the applicant believes that any ground applies.
Plans which identify both areas of land must be included with the application together with a copy of the document which created the restriction, including a coloured copy of any plan mentioned in that document.
The Tribunal does not have jurisdiction to modify or discharge any covenant that is positive in character. Positive covenants require the person subject to them to do something, usually involving the expenditure of money. Applications should not include such covenants. Any application that includes positive covenants cannot proceed until the applicant has submitted an amended application with the positive covenants removed.
Publication of notices
When the Registrar receives the application, it determines what notices of the application must be given to people who appear to be entitled to the benefit of the restriction. The applicant is directed to give personal notices to anyone who can be identified by name and address, and notice by advertisement in respect of all others. The notices set out the substance of the application and require those who claim to be entitled to the benefit of the restriction and who object to the application to notify the Registrar of their objection.
Notice of objection and admission of objectors
Notice of objection and any claim for compensation must be given in writing to the Registrar within 28 days of the notice of the application. The objector is required to state why he/she claims to be entitled to the benefit of the restriction and why they are objecting. Where entitlement is not clear, a preliminary hearing may be held to decide disputes regarding who is entitled to object to the application.
In the case of applications where no objection has been made, or where no one has been admitted or found entitled to oppose the application, the Tribunal may determine the application without a hearing, provided the applicant agrees.
Where objections have been made and not withdrawn, or where the grounds for the application have not been clearly established, an oral hearing will usually be held in order to decide the application.
Compensation for discharge
The Tribunal may require compensation to be paid to a person who might suffer from the discharge or modification of a restrictive covenant. The sum is either to make up for any loss or disadvantage suffered as a consequence of the discharge or modification, or to make up for any reduced price for the land received when the restriction was imposed. An objector to an application may be entitled to one or the other, not both.
You can apply to the court for a declaration to determine:
- Whether or not a restriction does, or may in certain circumstances, exist
- What the nature of a restriction is and if it is enforceable
This can be useful where there is any uncertainty about the covenant itself or whether or not action may be taken as a result of any breach of a restrictive covenant. A negative declaration can be applied for which would remove any need to apply for indemnity insurance.