When purchasing land or a property for commercial use, buyers need to be aware that some property titles may contain restrictive covenants that could prevent themselves or future tenants from using the property in a certain way.
If you aren’t aware of a restrictive covenant on land or property it could affect your ability to use or develop a site for its full potential, which could have an impact on your return of investment or the future sale of the site.
With this being the case, it is important that developers, investors and businesses understand what restrictive covenants on commercial property are and their limitations.
What is a restrictive covenant on land?
In the most basic terms, a restrictive covenant dictates what an owner can and cannot do on the land that they own.
Most restrictive covenants are introduced to protect the land or property or the areas that surround it, either from inappropriate use or from being altered or renovated in a specific way.
It is often up to the buyer and seller to come to a binding agreement on these, which are registered on the title deeds and must be adhered to.
Some restrictive covenants can be historic and apply to a property for years, passed from one owner to the next, or they could be introduced more recently in light of changes to the land or area.
Typical restrictions include:
- Not to use the land other than as private garden land
- Not to use the land other than for a private residential dwelling
- Not to use the land in relation to a certain trade (such as the sale of alcohol)
- No building or other structures to be erected without previous written consent of the vendors or in accordance with the plans.
Most buyers, or tenants that use the land, will see these restrictions as a burden and it is important that they understand the effects of any restrictive covenant that affects them.
How can you tell whether the commercial property is subject to a restrictive covenant?
The deeds and legal title of a property or piece of land should identify any restrictive covenants that are in place.
In most cases, your solicitor should point these out to you when you are purchasing or leasing a property when they conduct their searches and review the deeds and titles.
Be aware that some restrictive covenants may have an expiry date or may turn out to be unenforceable.
In fact, in some circumstances, these restrictions may become invalid, if:
- No living person exists who can enforce the restrictive covenant
- The same party owns both the restricted land and the benefitted land
- The covenant was only intended to affect the initial owners of the land – not subsequent owners.
Unlike deeds and other titles, the Land Registry is not obliged to record the agreed benefit on the title to the land. This often leads to problems determining the beneficiary of a restrictive covenant.
What happens if I breach a restrictive covenant on a commercial property?
You should avoid breaching a restrictive covenant at all costs. If a person or business that owns a property unknowingly, or deliberately, breaches a restrictive covenant they could be required to undo any modifications or changes, pay a fee to the beneficiary of the original agreement or even face more significant legal action.
Sometimes landowners or businesses will only realise that they have breached a covenant when they come to sell the property later on.
In these cases, where the covenant was breached 12 months or more ago without challenge, they may be able to acquire restrictive covenant insurance to protect themselves from any legal recourse from the beneficiary of the agreement.
How can we help?
If you are buying or developing commercial property and you believe that there may be restrictive covenants, we can help to identify them and manage their impact on a transaction or use of the land. To find out more about our property services, please contact us.