Purchasing a freehold with restrictive covenant against letting part of the property

ichicc

Hello all

I am a first-time buyer about to purchase a freehold house in London. I am otherwise very happy with the house but have some reservations regarding a couple of the restrictive covenants:

12.4.1.1 - "The Transferee shall not part with or share possession or occupation of the whole or any part or parts of the Property except by way of a letting of the whole of the Property or a transfer of the whole of the Property in accordance with 12.4.1.2 and 12.4.1.3 and there shall be no transfer, underletting of any part of the Property (as distinct from the whole)"

12.4.1.6 - "not to use the building on the Property for any use other than for private residential purposes and so that it shall be occupied by one household only"

This house was built just under a decade ago as part of a new development including other houses as well as leasehold flats. I've been informed by my conveyancers that restrictive covenants are generally pretty common with these kinds of properties, however in my research I've not been able to find anything similar to the specific clauses above.

I understand from my conveyancers that the above would restrict me from taking on a lodger in a spare room. Whilst I currently have no intention of taking on any lodgers, I did expect to at least have this as an option given I am purchasing the freehold. Especially with the current uncertainty in the economic outlook, I would certainly like to have the option to rent out a spare room (e.g. under the government's Rent A Room Scheme) if money ever became tight.

I guess I'd be interested in hearing from more experienced members on this forum how concerned they would be about this in my situation:
- Is such a covenant likely to affect the future marketability or resale value of this property?
- Is it likely that this covenant would actually be enforced in practice? My understanding (correct me if I'm wrong) is that the original developers are the beneficiaries of the covenant in this instance. These developers have long since sold off all their properties and no longer seem directly involved in the development, so why would they even care about a lodger?
- Would it be possible to get this covenant cancelled?

I have already contacted the managing agent acting on behalf of the resident's management company to see if they can provide permission in principle for a lodger, however they have said they cannot do this.

Thank you all in advance for your advice and input.

davidmcn

Even if someone noticed you had somebody else living in your house, why would they know (or care) about the sleeping or financial arrangements?

A prohibition against letting the whole of the property would be more problematic.

princeofpounds

- These kinds of clauses are not unusual in new developments. Only the beneficiary can enforce them. Usually the beneficiary is the developer, who wants to keep the estate in a certain condition whilst they sell all the units. Typically after that, they lose all interest, although it's not impossible that the land with the benefit of the covenant (often just a small ransom strip) gets sold to an estate management firm that tries to use it as a way to milk money for various permissions etc. This clause wouldn't be that useful for them (there is no mechanism for permission) so I'd still say the likelihood of enforcement is limited if the developers have left site.

- The RMC may well not be the beneficiary, so they and their managing agent are quite possibly irrelevant. This is not a freehold/leasehold situation. There is no mechanism for permission anyway as noted. Do you actually know who the beneficiary is?

- It's highly unlikely the covenant will be cancelled. If the beneficiary doesn't care enough to enforce it, they won't care enough to get involved with a variation.

- It won't affect the saleability of the property too dramatically in future, but it may a bit. People do get used to ignoring these. Maybe you wouldn't get BTL purchasers who have to rely on 100% confidence in letting all the time.
 
- Having a lodger is not a transfer, an underletting or a separate household. So that's fine.

greatcrested

ichicc said:

I have already contacted the managing agent acting on behalf of the resident's management company to see if they can provide permission in principle for a lodger, however they have said they cannot do this.

Scratch....scratch.....scratch...

(that's the sound of a can of worms being opened.....)

ichicc

princeofpounds said:

- These kinds of clauses are not unusual in new developments. Only the beneficiary can enforce them. Usually the beneficiary is the developer, who wants to keep the estate in a certain condition whilst they sell all the units. Typically after that, they lose all interest, although it's not impossible that the land with the benefit of the covenant (often just a small ransom strip) gets sold to an estate management firm that tries to use it as a way to milk money for various permissions etc. This clause wouldn't be that useful for them (there is no mechanism for permission) so I'd still say the likelihood of enforcement is limited if the developers have left site.

- The RMC may well not be the beneficiary, so they and their managing agent are quite possibly irrelevant. This is not a freehold/leasehold situation. There is no mechanism for permission anyway as noted. Do you actually know who the beneficiary is?

Firstly, thank you for your helpful comments! The covenant itself is set out in the Land Registry TP1 form, and identifies the Transferor as the original developer and the Transferee as our seller. With that in mind, my understanding is that the beneficiary is still the original developer, as you noted. The original developers are still an active company but I don't think they have any direct involvement with the site anymore, although I assume they might still own the freeholds to the leasehold flats on the site.

I contacted the managing agent for the RMC because my conveyancers advised that they might be able to provide permission - at the time I didn't really question their advice as this is my first house purchase so I'm very inexperienced, however in hindsight with what I understand now it does seem strange to be involving them at all on this issue.

princeofpounds said:

- Having a lodger is not a transfer, an underletting or a separate household. So that's fine.

My conveyancers (and the managing agents for the RMC) specifically noted that a lodger would not be permitted under this covenant. Does this mean that they have misinterpreted the covenant? Or are you saying that it's really only this snippet that is relevant:

"The Transferee shall not part with or share possession or occupation of the whole or any part or parts of the Property except by way of a letting of the whole of the Property or a transfer of the whole of the Property"

greatcrested said:

Scratch....scratch.....scratch...

(that's the sound of a can of worms being opened.....)

Haha yes in hindsight it does seem silly to have asked... Although as I mentioned above in my response to princeofpounds, it was my conveyancers who mentioned that I may be able to obtain permission from the management company. Being new to this whole thing I didn't think much of it! However, if it's the case that the original developers are the beneficiaries of the covenant, does this mean the management company/agent has no influence either way?

---------

Also, another thing I forgot to mention in my original post was that, when commenting on this to the estate agent, they told me that they were aware of several properties on the site with "spare bedrooms rented out". Now I definitely know I shouldn't trust everything the EA's say, but if this does turn out to be the truth, could it be taken as indication that enforcement is not likely?

davidmcn

ichicc said:

if this does turn out to be the truth, could it be taken as indication that enforcement is not likely?

As I alluded to above, enforcement seems highly unlikely in any event. In what circumstances would somebody be so irked about you having a lodger that they'd want to spend time and money doing something about it?

Sistergold

My opinion is, from the above clause a lodger is not allowed. They are trying to avoid overcrowding in the development leading to too many cars and certain nuisances for other householders. Your problem with taking a lodger would be other householders who actually bought into the development because of this clause who might decide to police any breach. Also some people are just busy bodies who will monitor everybody else and thus will not let this breach pass. It clearly says “you either let out the whole house to one family or not at all” there has really not been a misinterpretation in saying no lodger.

For selling in the future this clause might even be a good selling point for some who don’t like the uncertainties of neighbours who let out to many or any lodgers. 
If you want the flexibility of a lodger which I think is always a good backup plan(if times are hard or you just feel you have to much space or you just want the extra money to make overpayments on your mortgage), then you are best advised to find another house. To buy this house with such a clause be prepared that you might not be able to get a lodger unless everyone is prepared to look the other way, and I suspect there could always be one who will not let it go. 

Good luck

davidmcn

Sistergold said:

For selling in the future this clause might even be a good selling point for some who don’t like the uncertainties of neighbours who let out to many or any lodgers.

I think more likely the intention was to prevent HMOs or similar, or physically subdividing the property. I agree the wording would also prohibit a sole owner-occupier from having one lodger but I doubt anybody has been considering that to be a problem.

YoungBlueEyes

How would a busybody know the difference? 

Option A - Ooh look, there’s a new fellah at  no26. Ah lovely, she’s got a nice man. I wonder if they’ll get married...? Better go look out my good hat. 

Option B - Ooh look, there’s a new fellah at no26. It’s obviously a lodger which is a breach of our covenants and expressly forbidden, so I shall tell the developers and my MP and maybe ring the police! 

princeofpounds

"I contacted the managing agent for the RMC because my conveyancers advised that they might be able to provide permission - at the time I didn't really question their advice as this is my first house purchase so I'm very inexperienced, however in hindsight with what I understand now it does seem strange to be involving them at all on this issue."

I guess they weren't thinking that hard. There are set-ups where something like that might be possible, yours just doesn't happen to be one. They should have known that without making you go ask the RMC.

"My conveyancers (and the managing agents for the RMC) specifically noted that a lodger would not be permitted under this covenant. Does this mean that they have misinterpreted the covenant? Or are you saying that it's really only this snippet that is relevant:"

I might have to consider this again. This is my thinking:

"not to use the building on the Property for any use other than for private residential purposes and so that it shall be occupied by one household only"

I don't believe this second clause is relevant - a lodger is part of your household, not a separate one. Let's go back and look at the second clause now:

"The Transferee shall not part with or share possession or occupation of the whole or any part or parts of the Property except by way of a letting of the whole of the Property or a transfer of the whole of the Property in accordance with 12.4.1.2 and 12.4.1.3 and there shall be no transfer, underletting of any part of the Property (as distinct from the whole)"

When you have a lodger, you are not transferring or underletting any part of the property. They have a license to occupy, not a lease or any other kind of award of possession. If you agreed a tenancy with exclusive occupation of a room or rooms, that would be a different matter, but that would be a silly thing to do anyway. 

The part I may have missed on first read is the 'or occupation' wording, which I think is the only part of these clauses applicable to your situation. On the face of it, that might seem to ban lodgers. However, I would still be very doubtful as to its enforceability. If it banned lodgers, it would also ban overnight guests at your home, or ban you from moving in a partner.

 "Also, another thing I forgot to mention in my original post was that, when commenting on this to the estate agent, they told me that they were aware of several properties on the site with "spare bedrooms rented out". Now I definitely know I shouldn't trust everything the EA's say, but if this does turn out to be the truth, could it be taken as indication that enforcement is not likely?"

There is a good chance the EA is telling the truth, but we can't be certain. It would be an indication that enforcement is not being pursued.