If you’re looking to build on a piece of land or develop a property, your plans could be unexpectedly halted or altered due to a restrictive covenant.
If a covenant is very limiting, it could severely impact the value of your development or prevent you from securing a mortgage.
For this reason, Restrictive Covenant Indemnity Insurance can be taken out to financially protect your development plans should a restrictive covenant be breached.
What is a restrictive covenant?
A restrictive covenant is a legal agreement that limits what can or can’t be done to a property or piece of land. It can be written into a property’s deeds or in a contract issued by the seller.
They are often put in place to prevent work that could negatively impact a neighbourhood. When they are applied to a piece of land, this is usually done to protect the land’s value, prevent damage and give the seller some ongoing control.
Restrictive covenants can include limits to the number of properties that can be built on a piece of land, the types of building constructed, and what they can be used for.
For example, you may want to add a second house on your land but a covenant on the title register document states that only a single dwelling can stand on that piece of land.
What is Restrictive Covenant Indemnity Insurance?
Restrictive Covenant Indemnity Insurance provides financial cover for breaches of known or unknown restrictive covenants.
If a covenant is legally enforced by a beneficiary, you could suffer large financial losses. You may have expensive legal fees to pay, in addition to damages or compensation. You may even have to knock down structures that you have already built, or alter them so that they stay within the conditions of the covenant. However, insurers are less likely to offer cover where other beneficiaries are known, especially those at adjoining property titles.
In addition, a restrictive covenant can also affect the value of any property you want to sell.
Who is a Restrictive Covenants Insurance policy for?
Restrictive Covenants Insurance policies are designed for property developers.
They provide protection against the costs and expenses of:
- Addressing a restrictive covenant legal challenge
- Damages awarded against you by a court
- A reduction in the market value of your property
When do you need Restrictive Covenant Insurance?
You need Restrictive Covenant Insurance if a review of the title deeds reveals that covenants are in place. The policy will give you financial protection should these covenants be enforced.
You may also want to take out Restrictive Covenant Indemnity Insurance to protect yourself from any unknown covenants, which could cause an unwelcome surprise. Sometimes, covenants are not recorded on any documents kept by the Land Registry, which may mean that you are unaware of them until it is too late.
Cover is dependent on the type of property, where it is being built, objections raised and any third-party conversations about the risk that cover is being requested for. Insurers have their own statistical knowledge and may only consider cover after planning permission is granted.
Having the right Covenant Insurance in place can therefore give you peace of mind, as well as providing protection to anyone you sell the property to in the future.
Where are restrictive covenants recorded?
In almost all cases, these covenants will be listed in the title deeds under the Charges Register, conveyance or transfer documents.
However, there may be occasions when this is not the case. For instance, you could be buying land that is unregistered. Discovering whether any restrictive covenants exist can therefore need more detailed and expert investigation.
One Indemnity recommends that you review the title documents or ask a solicitor for their assistance to check if any covenants prohibit your building plans.
Are restrictive covenants enforceable after 20 years?
The age of a restrictive covenant doesn’t necessarily make it more or less valid.
However, if the covenant is very old, it may be difficult to enforce. It’s possible that it may have become obsolete or the beneficiary is untraceable.
The Limitation Act 1980 also states that claims in land need to be brought within 12 years. So, if a breach occurred and no claim was made within 12 years, the covenant may be hard to enforce.
However, you need to note that this time period covers the time from when a breach was made, not when the covenant was first set in place.
What information do I need for Covenant Insurance?
As a minimum, we need:
- Property address and postcode
- The official Title Register and Plan detailing the covenants that you wish to protect yourself against
- What the development is/any changes being made
- Planning permission (if obtained)
- Correspondence detailing any objections raised during the planning process
- Records of any conversations with third parties about the risks you want cover for
How quickly can I get a Restrictive Covenant Indemnity Insurance policy?
Bespoke draft policies are normally reviewed by insurers within 5 working days. This will depend on the number and complexity of the covenants in place.
How much does a Restrictive Covenant Indemnity policy cost?
The cost of Restrictive Covenant Indemnity Insurance depends on several things, including the value of your development.
To get an accurate quote, you can talk to our experienced team.
Get a Restrictive Covenant Insurance quote
To protect your development against possible restrictive covenants, download our Quotation Form now.
You can also call us on 01603 218232 to find out more.
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