A deed of covenant is quite common in property sales and transfers, especially in buying leasehold properties. Essentially, it’s a legal agreement between someone with an interest in land (like a freeholder) and the buyer (i.e. a leaseholder).
When a Deed of Covenant is made, the covenantors are the ones committing to fulfill certain obligations, and those benefiting from it are the covenantees.
What is a Direct Deed of Covenant?
If a leaseholder wants to sublet their property with the freeholder’s approval, the Deed of Covenant might say that a separate Deed is needed between the subtenant and the landlord.
This is called a Direct Deed of Covenant, which is separate from the original and doesn’t impose any obligations on other leaseholders. Rather, it is specifically intended to define the relationship between the subtenant and the landlord.
When is a Deed of Covenant required?
A Deed of Covenant lays down the rules for living in a property, therefore it usually crops up when you’re buying or selling a property.
Conveyancers should check for existing covenants registered at the Land Registry before a purchase is complete. Alternatively, a Deed of Covenant might be drawn up during land or property sales.
What is a negative covenant?
A negative, or restrictive covenant, is a commitment from a buyer not to do certain things with land.
Usually, these covenants are unearthed during the buying process and can be found in the deeds or transfers of the land. A property solicitor or conveyancer will flag unusual restrictions that may cause a problem later on.
Restrictive covenants generally are tied to the land and therefore passed on to future owners, staying in place provided they are clear and correctly registered. In some cases, an owner may be able to get released from a restrictive covenant.
What is a positive covenant?
A positive covenant is a commitment to actively fulfill a promise made to another party. For instance, paying a regular service charge or maintaining a specific part of the property.
Unlike restrictive covenants, positive covenants don’t automatically pass to new owners. However, it’s not uncommon for parties who benefit from the positive covenant to want it to apply to future owners, too. In these circumstances, a separate deed is created between the benefiting party and the new owners at the same time as the land transfer.
To make sure positive covenants are maintained, sometimes a restriction is placed on the title that prevents the sale or transfer of the property unless the new owner agrees to a new Deed of Covenant.
How long does a covenant last?
A covenant lasts as long as its specified time limit. However, if there’s no time limit attached to it, it could last indefinitely unless the conditions mentioned in it are reached, or all involved parties agree to modify or release the signed deed of covenants.
In some cases, a covenant may become outdated. If this is the case, usually these covenants are ignored or overlooked, rather than enforced.
What happens if you breach a covenant?
If you break a covenant, the covenantees can take legal action. They do this by filing a claim and requesting a court order to stop further breaches. In some cases, the covenantees may also be able to seek compensation for any financial losses caused by the breach of the covenant.
While certain claims, like recovering overdue rent, do have a time limit, generally, there are no set time limits for enforcing a covenant.
If a covenantor does breach a covenant, they may sometimes be able to argue that the person benefiting from the covenant waived their right to enforce a breach under certain circumstances. For example, if a landlord was aware of a breach but continued to collect rent despite that. However, typically, the main consequence of a breach of covenant is that the court will ask the covenantors to remedy it.
Does a deed of covenant have to be signed?
Yes, for any document to be a deed it should be signed by all parties, witnessed by an independent observer, and delivered to the other party. Only then is it legally enforceable.
Signing a deed of covenant means it becomes physical proof that both parties have read, understood, and agreed to the terms. As such, it is legally binding and can be enforced or used in future legal proceedings.
If a Deed of Covenant is not signed, it may not be possible to enforce covenants and non-compliance can also lead to accumulating payments related to ground rents or service charges. For many leases, a signed Deed of Covenant is mandatory when transferring, assigning, or subletting a leasehold property.
How much does a Deed of Covenant cost?
The cost of a Deed of Covenant varies. Sometimes, the freeholder might charge a fee, which is usually rolled up as part of the administrative charges when buying a property. This fee isn’t fixed, and it’s important to note that conveyancers might have additional charges relating to Deeds of Covenant, too.
The cost of a Deed of Covenant will usually be referred to as a disbursement. That is, it’s additional to standard conveyancing fees and costs involved in buying a house. There might also be additional costs for a Notice of Transfer and Notice of Charge fee to take into consideration, too.
What should be included in a Deed of Covenant?
A Deed of Covenant generally includes the following details:
Address, postcode, and title numbers of the property;
Background information on what the Deed contains;
Full names and addresses of both the covenantor and covenantees;
Definitions and references for repeated or potentially unclear terms;
Specific details on the covenant terms;
An execution clause;
Signatures of all parties.
Deed of Covenants for leasehold properties
For leasehold properties, most rights and responsibilities are outlined in the lease agreement itself. When a leasehold property is sold or transferred, the new owner becomes the successor in the title and inherits the lease terms.
In the case of leasehold titles, the need for a separate Deed of Covenant is rare because the lease usually contains both positive and negative obligations. However, some landlords might ask the new owner to sign a Deed of Covenant to make sure they’re committed to fulfilling their obligations and following the lease conditions.
How can Lawhive help?
At Lawhive, we have a highly experienced network of property solicitors and conveyancers available to help. For a free initial case assessment and quote, get in touch with our legal assessment team today.