Got Planning Permission—but a Covenant Says No! What Will Insurance Cover?"

LordWinterbottom

I’m buying a piece of land that has planning permission to build a house, but it also has a restrictive covenant saying it can only be used for agricultural purposes.

The seller has offered indemnity insurance, but I’m trying to understand what that actually covers.

If someone enforces the covenant and says I can’t build the house:

• Does the insurance just cover the cost of building and legal fees?

• Or does it also cover the drop in land value, since I wouldn’t be able to build on it anymore?

Would really appreciate any advice from people who’ve dealt with this. Thanks!

RedFraggle

Doesn't it only cover what the seller has done which is therefore outside of your control? 
They haven't built anything 

GrumpyDil

Who holds the benefit of the covenant?. Best solution would be to get agreement from them. If you expect to rely on indemnity insurance you would need to be very clear on exactly what that covers?

Hoenir

Who holds the covenant? 

user1977

If you are buying then presumably you've had legal advice about the covenant and the potential of insurance?

As above insurance is more difficult (but not impossible) to obtain for development which hasn't actually taken place yet. If the beneficiary of the covenant wasn't jumping up and down as soon as the planning application was submitted then it would seem more likely that they're not going to be a problem.

You would approve a draft policy before proceeding, but you would expect it to cover your entire losses if e.g. you had to demolish the house and sell the land as agricultural. In practice it would be up to the insurers how to handle a claim, and it's more likely they'd negotiate a cash settlement to discharge the covenant.

Bigphil1474

The Indemnity Insurance would cover the cost and expenses should the covenant be enforced. We have 2 on our house. One for the church demanding money ,and the other is for the 2 extensions the house has which should have been permitted by the original builders but weren't as they no longer existed. They were permitted by the council under PP.

Depends on the wording and age of the covenant but I'd be surprised if it is enforceable given you have planning permission from the local council. Best asking your solicitor. 

I think in simple terms, you could ask permission from the person responsible for the covenant (in which case indemnity insurance is pointless) or you could take out an indemnity policy so that if you build and the person responsible for the covenant enforces it you are covered for any losses resulting from it. 

Section62

Bigphil1474 said:

...
Depends on the wording and age of the covenant but I'd be surprised if it is enforceable given you have planning permission from the local council. ...

Planning consent doesn't override things like land ownership and covenants.

You can get planning consent to build a house on land you don't own, or which would put you in breach of a restrictive covenant.  The planning system (usually) assumes you'll sort those issues out separately before starting the build.

Section62

LordWinterbottom said:

I’m buying a piece of land that has planning permission to build a house, but it also has a restrictive covenant saying it can only be used for agricultural purposes.

....

Can you clarify whether the 'agricultural purposes' means agricultural operations (e.g. growing crops or keeping livestock), or is it wider, for example to provide housing for agricultural workers?

lincroft1710

Unless you can get an agreement with the beneficiary of the covenant (which will probably cost you), I would leave this one alone

Hermann

Despite having PP granted it sounds like actually developing the land would be unlawful.
No insurance policy is going to cover you for knowingly & deliberately acting unlawfully.

Proceed with caution & get legal advice.

A lot depends on your level of risk aversion....

user1977

Hermann said:

Despite having PP granted it sounds like actually developing the land would be unlawful.
No insurance policy is going to cover you for knowingly & deliberately acting unlawfully.

On the contrary, title indemnity insurers cover this sort of risk day in and day out.