Help! Developer non-disclosure of Restrictive Covenant on new build

local_yokel

We are in the process of buying a private new build semi-detched home, being built on a clear plot of land which was previously undeveloped, however there are interested parties with covenants in place.

The scenario is this:-
When we first found the new build, we were told that all was straightforward and the developer had just started and all going to plan.
We looked at plans and house is one of a pair of 3-bed semis being built in the garden plot of another house (32)

This house (32) was originally a Council House but was then subsequenlty purchased by a Housing Association. After a period of time, the HA sold off the house privately. It was then acquired by its current owner as it had a large plot of land which he has now had LA planning permission to build a pair of semi-detached 3-bed houses in (33A & 33B)

When we were introduced to the property (33B), the foundation and walls were already built and roof going on.

We advised Estate Agent that we wanted to buy and our offer was accepted.
We have since appointed solicitor and all things have proceed well - until now.

It now transpires that there are restrictive covenants that have been now been discovered by our solicitor that were not declared at any point in discussions from the outset. Although the house 33A/B have been built in the garden of 32, at no point have we been made aware of a restrictive covenant that prevents dwellings being built on the plot!
When challenged, the developers solicitors have declined to accept or apply to the interested parties for the Release of the Covenants and state that any future dispute would be covered by an Indemnity Insurance Policy, that they pay for.

We are absolutely gobsmacked to find this out about these restrictive covenants at this satge, as we have already sold our house and the chain is complete, so everyone is waiting on us to move.

We want the new build but have huge concerns that although the build has gone ahead, as afar as we know, without anyone disputing the build or wishing to claim on breach of covenant., what about future claims?

The insurance covers up to £365K but its shared across the TWO HOUSES, not individual, therefore our maximum benfit under this insurance would be £182.5K. (Is this a problem in itself?)

Our major concern is that there are multiple parties who potentially could raise a claim against breach of covenant so we could well be financially compromised.

Is the builder doing the right thing here or should we be pursuing release of the covenants from his solicitor?

The builders solicitor is adamant that the IIP will be sufficient, but we have huge concerns that we are being 'shafted' here as its the easy option for the solicitor.

Where do we stand and should we walk away from this as he says he will not seek covenant release? We potentially could be exposed to huge risks here with severe financial implications - or should we be less worried than we are?

nidO

local_yokel wrote: »

The builders solicitor is adamant that the IIP will be sufficient, we we have huge concerns that we are being 'shafted' here as its the easy option for the solicitor.

What does YOUR solicitor say? It's they who should be advising you on this.

It's entirely possible this is nothing to worry about - Depending on how old the original house (32) is the covenant could be decades old and put in place for when the property was originally council-owned, and it's entirely possible that there is essentially no chance of it being enforced (and equally it could be very difficult to get removed, depending on when the covenant was put in place and by who).

The fact that the seller has an insurance policy would typically suggest the covenant is old and unlikely to be enforced, indemnity insurers for these don't have a habit of insuring against risks that're particularly likely.

Your solicitor however should be fully reviewing the exact wording of the covenant and the property's current title and advising you, as it's possible the covenant isn't even valid any longer and therefore unenforceable.

DandelionPatrol

local_yokel wrote: »

The builders solicitor is adamant that the IIP will be sufficient, but we have huge concerns that we are being 'shafted' here as its the easy option for the solicitor.

Your instincts are absolutely spot on. Never rely on the advice of the other parties solicitor. They are paid to lie to you within the limits of what they feel they can get away with

You would be right to call 'foul' on the covenant not being declared upfront. In your position, I would neither push ahead or withdraw. I would just instruct the solicitor to state that the indemnity insurance is unacceptable and that full covenant release is required.

Chanes

This would make me very uneasy too, you are gambling that the covenant will not be invoked but you would only need one spiteful person to make some trouble, yes?

If you can get a concrete indemnity and your solicitor seems fine about it then maybe it is OK. But those alarm bells you can hear are a fair warning their could be a problem if you're not very careful.

Argghhh

you would want an indemnity value of the cost of the house and some on top to feel more assured

local_yokel

Thanks for all of your kind replies.
We are so stressed out about this and just don't know whether to pull out of the purchase or keep going?
First, should the proposed Indemnity Insurance not be set up indiviually for each house rather than a combined policy to cover both builds?
Second, the house purchase is £185K but policy is at £365K, so we are already below sales price if that is halved!
Thirdly, the interested parties that we can ascertain are:- Local Council (1st owner), Housing Association (2nd owner) Private owner (3rd) and current developer.
As there was a breach of covenant in so much as the plot has been built on yet the covenant states that no dwellings are to be built, who can claim on this breach? All of the above of just the last private owner? Can each claim off our IIP? If so, there could be a potential 3 x claim value and if that is £182.5K x 3 = £547.5K wow!!! - does this mean we could be stitched up for £365K?
We can't afford that!
If this is the risk, do we reject the IIP or go back to the developers solicitor and say no way as there are multiple intested parties for any future claim and request that the policy is uprated???

moneyistooshorttomention

Basically all any of us can do is to give our personal opinion on one like this.

My own personal opinion would be "forget about the property".

Actually - quite apart from any indemnity amount needing to be split between two (or three) houses then who is to say that you would become "comrades in arms" jointly working together with the other person/people concerned if push came to shove anyway?

I'd regard it as too risky personally - before getting into the "share the compensation" malarkey and all the attendant risks of maybe one person didn't want to "fight" or maybe one person had thought up an excuse as to why they should have the lions share of the compensation.

Richard_Webster

Just because there is a certain level of indemnity insurance available does not mean that covnenat holders are entitled to all the money. Each of them ahas to prove their actual loss, eg. the depreciation in value of some nearby land they own.

Your solicitors should be advising you as to who would/could have the benefit of the covenant. Normally once the originally buyer who entered into the covnenant has sold it, it only binds buyers such as yourself in favour of those who can show they have nearby land which is capable of benefiting from it. So, e.g. if the Hsg Assn no longer owns any land nearby they couldn't enforce it. Local authorities can be another matter - in some cases if sections of local government lesgisaltion are referred to the in original deed (s111?) they can enforce regardless of the ownership of land. Also there could be a separate agrement under s106 of the Town and Couyntry Plannning Act 1990 (or its predecessor section 52 of the 1971 Act).

It is a normal mortgage lender requirement that indemnity cover is at least the amlount of the mortgae loan and usually the prsent vaslue of the proeprty - so sellers would have to get anendorsement ont he policy to make it clear that your proeprty was covered up to a figure repseneting its present value. When you sell you may have to pay for an upgrade. Once the house haas been up 20 years it is too late and it becomes immune.

AdrianC

Chanes wrote: »

This would make me very uneasy too, you are gambling that the covenant will not be invoked but you would only need one spiteful person to make some trouble, yes?

Not one random spiteful person - but the owner of the benefit of the covenant. Who is that? The LA who would have originally built the council house? Remember that they're the people who granted planning permission for the new houses, and have supervised construction via building control.

stator

Sorry but I would walk away.

PasturesNew

My house was built with such a historical covenant in place. I still bought it ... as did my dozen or so neighbours on the same plot.

Original situation was a large garden being sold to somebody with a "do not build" covenant. That was many years ago and the plot's been sold a couple of times since.

I've just got an indemnity policy covering it.