Restrictive Covenants: How They Affect Property Sales and Mortgages

Restrictive covenants are one of the most commonly encountered legal complications in UK property transactions. They affect a wide range of properties — from Victorian terraces to modern housing estates — and can range from a minor administrative nuisance to a genuine barrier to sale, development, or mortgage. Understanding what they are, what they mean in practice, and how to deal with them is essential knowledge for buyers, sellers, and anyone considering development.

What Is a Restrictive Covenant?

A restrictive covenant is a legal obligation attached to land that restricts what the landowner can do with it. The key legal point is that the obligation "runs with the land" — it binds not just the person who originally gave the covenant, but all future owners.

Covenants are created in the deeds when land changes hands. When a developer sells plots on an estate, they typically impose covenants on each plot to maintain the character of the development. When a large house is divided into flats, the freeholder imposes covenants on each flat. When a farmer sells off a piece of land, they may impose covenants to protect the remaining agricultural land.

The party who benefits from the covenant (and can enforce it) is the "covenantee" or the "benefited party." The party whose land is burdened by the covenant is the "covenantor" or "burdened party." These relationships can become complex over time — the benefited party may have died, their land may have been sold many times, or the original purpose of the covenant may have become irrelevant.

Common Types of Restrictive Covenant

Residential Use Restrictions

A covenant preventing the property from being used for anything other than residential purposes. This is very common and is generally benign for homeowners — but it can prevent business use, short-term lets, or conversion to flats.

No Further Building

A covenant preventing any new buildings on the land without the consent of the benefited party. Very common on plots sold off from larger properties — the original seller wanted to prevent overdevelopment. This covenant can prevent outbuildings, extensions, or any structure, depending on how it is worded.

No Alterations

Restrictions on altering the external appearance of the property — particularly common in conservation area-type situations where a developer wanted to maintain uniformity across an estate.

No Trade or Business

Preventing any trade or business being carried on from the property. Relevant for anyone who works from home or runs a business from a residential address.

Single Dwelling Only

A covenant preventing division of the property into flats or multiple dwellings. This is a significant issue for anyone considering converting a large house into flats.

Maintenance of Boundaries

Requirements to maintain fences, walls, or hedges to a certain standard. Failure to maintain can put you in breach and expose you to enforcement action by the benefited party.

Type of Structure

Restrictions on the type of materials used in construction, or on erecting certain types of structures (such as mobile homes, caravans, or pre-fabricated buildings).

How Restrictive Covenants Are Discovered

Restrictive covenants attached to a property should be revealed by the official copies of the title register and title plan obtained from HM Land Registry as part of the conveyancing process. They will typically appear in the "charges register" or in the title documents referred to in the register.

Your solicitor should review all covenants as a standard part of the conveyancing process and advise you on:

• What the covenants say
• Whether they appear to have been breached (by the current or previous owner)
• Whether the benefited party still exists and could realistically enforce them
• The appropriate risk management approach

For older properties with complex title histories, the covenants may be buried in lengthy historical conveyances. A thorough solicitor will review all relevant documents, but the depth of review varies and it is worth asking specifically about covenant issues.

Impact on Mortgageability

Most restrictive covenants do not prevent a mortgage — lenders deal with covenanted properties routinely. The key issues for lenders are:

Active breaches: If the property is currently in breach of a covenant (an extension was built without consent, the property is being used for business in breach of a residential covenant), the lender's position is that this breach could result in enforcement action, which might affect the property's value or the owner's ability to remain in it.

Unknown benefited parties: If the person who benefits from the covenant cannot be identified, it is impossible to know whether enforcement is a real risk. This is actually often reassuring — a covenant whose benefited party has died, or whose successor cannot be traced, is very difficult to enforce.

Development covenants: If you are buying with a view to development, and a covenant prevents the development you have planned, this is a serious issue that needs resolving before (not after) purchase.

Recent breaches: A breach that occurred within the last 12 years (the limitation period for legal action) is more concerning than one that occurred 50 years ago without any enforcement action.

Indemnity Insurance

Indemnity insurance is the most common and practical solution for historic covenant issues. These are one-off premium policies that protect the property owner and their lender against financial loss resulting from enforcement of a covenant.

When Indemnity Insurance Is Appropriate

Indemnity insurance works well where:

• The covenant has been breached but enforcement action has not been threatened
• The benefited party cannot be traced or no longer exists
• The covenant is old and the original purpose has become redundant
• The breach has been known for a number of years without challenge

What It Covers

A covenant indemnity policy typically covers:

• Legal costs of defending an enforcement action
• Damages or costs ordered by a court
• Loss in property value resulting from enforcement
• The cost of remedying any breach if required

Cost

Indemnity insurance for restrictive covenants is relatively inexpensive:

• Standard residential policies: £150-500 for a typical residential property
• More complex situations: £500-2,000+ depending on the risk
• Development situations: Can be significantly more expensive if the development value at risk is high

The premium is paid once; the policy runs indefinitely (it is a permanent policy, not an annual one). It transfers automatically to future owners and their lenders.

Limitations

Indemnity insurance does not make the covenant go away — it simply protects against the financial consequences of enforcement. It is also important not to alert the benefited party to the existence of the policy, as this could lead to enforcement action (and the insurer may refuse to pay if the risk was knowingly increased).

Formal Modification or Discharge Through the Upper Tribunal

Where indemnity insurance is not appropriate — for example, where the benefited party is known and has already objected, or where a development cannot proceed without formal consent — the formal route is an application to the Upper Tribunal (Lands Chamber) for modification or discharge of the covenant under Section 84 of the Law of Property Act 1925.

Grounds for Modification or Discharge

The Tribunal can modify or discharge a covenant on the following grounds:

Ground (a): The covenant is obsolete due to changes in the character of the property or the neighbourhood since it was imposed.

Ground (aa): The covenant impedes some reasonable use of the land, and either the restriction gives no practical benefit of substantial value or advantage to those entitled to the benefit, or it is contrary to the public interest.

Ground (b): The persons entitled to the benefit of the covenant have agreed (expressly or impliedly) to its modification or discharge.

Ground (c): Modification or discharge would not injure the persons entitled to the benefit.

The Process

Applications to the Tribunal must be supported by evidence and legal argument. The benefited party is notified and can object. The Tribunal hearing can take 12-24 months or more, and the outcome is not guaranteed.

Costs: Legal fees for a Tribunal application typically range from £5,000-20,000+, and if the matter is contested, this can be significantly higher. In some cases, the Tribunal may also award compensation to the benefited party if the covenant is discharged.

When to Consider This Route

The Tribunal route is appropriate when:

• The development is of sufficient value to justify the cost and delay
• Indemnity insurance is not available (because the benefited party is known and active)
• There are strong grounds under one of the statutory criteria

For standard residential transactions, the Tribunal route is generally impractical. For significant development projects, it can be the right answer.

Impact on Property Value

The value impact of restrictive covenants depends on the specific covenant and its effect on the property's potential use:

Covenants that restrict only what the seller was never going to do anyway (e.g., a "no further building" covenant on a terraced house with no garden) have effectively no value impact.

Covenants that limit development potential — preventing an extension, blocking conversion to flats, or restricting any building on a large garden plot — can reduce value by 10-30% compared to what the property would be worth without the covenant, if that development potential is otherwise realistic.

Covenants that restrict the use of the property in a way that affects the current owner (e.g., preventing business use on a property where the owner runs a business) have a direct impact on the appeal of the property.

Breach with a known and active benefited party — where enforcement action is a genuine risk — can significantly depress value and make the property very difficult to sell without resolving the covenant first.

Practical Advice for Buyers

1. Ask your solicitor explicitly about all restrictive covenants — do not assume they will volunteer the information unprompted
2. Understand what each covenant says and what it prevents — the wording matters, and "no further buildings" can mean different things depending on how it is drafted
3. Check whether the property is currently in breach — and if so, for how long and whether any enforcement action has been taken or threatened
4. Identify whether the benefited party exists and is traceable — this is often the key factor in deciding whether indemnity insurance or formal resolution is needed
5. Factor in the cost and delay of any resolution — if a covenant needs formal modification, this could delay completion by 12-24 months

Practical Advice for Sellers

1. Review your title documents before marketing — knowing about covenants in advance allows you to address them before they become a problem in a sale
2. Obtain a solicitor's view on the risk level — some covenants are effectively unenforceable; others are a genuine issue; knowing which you have is important
3. Arrange indemnity insurance proactively where appropriate — having the policy in place speeds the conveyancing process
4. Disclose known issues honestly — concealing a known breach can expose you to claims from buyers after completion
5. Price appropriately if a covenant genuinely restricts the property's value or use

This is educational content, not financial advice. Restrictive covenants are legal matters requiring qualified legal advice. Speak to a solicitor experienced in property law — and a specialist mortgage broker if the covenant is affecting your ability to mortgage — before making any decisions.