Does this restrictive covenant prevent HMO development?

by Readers Question

10:49 AM, 27th January 2020
About 4 weeks ago

Does this restrictive covenant prevent HMO development?

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Does this restrictive covenant prevent HMO development?

I am a first time potential landlord intending to convert our family home for HMO use and have carried out due diligence and am satisfied that the project is feasible other than concern re a restrictive covenant.

The property was built by Shepherd Homes in 2007 who have since been taken over by another business and while still trading are no longer involved in residential property development/ building.

The restrictive covenant contained in the property’s TP1 as stated by Shepherd Homes states ” not to use the property or permit it to be used except as a single dwelling house with appurtenances and not to use the property for any trade or business save that nothing in this clause shall prevent the transferee and other members of the transferees household from working at the property provided that the work does not include visits or deliveries from the property and does not adversely affect the amenity of the residential use of the estate”

I will take formal legal advice but would both welcome and appreciate any thoughts / views on this issue, my apologies for such a lengthy first contribution to the forum and thank you in advance for any assistance given.

Steve



Comments

silversurfer2017

12:08 PM, 27th January 2020
About 4 weeks ago

Before you even think about challenging the covenant on the grounds that it is unreasonable you may want to consider practical points such as these before you start to incur expensive legal costs.
You have not stated whether the property is freehold or leasehold. If it is leasehold then it will be a complete non-starter.
Is the property detached, semi-detached or terraced? Obviously if not detached neighbours are likely to be disturbed by noise due to increase occupancy, doors opening closing due to increased comings and goings.
If it is freehold have you considered issues like parking if several of the tenants have cars?
Have you considered that once converted to an HMO you may have difficulty in reselling it as a private dwelling house if you make extensive changes to the property.
You will need the property to be revalued before and after conversion to try to establish a base cost for CGT purposes that will be acceptable to HMRC when the property is eventually sold.

blair

16:10 PM, 27th January 2020
About 4 weeks ago

The wording sounds like its not on. have you checked with planning. I am sure it will need planning permission. HMOs' have rightly fairly strict Building Regs and licensing requirements

Ian Narbeth

17:09 PM, 27th January 2020
About 4 weeks ago

The restrictive covenant may not prevent HMO use. You should consult a solicitor who can advise fully. However, on the limited information available, HMO use should count as use "as a single dwelling house with appurtenances" unless you are creating bedsits with their own facilities. Dividing the house into flats would be caught.
The restriction on business use is curiously worded. The reference to "visits or deliveries from the property" is odd. On its face it would prevent uses such as a doctor using the property as a base from which to visit patients or as a mail order depot. (I would guess the concern is visits and deliveries to the property but that is not what the clause says.)

Enforcing restrictive covenants is not straightforward and neighbours (as opposed to a developer with houses to sell) may not wish to risk it. Their upside is that an HMO is not created - they might still get a noisy family with 5 kids. The downside is a five figure sum for your and their own legal costs if they don't succeed.

Steve FLS

19:52 PM, 27th January 2020
About 4 weeks ago

Reply to the comment left by at 27/01/2020 - 12:08
Thank you Silver Surfer, the house is freehold and link-detached on the end of a row of three houses, it has five bedrooms but one is too small for HMO use so will need to convert one of the two attached gagarges into living space, initial discussions with the LA indicate that this would come under 'permitted development ' I think you make a fair point about the impact on neighbours of there being more disturbance with people coming and going but perhaps another family of five living there as a residential house could also generate a lot of activity , at present we have two garages and hard standing for a further two, there is space to the front of the house to create hardstanding for one car to compensate for losing one of the garages. Thank you for pointing out the CGT issue, I will need to address this as you suggest. Your help much appreciated! Steve

Steve FLS

19:55 PM, 27th January 2020
About 4 weeks ago

Reply to the comment left by blair at 27/01/2020 - 16:10
Thanks very much Blair, I've read the LA website and have a meeting in person with the LA HMO licensing officer this week so should be a little clearer then,your input much appreciated! Steve

Steve FLS

20:08 PM, 27th January 2020
About 4 weeks ago

Reply to the comment left by Ian Narbeth at 27/01/2020 - 17:09
Thanks very much Ian, my first thoughts about the RC being intended to prevent conversation into bedsits were the same as yours and issue of visits from the house in connection with business use does seem odd.
I thought that the RC is effectively a contract between the original developer / builder and the person who bought the house when new and that the RC remains in place for successive owners, I didn't realise that neighbours could take court action to enforce the RC , I am trying to contact the original developer to see if it's possible for them to vary or remove the RC but the original residential development section of Shepherd Homes has changed hands twice since the house was built in 2007, it first went to Wates but is now with Bovis so will see what they have to say. thanks again for your advice..Steve

Ian Narbeth

9:50 AM, 28th January 2020
About 3 weeks ago

Reply to the comment left by Steve FLS at 27/01/2020 - 20:08
Steve, STOP. Don't contact the original developer without taking legal advice.

If the RC has been properly drafted it may now benefit some or all of the neighbouring properties. However, this is not straightforward and the order in which houses were sold off may affect who has the benefit of the covenant. It is MOST UNLIKELY that the original developer is able effectively to release or modify the covenant on his own.

If there is a question mark about enforceability, you may be able to obtain Restrictive Covenant Indemnity Insurance which will provide financial resources or compensation in case of a claim against you. However, if you start stirring things up by approaching people who may have the benefit of the covenant the insurers will either not cover you or will avoid liability later.

As I said in my first post consult a property solicitor before doing anything.

F1_Fan

9:56 AM, 28th January 2020
About 3 weeks ago

It won't be an issue, I am a property trader 30 years in the game and a HMO developer and, you can run it as a HMO now regardless of any covenant, as that's a private issue on your title, and highly unlikely anyone will want to come looking for you to enforce it. If you get a mortgage though, the lender may have an issue, if you tell them it's a HMO and what usually happens is you'd get insurance to cover any potential claim from the covenant. So Don't worry about it, unless you plan to get a HMO re-remortgage.

Ian Narbeth

10:13 AM, 28th January 2020
About 3 weeks ago

Reply to the comment left by F1_Fan at 28/01/2020 - 09:56
Wow, that's a cavalier approach. "[Y]ou can run it as a HMO now regardless of any covenant, as that's a private issue on your title, and highly unlikely anyone will want to come looking for you to enforce it". Until they do.
Without knowing where the property is, you cannot say it is "highly unlikely" anyone will want to enforce it. There are parts of London, e.g. parts of Hampstead, Ealing and Hendon where well-heeled residents actively enforce covenants.
Steve may well be lucky and, as I mentioned above, there is a massive risk for those trying to enforce the covenant with minimal upside. However, Steve should investigate the RC properly.
Even if he does not require a mortgage, the person who buys from him might, or if they do not they will be concerned about a future purchaser.

Steve FLS

10:38 AM, 28th January 2020
About 3 weeks ago

Reply to the comment left by Ian Narbeth at 28/01/2020 - 09:50
Thank you very much Ian, I was just about to contact the original developer when I saw your post, this is all new territory ( ! ) to me and am risk averse to the prospect of finding myself with legal complications and the inevitable stress and cost such could entail.
I spoke to a solicitor yesterday and her advice initially was that she thought the RC is intended to prevent conversion to bedsits so no issue re HMO however she then suggested this might not be the case so I should contact the developer to seek a ' deed of release ' fortunately she isn't charging me for this seemingly contradictory advice. I have a meeting with the LA HMO officer tomorrow and unless that throws up insurmountable issues my next step is to make an appointment with a barrister specialising in RC, I'm in the north east so would welcome any recommendations? Thanks again for help through the mine field!..Steve

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