What is a Deed of Covenant?

When purchasing a property you may come across the need for a Deed of Covenant. A Deed of Covenant in conveyancing is a legal document that forms part of the process of transferring ownership of property. Head of Conveyancing, Katie Holmes discusses in her latest blog…

A Deed of Covenant is an agreement where one party (usually the buyer or the new owner of the property) commits to adhere to certain obligations or conditions stipulated by another party (often the seller, a landlord, or a management company).

Key Aspects of a Deed of Covenant:

1. Obligations or Restrictions: The deed typically outlines specific obligations that the buyer agrees to follow after the purchase. These might include paying service charges, maintaining the property in a certain condition, or adhering to rules regarding the use of the property.

2. Enforceability: The deed makes these obligations legally enforceable. If the new owner breaches these covenants, legal action can be taken by the party who benefits from the covenant.

3. Part of the Conveyancing Process: In the context of property transactions, the Deed of Covenant is often required when the property is subject to certain restrictions, particularly in leasehold properties. The deed ensures that the new owner takes over responsibilities from the previous owner regarding covenants that are tied to the property.

4. Typical Scenarios:

– Leasehold Properties: When buying a leasehold property, the freeholder or management company may require the new leaseholder to enter into a Deed of Covenant to ensure the ongoing adherence to the terms of the lease.

– Estate Developments: In freehold properties within an estate, there might be communal areas or shared services where a Deed of Covenant requires owners to contribute towards maintenance costs or follow specific rules.

In essence, the Deed of Covenant ensures that the new owner of a property is legally bound to comply with certain conditions, thereby protecting the interests of the party who imposed the covenant.

What happens if a Deed of Covenant is Breached?

If a Deed of Covenant is breached, several potential consequences can arise, depending on the specific terms of the covenant and the nature of the breach. Here’s what could happen:

Legal Action

– Injunction: The party benefiting from the covenant (e.g., the freeholder, management company, or neighbouring landowner) may seek a court injunction to compel the breaching party to comply with the covenant. This is a court order that forces the breaching party to stop the activity or behaviour that constitutes the breach.

– Damages: The party affected by the breach may sue for damages. This means they could seek financial compensation for any loss or damage they have suffered as a result of the breach.

Forfeiture of Lease (in Leasehold Properties)

If the property in question is a leasehold, the freeholder or landlord might have the right to seek forfeiture of the lease. This means they could attempt to terminate the lease and take back possession of the property. Forfeiture is generally a last resort and can be contested by the leaseholder, particularly if the breach is minor or can be remedied.

Additional Costs

The breaching party may be responsible for additional costs, such as the legal fees incurred by the party enforcing the covenant or costs associated with remedying the breach.

Impact on Property Sale

If a breach of the Deed of Covenant is not resolved, it can complicate or delay the sale of the property. Buyers or mortgage lenders may be unwilling to proceed with a transaction if a breach is outstanding or if there’s ongoing litigation related to the breach.

Rectification or Remedial Actions

In some cases, the breaching party might be given the opportunity to rectify the breach. For example, if the breach involves unauthorized alterations to the property, the covenant holder might allow the breach to be remedied by restoring the property to its original condition or seeking retrospective approval.

Negotiation and Settlement

Often, parties may choose to negotiate a settlement to resolve the breach without going to court. This could involve the breaching party agreeing to pay a sum of money or to take specific actions to rectify the breach.

Reputational Damage

Particularly in developments or communities with strict management or resident associations, breaching a Deed of Covenant could damage the breaching party’s reputation among neighbours or within the community.

Enforcement Mechanisms

Some deeds of covenant may include specific penalties for breaches, such as fines or charges. The covenant holder can enforce these penalties as stipulated in the deed.

How Can Timms Help?

In summary, breaching a Deed of Covenant can have serious legal and financial implications, as well as potential impacts on property ownership and sale. It’s generally advisable to address any breaches quickly and seek legal advice to understand the best course of action.

If you are considering purchasing a property and would like a conveyancing quote, please contact the conveyancing team on freephone 0800 011 6666 or use our free online calculator here.

Katie Holmes

August 2024