Restrictive Covenants

Scaredy_Cat_3

Thanks again Bionic Banjo!

I think our main concern is that we might be buying a property with the intention of doing an extension, and find ourselves being charged a fee which, for all we know, may increase annually, or be based on the cost of the extension - meaning we have no way to predict if it will be affordable when we get around to doing the extension.

Also, I feel quite annoyed at the thought that some third party can just demand money off us for no good reason!

And finally, I am concerned that the existence of this covenant will make it more difficult to eventually sell the property. After all, if it's causing us this much anxiety it may well affect any future buyer the same way!

Thank you everyone for your advice. I will be asking my solicitor for some more information on this tomorrow, so will update here if I have any news!

Thanks again, and night, night!

looby-loo_2

Imdemnity insurance can be taken out

Scaredy_Cat_3

Thanks to everyone who has responded! I just have a quick update.

I have spoken to the solicitor today. She was not at all concerned about this issue as she says covenants are very common these days. That said, she says she hadn't realised we intended to build an extension! So now, she agrees it could be a problem.

We have also spoken to Redrow (who benefit from the covenant). They say there is a set fee of £117.50, and it is unlikely that permission would be refused. However, they want to see architect's plans before they will give permission. That means we have to pay for the architect, which is not going to be cheap, and run the risk that Redrow could put the blocks on everything and we will lose that money.

Another problem has arisen, too. As part of the purchase we are buying a strip of land to the side of the house (it's a corner plot). The current owners bought this from the builder some time after they bought the house. There is a restrictive covenant on this strip of land, which says you can't build on it at all (with or without permission). This might be a problem because we had planned to move the fence out onto this land when we do the extension.

Can anyone advise about this? Can anyone offer any further info about these indemnity insurance policies? If we had one does that mean we can just do whatever we like (subject to planning permission)? Do you have to pay every year, or is it a one-off fee and something that just sits on the deeds forever?

Thanks again to everyone!

Richard_Webster

Talk to your solicitor about this and what to do - she will be able to go throught he documents and point out what needs doing and the best way forward. As you have realised, it is a very common problem. It isn't so much that Redrow will come round to check, but a buyer's solcitor cannot give cast iron guarantee to his buyer client or his mortgage lender that Redrow WON'T come round!

I doubt if Redrow really want plans literally drawn by an architect but they will want something reasonable showing what is being built. You will need these plans to get building regulation and planning consent anyway, but there are plenty of people out there who can do the plans who are not qualified architects.

If you want to get a policy (which you can't have if you tell Redrow about the work) then it is going to be a lot more expensive the £117.50 to get BEFORE you do the work. Policies (which cost a one-off premium) are available quite easily through solicictors once the extension has been up for 12 months but before then the insurance company want to look at the whole background and charge more for doing it.

The insurance (not very logically I have to say) generally has to be for the full market value of the property (because that is what mortgage lenders want.) So with a leading company for a retrospective policy(extension 12 months old) on a property worth £200,001-£250,000 charges £180. If you sell the house later and the value has gone up you may have to pay for a top up.

Most companies that do these policies have £50,000 price bands so we always get cover up to the top of the relevant band as otherwise you may have to waste money getting a top up unnecessarily later. ( I had a client recently who had bought a house for £165,000 and was provided with a policy for that value - even though up to £200,000 would have cost no more - he sold it a year or two later for £175,000 and he had to pay £50 for an upgrade!)


As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying clients

bionic_banjo

Architechts plans???? You will need plans for the planning permission and buildings regs approvals anyway - but as far as the house builder is concerned - before sending them plans to 'approve' I'd be cheeky and ask them for full title details of the land they own that benefits from the burden of the covenant. If they have no large expanse of land immediately adjoining yours then they cant enforce the covenant - so they can hardly ask to 'approve' your plans. A letter of comfort from them would suffice I think!!

With regard to the side bit of land with the restrictive covenant, if you are just putting a fence up and not building on it then its just not worth the paper work to ask for a release but you can always get ai insutance policy for peace of mind. Do you really think that Costain has people driving round housing estates looking for people who have built little fences on land with a restictive covenant on it?? I think not. Also - for the restrictive covenant to be binding on the housebuilder they must own a decent expanse of land adjoining to benefit from the burden. If then dont then they cant enforce the covenant.

In this scenario, when you pay the house bulder - all you are really paying for is admin fees to get the title paper work for your house to 'tell the right story'.

Richard_Webster

Whilst in most cases like this it is reasonable to suppose that the builder has not retained any land capable of being benefited, the whole problem for a buyer's solicitor in the future is being convinced of this.
It is very difficult for them to be sure so they ask for a policy or an indemnity policy. Even if from local knowledge, I am pretty sure the covenant cannot be enforced I would still ask for the policy or consent because some other solicitor may raise the point in the future and I won't be able to PROVE unenforceability. If the other side won't do this then I will explain the risks to the client and they may take a view on it and proceed but need to be aware that it may come back and be a nuisance on a future sale.

So a buyer's solicitor will generally always ask for a retrospective consent or an indemnity policy.

If you didn't have a policy or a consent then in the unlikely event of the builder appearing and threatening action, then you or your indemnity insurer would ask the builder to show which land it had retained and the loss involved as a result. Usually a nuisance value payment of a few hundred pounds would be sufficient and the builder would then have to decide if the expense of the court proceedings would then be worth it because the builder would end up paying your costs from the point you offered the few hundred if it didn't get a judgement for more than the amount offered. However, all this is theoretical because it is quite unusual for a builder actually seriously to pursue such covenants for a small extension or conservatory etc.

However those reading this thread should be warned that occasionally quite a lot of money can be made under the covenants. If you manage to build another house in your garden and there is restrictive covenant requiring consent for building work then the person with the benefit of the covenant may seek to have part of the profit form that work. Round my way there are some ex-Council houses with large gardens and the Council (in its "we used to own the land hat") has asked for £10,000-£20,000 to release the covenants when a second house was to be built!

Rumour has it that a major hotel chain started building a hotel locally without being advised about some covenants about consent being required for building work and the covenant holders showed up and extracted a large sum of money to grant consent!

As a conveyancing solicitor I believe the information given in the post to be useful but I accept no liability except to fee-paying client

bionic_banjo

Agreed Richard- I was merely going on about covenants in the nature of this scenario.
I just hate to think of someone losing sleep over something not worth stressing over.

Scaredy_Cat_3

Thanks to Richard Webster and Bionic Banjo! Both VERY helpful, and much appreciated!

We are currently in a major panic over this as we had hoped to sign papers yesterday and complete next Wednesday! Now looks like we may be delayed yet again!

We have spoken to Redrow's solicitor (though not given the property address). The solicitor was quite condescending, and said even if we get local authority planning permission, that might not meet Redrow's standards!!!

She also said that they may be able to give an "in principle" decision quite quickly.

She also said the covenant relating to the strip of land at the side sounds like "title absolute" meaning nothing at all can be put on the land. Although I have since spoken to my solicitor who has told me what "title absolute" really means, and I can't understand why the Redrow solicitor mentioned it at all.

Where do we stand with this? If we get local authority planning permission, do Redrow really have the right to come along and put the blocks on everything?

Is there any likelihood we could buy out the covenant? I don't want to ask this of Redrow at this stage - because it has also crossed my mind that since we haven't given the address yet, we could go ahead and do what we want with local authority approval and then after a year or so, get an indemnity policy? I don't really want to do things this way round as I would prefer to be upfront about it. But I am really scared about buying a property and then finding we can't carry out our plans because of some third party.

bionic_banjo

Planning permission is totally separate from covenants.
Covenants are something that run with the actual title of the land where a previous owner wants to have some control over its future use. Whereas planning permission is all about the Government controlling general land use using statutory powers.

Dont worry about Redrows legal person - they are not representing your interests and besides which - Redrow and their so called 'standards' didnt exist when the house was sold 40 years ago by Costain, so this legal person isnt really that clever! Listen to your own legal representitive and make decision on their advice alone.

If you only want the house on condition you can extend it - then for goodness sake get a 'letter of comfort' or some advice from the Local Planning Authority re the extension idea before you buy - this is aside from the covenants issue.

If the extension is on the original plot - and you feel you are worried - get the 'release' of covenant from Redrow for the fee as they have described. If you then want to put a fence up on the extra land where the covenant says 'no building' - just apply to Redrow again and pay a fee and get your release letter to permit the fence. All of this will keep your title lovely jubbly. However - (and this is my opinion only) if there is no benefit to Redrow, then they cannot enforce the covenant (ie then cant make you take your fence etc down!) - and that means you will be paying these fees just to keep your property title perfect for when you want to sell it. The only threat is via neighbours who might claim that the covenants were part of a scheme of 'mutual enforceability' but what is the risk of that?

Aside from all this - re the strip of land you want to fence. Assuming it is unfenced open space at present - you will also have to get planning permission for change of use - from open space to gardening land from the Council...

Nightmare isnt it!

Scaredy_Cat_3

Thanks Bionic Banjo!

The side strip isn't open plan, it's just a patch of green a few feet wide, which runs between the public footpath and the existing garden fence. We just wanted to move the existing garden fence out onto the patch of green in order to make the garden a bit bigger and allow enough room for the extension. Other houses have done this so the precedent has been set (but I don't know if they have restrictive covenants, or even if they have bothered to tell the builder).

We have spoken to the local planning dept and don't think they will have any problems, except for maybe in the details, which we can negotiate with them.

It is Redrow who have got us worried. It could be that they will turn out to be perfectly reasonable people and allow the changes. But if they don't we will be too late to get an indemnity policy as Redrow will already be aware of the planned work. We now have to decide whether to risk asking Redrow for permission, or simply do the work and get an indemnity policy somewhere down the line.

My solicitor doesn't want to offer any advice as she can't guarantee anything. She did say it would probably be ok if we went the indemnity policy route, but she can't guarantee it, so it has to be our decision. It's tough to make a decision when you have to second-guess what people will do.

In a way I am thinking we should go with the indemnity policy as we would not be doing any work that was out of place and it would all be approved by the local authority. But I would still prefer it to be all legal if we could only be sure Redrow would not mess things up for us by refusing permission.

Where do you get information on these indemnity policies? Are they issued by normal house insurance companies, or specialists? What Richard was saying, above, makes me think the indemnity might not be the best route as it is going to be expensive, and probably a hassle if we have to pay more when we come to sell and the property has (hopefully) increased in value.

If we do apply to Redrow for permission, do you know how detailed the plans need to be? Would they need to see the full detailed plan as submitted and approved by the local authority? Would they need to see the covenant (I doubt they have a copy of it after all this time, so would we be expected to send them our copy?)

I am worried that this issue might make it difficult to sell the property on when we are ready to move again. After all, if it is causing us this much of a problem, I guess it could put other buyers off, too. My solicitor doesn't agree as she says restrictive covenants are very common these days and people just accept them.

Thank you again to everyone who has replied here - especially Banjo and Richard!