Multi-let ex-council property with Restriction of Covenant

by Readers Question

15:08 PM, 6th October 2014
About 4 years ago

Multi-let ex-council property with Restriction of Covenant

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Multi-let ex-council property with Restriction of Covenant

I am in a process of purchasing an ex-council property with aim to rent it out as multi-let. The vendor purchased this property from Council about 14 years ago. Multi-let ex-council property with Restriction of Covenant

The TP1 document received from solicitor shows the following clause in the Third Schedule “Not carry out any trade business or profession in or upon the property or any part thereof but at all times to use the Property as a Private residence in single family occupation PROVIDED THAT this covenant shall not prohibit the use of the Property as the professional residence of a solicitor architect medical practitioner or dentist”

It also states that “The transferee to the intent that thus covenant may so far as possible bind all persons who are now or hereafter shall become entitled to any part of the property but not so as to bind the transferee or any such persons after he or they shall have parted with all estate and interest in the property hereby covenant with the transferor and its successor in title for the benefit and protection of the adjoining and neighboring land of the transferor that he the transferee and the person deriving title under him will henceforth duly perform and observe the covenant conditions and stipulations contained in the Third Schedule hereto”

The solicitor doesn’t point out any issue but she probably is not aware that I plan to rent it out as multi-let. I will ask for her advice but would like to know other Property118 members thoughts about this restriction and if there is any solution to remove this clause and at what cost?

Any advice is very welcome.

Thanks

Debby



Comments

Mark Alexander

9:11 AM, 7th October 2014
About 4 years ago

Hi Debby

Sorry to see you've got no replies yet.

What did your solicitor have to say?
.

Joe Bloggs

10:26 AM, 7th October 2014
About 4 years ago

multi let clearly isnt single family occupation.

Jenny Sinclair

16:14 PM, 7th October 2014
About 4 years ago

Hi Debby,

My knowledge of covenants is a little rusty, but I seem to remember that whilst restrictive covenants run with the land and are enforceable against successors in title, positive covenants (such as the covenant to use only as a single family home) are only personal to the original parties to the deed (ie the original conveyance).
The restrictive part of the covenant (ie the first part) would bind anyone buying the property, and it would be a matter of interpretation, I think, whether what you propose to do amounts to a "trade or business". However, you should be able to take out restrictive covenant indemnity insurance to cover the risk. Your lenders' (if you have them) solicitor will almost certainly have to agree with this.
I would definitely discuss your intentions with your solicitor, as she has all of the information to hand and is best placed to advise you.
Have you already exchanged contracts?
Jenny

Ray Davison

17:43 PM, 7th October 2014
About 4 years ago

Hi Debby,
You need to let your solicitor know what your plans are or otherwise he/she cannot be fully conscious of how any issues they come across may affect your purchase or indeed you willingness to complete. Lots of clauses are standard in sale contracts and for residential buyers cause no issues therefore solicitors do not even mention them to buyers. For BTL etc some of these standard clauses can become onerous. Your solicitor, accountant, finance broker etc all need to fully up to speed with your plans and overall strategy or they cannot advise you properly.

From what you have posted you are on a loser in this instance unless your solicitor can find a way around it or you can persuade the council to withdraw the covenant.

Good luck.

John Daley

12:15 PM, 8th October 2014
About 4 years ago

Hi Debby,

This page gives good advice. http://www.dpcd.vic.gov.au/planning/theplanningsystem/legislation-and-regulations/restrictive-covenants.

I think the Council will not be supportive of this because a lot of leasholds are now being converted into HMO's and local residents, who tend to be quite influential at this level are against this. Largely because of poor quality conversions, overcrowding and ASB from badly managed lets.

In this case I think quality of legal advice is important, as we know not all solicitors are as effective and concientious as we might hope. So get some advice from someone who is a specialist.

You could ring the planning office and seek their advice informally. If there is a policy against HMO conversion or an Article 4 direction for the property, this will be a very uphill project.

Jenny Sinclair

12:53 PM, 8th October 2014
About 4 years ago

Debby and John,

The article you link to John is based on Australian Law. While there may be crossovers with English Law, they are not the same and you should be wary of relying on it. As others have stressed - take your own lawyer's advice asap.

The problem with the concept of the Council "withdrawing the covenant" is that although they may have been the original parties to the covenant, the benefit of the covenant will have passed every time they sold a piece of the benefitting land (ie every time they sold a neighbouring Council House) so it would not now be in their power to amend the original covenant. Take advice but it seems to me that insurance is the only likely way forward.

Good luck and let us know what you decide to do.

John Daley

13:49 PM, 8th October 2014
About 4 years ago

Good point, perhaps this is a better link http://www.maitlandwalker.com/News/Overcoming-Restrictive-Covenants.aspx

Never post in haste or hot blood !

John Daley

13:56 PM, 8th October 2014
About 4 years ago

Hi,

How does restrictive covenant insurance work. Surely in this case all the parties know about the covenant so there is some certainty the covenant will affect the value of the property. Unless the covenant can be modified or released then the loss will occur.

The insurance provider will charge according to the likelyhood of the loss being incurred. Are the premuins for this not too high to make it worthwhile for this scale of property transaction ?

Jenny Sinclair

15:48 PM, 8th October 2014
About 4 years ago

This is a link to an article about restrictive covenant indemnity insurance. I'm not in any way connected with Zurich, by the way, it just looked like a good explanation!
Debby would only be looking at insuring against the risk that:-
1. Renting as a multi-let amounted to carrying out a "trade business or profession" in or upon the property
2. In the event that it was, that there was someone currently with the benefit of the covenant who is aware of its existence and seeks to enforce it
3. If that were the case, that the insured couldn't show that the nature of the property had changed sufficiently for the Lands Tribunal to allow the covenant to be discharged or modified to allow the house to be used as a shared property

In my experience, the insurance companies involved in this field are happy to look at the circumstances and to say whether they will offer cover and at what premium. the premiums are usually one-off and are for the benefit of mortgagees and people who buy the house from you. This can be done before exchange and cleared with the lender.

That said, Debby may not want any element of risk, insurance may not be available and, if it is, it may not satisfy any BTL lender involved, so this is all speculation!

And just to clarify, as far as I am aware, this will not relate to the covenant to use as a single family house, as this is a positive covenant, the burden of which does not run with the land to successors in title (ie anyone who bought or buys after the original buyers from the Council). I do however stand to be corrected!

http://www.zurich.co.uk/legalindemnities/news/real_issues_for_real_estate/restrictivecovenantindemnityinsurance.htm

Puzzler

11:51 AM, 11th October 2014
About 4 years ago

Hmm - I read the second para in the OP to refer to the first and therefore binding on all successors in title. Likewise I don't know myself.

Options:

1) Attempt to get insurance as described above - if you can't you know it's a non-starter

2) Talk to the council - then you'll know if they're prepared to withdraw the stipulation

3) Either way you could well have to get planning permission for change of use, either to change the covenant or if it's a large multi-let. You might want to explore that before purchase.

4) Find a property without the restriction.


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