Restrictive Covenants and Indemnity

by Readers Question

9:58 AM, 31st August 2016
About 2 years ago

Restrictive Covenants and Indemnity

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Restrictive Covenants and Indemnity

7 years ago I bought an ex council house. I was not aware that there is a restrictive covenant by the local authority that prevents the house being used ‘other than as a single private dwelling house for occupation by one family only and not to convert same to flats or maisonettes.’restrictions

The Local Authority who imposed this covenant when they sold the house originally have hundreds that are similarly used and it would open the flood gates if they allowed a challenge to go through. So far no one has tried to get it lifted and Indemnity seems the only way. I’m now selling an HMO with tenants, and my buyer is concerned about the covenant and he wants indemnity.

Can anyone advise me which Insurers specialise in this sort of cover please ? Our solicitors tell me it is not available, but I rather think they haven’t looked very far!

Any tips appreciated.

Bill



Comments

Neil Harvey

17:43 PM, 31st August 2016
About 2 years ago

Bill
I don't know which companies offer insurance.
But I believe you can only get covenant indemnity insurance through a solicitor, it's not available direct to customers.

Bill O'Dell

22:32 PM, 31st August 2016
About 2 years ago

Reply to the comment left by "Neil Harvey" at "31/08/2016 - 17:43":

Thanks Neil. It is my solicitor who says it can't be insured against yet there seems to be other solicitors offering the service, but at significant additional costs - and for what? Knowing which broker or underwriter will write the business? I was hoping someone might have had a similar issue and dealt with it, thus able to point me towards an insurer. They seem to be buried in a Lloyds black hole somewhere!

terry sullivan

10:15 AM, 1st September 2016
About 2 years ago

you could apply for opp to convert--may fail but you can then appeal--covenants often only apply to first purchaser

John Pettman

10:35 AM, 1st September 2016
About 2 years ago

I have difficulty in believing that the details of the restrictive covenant were not brought to your attention when you purchased the property. I would suggest that you read the report on title sent to you prior to your purchase. There are many firms that issue indemnity policies . Guaranteed Conveyancing Solutions are but one It is essential that you make no contact with the person or body that has the benefit of the restrictive covenant . Both your Solicitor and a buyers Solicitors will have details of the various firms involved in this type of insurance and indeed on most matters they can issue the policy themselves

John Pettman

John Pettman

10:42 AM, 1st September 2016
About 2 years ago

It is not true to say that covenants often only apply to the first purchaser. This is a RESTRICTIVE covenant. not a positive covenant. A restrictive covenant is attached to the land . There are various ways that covenants can be varied or removed your Solicitor will have the time to advise you on this matter .

terry sullivan

10:54 AM, 1st September 2016
About 2 years ago

yes but many covenants are unenforceable and can be varied by payment

Bill O'Dell

11:24 AM, 1st September 2016
About 2 years ago

Reply to the comment left by "John Pettman" at "01/09/2016 - 10:35":

I may have been told about it John at the time of purchase, but it didn't register with me.
I'm seeking to solve the problem and not worrying about the reason for it. GCS is a good starting point so thank you for that tip. I have checked and they have a specific policy for Restrictive Covenants and there seems to be nothing to exclude this particular type of covenant, so I have offered it to the purchaser.
It's always good to get advice from your peers as there is little new under the sun and most scenarios have been put to the test somewhere!
Thanks

John Pettman

11:41 AM, 1st September 2016
About 2 years ago

It is true that many covenants are unenforceable Usually because one cannot tract down the person or body who has the benefit of that covenant or the exact area of land that benefits from it and also because the breach was many years ago and therefore no action lies under the Limitation Act. Restrictive covenants are often varied by crossing that persons palm with money. Don't think that you can just go ahead and breach a restrictive covenant . In one unreported case which was settled out of court £40,000 costs plus payment of £40,000 damages. This matter just highlights READ ALL THE DOCUMENTATION BEFORE YOU PURCHASE if you don't understand something just ask you lawyer that's what they are there for and are likely to be pleased that you have actually read what has been sent to you

Nick Pope

11:45 AM, 3rd September 2016
About 2 years ago

In my experience restrictive covenants can only be easily lifted/insured against if they are old and the person or organisation having the benefit cannot be traced. In this case it's the council and they put on the covenant for a specific reason and they are easily traceable. I don't think that any insurer will take on the risk as the council have already stated that they won't release the covenant and that doing so would create a precedent for hundreds of other properties.
Restrictive covenants can be challenged in the courts for various reasons (see below) but in this case the covenant is, in my opinion, wholly reasonable and would be enforceable.
For interest the grounds that the Lands Tribunal will consider are:
(1) The covenant is obsolete
(2) There is agreement to the discharge or modification between all those with the benefit of the restriction
(3) The restriction restricts a reasonable use of the land and confers no practical benefit of substantial value or advantage on the persons entitled to the benefit of it(or is contrary to the public interest) and the loss of the covenant can be compensated in money
(4) No injury will be caused to those entitled to the benefit of the covenant by reason of its discharge or modification.
For more information goto https://www.google.co.uk/search?q=grounds+for+removing+arestrictive+covenant&ie=utf-8&oe=utf-8&client=firefox-b&gfe_rd=cr&ei=GajKV4yMHqHA8gfq9IGoCg
I think it's time to check your purchase file and if your lawyers did not warn you then you could speak with them.
However you might not get much joy there either unless you specifically informed them that you intended to change the use of the property.
You could try to sue but what have you lost? You bought a house, probably at the right price as a single residence and you got what you paid for. You used the property as an HMO whilst breaking the covenant so perhaps you have profited from your purchase.

Richard Peeters

16:57 PM, 4th September 2016
About 2 years ago

In 2011, I wrote to our Local Authority about releasing the covenant on an ex-LA property which we still have. A previous owner had bought it from the LA. It is a corner plot with plenty of room to add another dwelling. The response was basically that they would be obliged to seek an equal share of the net profit (or uplift). That killed the project, but what really irked me was that we would have to finance all those costs and take the risk, and they simply take half the profit. Here is their response at the time:

---

Without Prejudice

Thank you for your letter of 6 October, which has been passed to me for answer by the Legal Department.

Covenants such as the one you mention are imposed on all sales of Council housing for the benefit of the neighbourhood, and the protection of its general appearance and amenity. They are therefore between the homeowner and the Council as a private landowner and completely separate from any Planning considerations, which are resolved in accordance with the Planning Acts.

Requests are received from time to time to modify or relax these covenants and each case is considered independently on its merits taking into account the effect on the neighbourhood and the street scene. The decision taken in each case depends totally on what is proposed. I would need to check the situation on site for any restricting features and also to see your proposals on plan before giving a final opinion.

In the event that the Council is able to agree to a particular proposal as not being detrimental to the neighbourhood, the Council is bound under s123 of the Local Government Act to obtain full value for the landed interest being granted. You would appreciate that this would be the same with any private landowner. The price sought is an equal share of the net profit arising out of the relaxation. The net profit is the actual benefit produced after allowing all outgoings including any diminution in the value of the existing property.

I trust this is helpful to you, and look forward to hearing from you with proposals for consideration, should you wish to proceed.

Mr X, FRICS
Valuer and Estates Surveyor

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