What are restrictive covenants?
Senior Associate Diane Barnes explains how restrictive covenants can be used when selling land or property.
When selling land or property, you may wish to restrict/limit what the buyer and future owners of the land can do on it for a number of reasons.
You may own/live on land close to the land being sold (‘Land’), and wish to protect your retained property (‘Retained Land’) from being affected should the new owner build or use it for a particular purpose. For example you may wish to prevent the new owner from building on the Land, erecting a wind turbine or using the Land for a kennels.
Alternatively, you may think that there is a possibility that the Land may be developed, and don’t want to miss out if it were. You may want to make sure that you have a second bite of the cherry in the event that development takes place on the Land in the future.
Restrictive covenants can be imposed as part of an agreement between the seller and buyer to limit the buyer’s use of the Land in such a way which benefits the sellers Retained Land.
A restrictive covenant has to be negative in nature, rather than positive – it must be an obligation not to do something, rather than to carry out a positive act. An obligation to pay money by way of contribution or to keep an item in repair for example are not restrictive covenants, as they are not negative in nature, they are positive covenants, as positive action has to be taken to comply with them, and they are therefore treated differently. An obligation to pay more money to the seller should the Land be developed is a positive covenant.
The agreement between the parties limiting the use of the Land for the benefit of the Retained Land can be enforced directly between the parties.
Should the Land be sold on again, the buyers will buy the Land subject to such restrictive covenants, and the original seller or current owner of the Retained Land, which still has the benefit of the restrictive covenant, should be able to enforce the restrictive covenant directly against the current owner if it is breached, provided that the restrictive covenant actually benefits the Retained Land or preserves its value. If there is no benefit to the Retained Land, it will not be enforceable. Restrictive covenants which provide only a personal benefit to the owner of the Retained Land i.e. prevent a business competitor from setting up next door or securing a payment on development, is not capable of being an enforceable restrictive covenant.
If there is no Retained Land in the vicinity which could benefit from the restrictive covenant, then any agreed restrictive covenants will not be enforceable against future owners of the Land, although they could still be enforceable against the original buyer by the original seller as a matter of contract.
If you are selling land and want to protect your position against future owners, make sure you take advice as to the best way of doing that.
About the author
Senior Associate Diane specialises in agricultural land and property sales.