Selling a house with a restrictive covenant can become difficult when buyers discover that the property cannot be used as they intended. A restriction on letting may concern investors, but it can also deter buyers who want the option of renting out their home later.
That does not automatically make the house unsellable. It does mean the wording, its legal effect and the buyer’s plans need to be understood before the transaction progresses.
A seller’s experience: repeated offers, followed by withdrawals
In a public discussion, a homeowner described trying to sell a terraced house they had bought around nine years earlier. They reported accepting several offers over almost a year, only for the buyers to withdraw.
According to the account, a prospective buyer eventually identified a covenant said to prohibit letting. The homeowner also questioned what they had been told about restrictions when purchasing.
The deed and original conveyancing file were not available for examination. This is an unverified personal account, rather than a finding about the covenant’s enforceability or the quality of the original advice.
It nevertheless illustrates an important conveyancing issue: a restriction that seems unimportant when buying a home to live in may become significant when circumstances change.
A restriction on letting is not necessarily a covenant breach
The presence of a restrictive covenant and a breach of that covenant are different things.
A homeowner may have complied with a prohibition on letting throughout their ownership. The difficulty arises because a prospective buyer wants an option the title may not permit.
By contrast, a possible breach arises where an owner has done something the covenant prohibits, or has proceeded without consent where the wording requires it.
For the separate question of an existing breach holding up a transaction, see our guide to restrictive covenant breaches affecting a sale or remortgage.
Why might a buyer care if they intend to live there?
A buyer’s immediate plans may be straightforward, but their future circumstances could change. They might move temporarily for work, combine households or want to retain the property while living elsewhere.
A prohibition on letting could limit those options. A buyer may also worry about whether the same restriction will concern someone when they eventually sell.
Those concerns do not establish a particular reduction in value or mean that every buyer will withdraw. They do explain why the restriction should be discussed early.
Start with the exact covenant wording
Descriptions such as “you cannot rent out the house” are not a substitute for examining the deed.
Ask your conveyancer to establish:
- Which document contains the covenant.
- Precisely what activity it prohibits or restricts.
- Whether the wording provides for consent or exceptions.
- Whether it contains an express time limit.
- Whether it binds the property and who may enforce it.
- Whether any release, variation or relevant consent already exists.
The passage of time does not, by itself, settle those questions. Nor should a seller assume that the original developer is the only party whose rights need to be considered.
Can the covenant be removed or changed?
Depending on the wording and legal position, it may be possible to negotiate a release or variation with the appropriate parties.
A formal application to the Upper Tribunal to discharge or modify a restrictive covenant may also be available under section 84 of the Law of Property Act 1925. It is not an automatic remedy simply because the covenant makes a sale difficult.
The government’s guide to restrictive covenant applications explains the process and recommends legal advice because the law is complex.
Before committing to that route, obtain advice on the prospects, costs and likely effect on your sale timetable.
Do not assume indemnity insurance allows future letting
Insurance addressing an existing covenant breach is not necessarily suitable for a buyer who wants to begin a prohibited use after completion.
A policy does not remove the covenant or grant permission to let. Its scope, exclusions and conditions must be checked against the actual circumstances and proposed use.
Take advice before contacting anyone who may have the benefit of the covenant. An approach seeking consent or release can affect insurance availability and may raise an objection where none previously existed.
If insurance is proposed, the conveyancer should establish what it protects against and whether it meets the requirements of the parties and any mortgage lender.
Mortgage consent and covenant consent are separate questions
A lender’s consent to let does not release a private restrictive covenant. Likewise, resolving the covenant does not dispense with any consent required under the mortgage.
For a buyer obtaining a mortgage, the conveyancer must assess the title against the applicable lender instructions and any case-specific requirements. Avoid assuming that all lenders take the same approach.
The fact that the seller obtained a mortgage years earlier does not establish what a different lender will accept today.
Was the restriction explained when you bought?
If the restriction is now affecting your sale, revisit the original purchase documents.
Useful records include the deed, Report on Title, enquiries and replies, correspondence about intended use and any consent or insurance documents.
Ask whether you received an explanation of the restriction’s practical effect. If you were told it would expire after a particular period, compare that statement with the deed and any formal variation or release.
A difficult sale does not establish that the original conveyancer was negligent. That question depends on the retainer, the information available, the advice given and any resulting loss.
Has a covenant problem surfaced after you bought?
If a restrictive covenant breach is now holding up your sale or remortgage, When I Bought explains the issues worth investigating and the records that may help establish what happened during your purchase.
If your difficulty concerns a restriction on future letting rather than an existing breach, explain that distinction when describing the problem.
You do not need to decide whether anyone was at fault before starting a conversation.
Identify the obstacle before accepting another offer
Ask your conveyancer to explain the restriction in clear terms and discuss with your estate agent how it should be communicated to prospective buyers.
Establish whether previous withdrawals arose from the buyers’ intended use, legal advice, lender requirements or another concern. That information can help you decide whether to pursue a legal solution or focus on buyers whose plans fit the property’s permitted use.
The useful starting point is identifying exactly what the covenant prevents, how it affects the proposed transaction and which options are realistically available.
This article concerns restrictive covenants affecting freehold property in England and Wales. When I Bought is a Lexsure service, not a law firm. Questions about legal remedies and the original advice require assessment of the relevant documents. Time limits may apply.