First, we need to understand fully what a restrictive covenant is.
A restrictive covenant is a contract between two landowners. One landowner promises the other landowner not to carry out certain acts on their own land. Restrictive covenants usually happen when somebody selling the land wishes to restrict what the buyer can do with it. Restrictive covenants can be easy to miss. This is why it is important to review the covenant at the outset, which can result in an easier development journey.
What are the common types of restrictive covenants that you can come across?
Common restrictive covenants that you can come across include; restrictions on building additional structures or restrictions to the building’s height or size. This could include extensions or new structures. These are important factors in commercial developments which can derail the plans you have initially made. Some other restrictions which can cause issues are restrictions on parking, which can include limitations on parking certain vehicles on the property.
Covenants can be complex, which is why it is best to discuss in detail with your solicitor to review and understand the full implications and ways to mitigate the risks to your development.
How can it impact your development?
A restrictive covenant can cause trouble to your works in several ways:
- Planning permission doesn’t override a covenant so unfortunately even if the council says yes, the covenant can still mean no.
- Buyers, or even lenders, can pull out if a breach is uncovered which can lead to unseen expenses.
- A breach of a restrictive covenant can lead to legal action, damages or even an injunction. This can end up costing you more money than you realised or stopping the work entirely.
- The plans that you have previously made may need to be completely revised to comply with the restrictive covenant.
What can you do about it?
Identify
The best way to approach restrictive covenants in property development is to identify it as soon as possible. The sooner the better. A title report and legal review can be an easy step to take to ensure you are taking your due diligence, ideally before exchange.
Apply
There is an option to apply or modify the covenant. Under Section 84 of the Law of Property Act 1925 you can apply to the Lands Tribunal to have a covenant modified or removed. This may only be granted if:
- It stops reasonable use of the land.
- Those benefitting from the covenant completely agree to the removal of it.
- The covenant no longer serves its practical purpose or is outdated.
However, it is important to keep in mind that this can be very time consuming and does not always guarantee a result.
Negotiate
Sometimes you can negotiate with the party who benefits from the covenant which can be a neighbour or former landowner. They could potentially be open to changing or releasing the covenant. This is usually in exchange for a sum of money or under specified conditions.
Insurance
In most cases, the restriction is historic and is quite unlikely to be enforced – you may be able to get indemnity insurance. This doesn’t remove the covenant, but it protects you from legal costs or losses. It is important to keep in mind that indemnity insurance is usually void if the covenant has already been breached.
A real-world example
It is easy to forget how common restrictive covenants are to come across during the property development process so here is a real-world example to show how common it actually is.
A property developer creates a residential neighbourhood. When selling individual lots, the developer places a restrictive covenant in each deed that states:
“The property shall be used for residential purposes only. No commercial or business activity shall be conducted on the premises.”
This would be to maintain the neighbourhood’s residential character, preserve property values, and prevent disturbances (e.g., traffic or noise from businesses).
In this situation, a commercial development property plan would be in trouble. Situations like this can be avoided with the proper checks.
If you’re in the early stages of acquisition or planning, don’t skip the legal groundwork. Because the last thing any developer needs is a hidden sentence from 1922 deciding the fate of your 2026 project.
Glossary
Professional Indemnity insurance- Also known as PII, will cover the compensation payable by the advisor to a client due to the former’s error, negligence, misrepresentation and/or inaccurate advice if this can be shown to have caused, or contributed to, the client’s financial or other loss.