Holly Hamer, Business Development Executive, looks at the importance of Restrictive Covenant Insurance
What is a Restrictive Covenant?
A restrictive covenant places a restriction on the title to the property that is intended to prevent a buyer from using or developing the land in a certain way.
Common examples of Restrictive Covenants are:
- Not to erect any buildings or structures on the land
- Not to use the land for any business use
- Not to build or use the land for more than a specified number of dwellings
- Building line and height restrictions
- Restrictions in making alterations to a building without obtaining consent
- Not to cause a nuisance or annoyance
- Not to sell alcohol
What is Restrictive Covenant Insurance?
Restrictive Covenant insurance provides protection against potential financial losses in the event of enforcement or attempted enforcement of a possible breach of a Restrictive Covenant.
This insurance is usually taken out by either the buyers or sellers of the property or property developers, and for most, is a routine part of the acquisition of a site and a cost factor that is built into the project.
Why have Restrictive Covenant Insurance?
One possible solution to rectifying or amending a covenant registered on the property title would be to apply to the Land Registry to get the covenant removed or modified. However, this issue is often identified in the middle of a transaction or development. This can be a time-consuming process, and an extremely costly option without guarantee of success.
For property developers, a Restrictive Covenant policy can be an efficient and cost effective way of dealing with the issue of the title to the property being subject to Restrictive Covenants. It can help remove delays and mitigate increased costs in dealing with completed plot sales.
Restrictive Covenant Insurance benefits the insured named under the policy, their mortgagees, lessees, and successors in title and covers the following:
Restrictive Covenant insurance provides protection against financial losses that might arise in the event of enforcement or attempted enforcement of a possible breach of a Restrictive Covenant.
Generally, a policy will provide cover for loss such as:
- Damages or compensation awarded against the insured by the courts
- Cost of altering, demolishing and/or reinstating all or any part of the property including any part of any building or other construction on or forming part of the property
- Reduction in market value
- Abortive costs of works
- Costs of settlement
- Defence costs
- Cost and expenses incurred with the insurer’s consent
Depending on the circumstances of an individual transaction and our assessment of the Restrictive Covenants, cover may be available to cover other losses such as business interruption losses.
Ask an expert
When a development is proposed, a policy can usually be provided on either a pre or post-planning basis. Our experienced brokers can assist you in making sure your policy is tailored to your requirements and is suitable for the risks involved.
Even if there has been contact with a beneficiary, it is still wise to contact us. We may be able to arrange an Agreed Conduct Clause which will allow negotiations to continue and cover the residual risk of claims from other parties.
What do we need to know to provide a quotation?
Depending on the circumstances, a quotation can take anything between a few hours to obtain to two - three days, depending on the complexity of the case.
To put together a quotation, we require:
- The current and proposed use of the property
- Limit of indemnity (and what this limit represents – current/developed value)
- Title Register and plan of the property
- Whether cover is required on a continued use, pre-planning or post-planning basis.