What is a Deed of Covenant?

When dealing with property transactions in the UK, terms like "Deed of Covenant" often arise, and they can seem daunting for those unfamiliar with legal jargon.

However, understanding a Deed of Covenant is essential, as it can significantly impact the property you're buying, selling, or even renting. This guide delves into what a Deed of Covenant is, how it works, and why it's crucial for property owners and buyers alike.

What is a Deed of Covenant?

A Deed of Covenant is a legal document that outlines an agreement between two parties concerning property. In most cases, this involves a purchaser of a property and a third party, such as a landlord, a management company, or an adjacent property owner.

The deed sets out certain obligations that the buyer must adhere to once they become the new owner of the property.

In essence, the deed formalises the obligations imposed on the new owner by the previous owner, ensuring the continuity of responsibilities tied to the property.

These obligations might range from maintaining shared areas to contributing towards communal services.

Key Terms: Restrictive and Positive Covenants

When discussing a Deed of Covenant, it’s essential to understand two key concepts: restrictive covenants and positive covenants.

Restrictive Covenants

A Restrictive Covenant is a legal obligation that limits the use of the property. It essentially restricts the owner from doing certain things with the land or property. For example, a common restrictive covenant might prohibit the owner from using the property for anything other than residential purposes or prevent the construction of certain structures.

The important thing to note about restrictive covenants is that they "run with the land." This means that they are binding not only on the current owner but also on any future owners of the property.

Restrictive covenants are typically discovered during the conveyancing process and are registered with the property title at the Land Registry. Therefore, when you purchase a property with a restrictive covenant, you must adhere to its terms unless you can negotiate a release with the relevant party.

Positive Covenants

A Positive Covenant requires the property owner to actively do something, such as maintaining a boundary wall or contributing to the cost of communal services. Unlike restrictive covenants, positive covenants do not automatically "run with the land."

They are personal to the original parties involved in the transaction.

To ensure that future owners remain bound by a positive covenant, a new Deed of Covenant is typically required when the property is sold. This deed ensures that the new owner assumes the responsibilities of the previous owner.

Why is a Deed of Covenant Required?

A Deed of Covenant is necessary to protect the interests of third parties who have a stake in the property. For example, if a property is part of a block of flats with communal areas, the management company may require the new owner to sign a Deed of Covenant agreeing to contribute to the upkeep of those areas.

Without this deed, the management company would have no legal recourse to compel the new owner to fulfil these obligations.

Additionally, a Deed of Covenant helps ensure that any positive covenants attached to the property continue to be observed by successive owners. In the absence of such a deed, the burden of the covenant may not pass to the new owner, leaving third parties without a means to enforce it.

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When is a Deed of Covenant Required?

A Deed of Covenant is typically required in the following situations:

• Leasehold Properties: When a leasehold property is transferred, the freeholder may require the new owner to enter into a Deed of Covenant, agreeing to abide by the terms of the lease, such as paying service charges or adhering to property use restrictions.

• Freehold Properties with Positive Covenants: If a freehold property has positive covenants, a Deed of Covenant ensures that the new owner assumes the obligations of the previous owner.

• Management Companies: In cases where a property is part of a development managed by a company, such as flats or gated communities, the company may require a Deed of Covenant to ensure the new owner contributes to the maintenance of communal areas or services.

The Difference Between a Deed of Covenant for Leasehold and Freehold Properties

The role of a Deed of Covenant can vary depending on whether the property in question is leasehold or freehold.

Leasehold Property

In leasehold properties, the terms of the lease usually contain all the obligations that the tenant must observe. This means that when the leasehold property is sold or transferred, the new owner automatically inherits the obligations of the previous tenant, as set out in the lease.

However, it’s not uncommon for the landlord to require the new leaseholder to enter into a Deed of Covenant. This deed essentially reaffirms the new owner’s commitment to the obligations set out in the lease. It provides the landlord with an extra layer of legal protection, ensuring that the new owner will adhere to the lease terms.

Freehold Property

In freehold properties, Deeds of Covenant are usually used to enforce positive covenants, as these do not automatically transfer to new owners.

For example, if a freehold property has a positive covenant to maintain a boundary fence, the new owner would need to enter into a Deed of Covenant with the party benefiting from the covenant (e.g., an adjoining landowner or management company). This ensures that the obligation is legally binding on the new owner.

How Long Does a Covenant Last?

Covenants can last indefinitely unless they include a specific time limit or until the obligation has been fulfilled or discharged.

In some cases, parties may agree to modify or release a covenant. This typically involves negotiating with the party benefiting from the covenant, such as a landlord or management company.

In certain circumstances, a covenant may become obsolete over time, particularly if it no longer serves its original purpose due to changes in the property or the surrounding area. However, unless formally discharged or released, the covenant remains legally binding.

What Happens if You Breach a Covenant?

Breaching a covenant can have serious legal consequences. If you fail to comply with the terms of a covenant, the party benefiting from it (the covenantee) may take legal action against you. This could result in:

• Injunctions: The court may issue an injunction ordering you to cease the activity that breaches the covenant.

• Damages: The covenantee may seek financial compensation for any loss they have suffered as a result of your breach.

• Specific Performance: In some cases, the court may order you to perform the specific obligation set out in the covenant, such as repairing a boundary wall.

If the breach involves a restrictive covenant, the court may require you to undo any work that has been carried out in violation of the covenant.

For example, if you built an extension that contravened a restrictive covenant, you may be ordered to remove it.

It’s important to note that under the Limitation Act 1980, certain time limits apply to covenant enforcement. For example, arrears of rent cannot be recovered after six years.

However, there are no general time limits on the enforcement of covenants, and some breaches may be considered ongoing, particularly in the case of restrictive covenants.

How to Ensure a Deed of Covenant is Valid

For a Deed of Covenant to be valid and legally enforceable, it must meet certain formalities:

• Written Agreement: The deed must be in writing, detailing the specific obligations of the parties involved.

• Signed by All Parties: Both the covenantor (the party assuming the obligation) and the covenantee (the party benefiting from the covenant) must sign the deed.

• Witnessed: The deed must be signed in the presence of an independent witness who can attest to the authenticity of the signatures.

• Delivered: The deed must be "delivered," meaning that both parties receive a copy of the signed document. In practice, this usually occurs when the document is signed and witnessed.

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How to Modify or Remove a Deed of Covenant

In some cases, property owners may wish to modify or even remove a Deed of Covenant, particularly if the obligations it imposes no longer seem relevant or practical. Modifying or discharging a covenant typically requires the consent of the party benefiting from the covenant, whether that’s a landlord, management company, or adjacent landowner. This process can involve negotiation and possibly legal fees.

If both parties agree, the Deed of Covenant can be modified or formally released, making it no longer binding on the current or future property owners. However, this process isn’t always straightforward, especially if the covenant benefits multiple properties or stakeholders.

In rare cases, a property owner can apply to a tribunal or the court to have the covenant discharged, but this can only happen if it can be proven that the covenant is obsolete or significantly interferes with the reasonable use of the property. Seeking legal advice from a conveyancing solicitor is essential in this situation to assess the likelihood of success.

The Role of a Conveyancer in Managing a Deed of Covenant

When a Deed of Covenant is required in a property transaction, your conveyancer will play a crucial role in managing the process. They will review the terms of the deed to ensure it aligns with the existing covenants and the terms of the property purchase.

They will also ensure that the document is properly executed, witnessed, and delivered, making it legally binding.

Additionally, your conveyancer will ensure that any obligations tied to the property, whether through restrictive or positive covenants, are clearly communicated to you, allowing you to make informed decisions. If a Deed of Covenant is needed, your solicitor will handle the preparation and negotiation with the other parties involved, ensuring that all legal formalities are met before the sale is completed.

What Are the Costs Involved in a Deed of Covenant?

The costs associated with a Deed of Covenant can vary depending on the complexity of the property transaction and the specific requirements of the deed. Typically, these costs include the solicitor’s fees for drafting and reviewing the deed, as well as any fees payable to third parties, such as a freeholder or management company.

For leasehold properties, a management company may charge an administration fee for processing the Deed of Covenant. It’s important to clarify these costs upfront with your conveyancer so that you are aware of any additional expenses that may arise during the transaction. While these costs are generally modest, they can add up, especially in more complex property deals.

Common Misunderstandings About Deeds of Covenant

There are several common misunderstandings when it comes to Deeds of Covenant. One misconception is that all covenants automatically transfer to new owners. While restrictive covenants often do, positive covenants do not, meaning a new Deed of Covenant must be signed to pass these obligations on to a new property owner.

Another common misunderstanding is that a Deed of Covenant only applies to leasehold properties. In reality, freehold properties can also have Deeds of Covenant in place, particularly when positive covenants are involved.

It’s important to fully understand the nature of the covenants tied to a property before completing a purchase.

The Importance of Understanding Your Obligations

Before entering into a property transaction that involves a Deed of Covenant, it’s crucial to fully understand the obligations you’re agreeing to.

Whether it’s a positive covenant requiring you to contribute to communal maintenance or a restrictive covenant limiting how you can use the property, these obligations are legally binding and can have a long-term impact on your ownership experience.

If you fail to comply with the terms of a covenant, you could face legal action, including financial penalties or even court orders to enforce the covenant. To avoid any misunderstandings, always consult with your solicitor to clarify what you are agreeing to before signing a Deed of Covenant.

Conclusion: Why a Deed of Covenant Matters

A Deed of Covenant is a crucial legal document that plays an important role in many property transactions, particularly when it comes to enforcing positive covenants or reaffirming obligations in leasehold properties.

Whether you are buying or selling property, it’s essential to understand whether a Deed of Covenant is required and what obligations you may be taking on.

If you're uncertain about any covenants tied to a property, it’s always advisable to seek legal advice from a conveyancing solicitor.

They can help you identify any existing covenants and ensure that you fully understand the implications before proceeding with the transaction. This will ensure that you’re fully aware of your obligations and can avoid any potential legal disputes down the line.