Restrictive covenants are a common but often misunderstood aspect of commercial property law. These legal limitations are written into property title deeds and can have a significant effect on how a building is used, developed or even marketed for sale. Whether you’re purchasing a commercial unit, leasing office space or investing in a mixed-use development, it’s essential to understand how restrictive covenants might affect your plans.
In this post, we’ll explain what restrictive covenants are, how they could impact your commercial property and what legal steps you can take to protect your interests. We’ll also share how to get a free 30-minute consultation with our experienced commercial property solicitors.
What is a restrictive covenant?
A restrictive covenant is a legally binding promise that limits the use of land or property in some way. These restrictions are typically attached to the land rather than the owner, meaning they pass from one owner or occupier to the next. In other words, even if a commercial property changes hands, the restrictions continue to apply unless they are formally removed or modified.
Unlike positive covenants, which require a landowner to take a specific action (such as maintaining a shared access road), restrictive covenants focus on what cannot be done. They can apply to both freehold and leasehold properties and are often used to preserve the character of an area, protect the interests of neighbouring landowners or limit competition.
Common examples in commercial settings
In commercial property, restrictive covenants can take many forms. Some of the most common include:
- Usage limitations – For instance, a covenant may prohibit the sale of certain goods (such as alcohol or tobacco) or restrict the property’s use to a specific type of business, such as a retail shop or professional office.
- Operating hours – A restriction might limit the times during which a business can operate, which is particularly relevant for leisure venues or late-night retailers.
- Alterations and extensions – Some covenants ban significant changes to the physical structure of a building without prior consent. This could prevent a business from expanding, renovating or repurposing a property.
- No sub-letting – Lease agreements or property deeds may include clauses that prevent a business owner from subletting space to another commercial tenant.
- Environmental restrictions – These may relate to noise levels, waste disposal methods or any use deemed to cause nuisance to neighbouring properties.
While these covenants may seem minor on paper, their practical consequences can be far-reaching. For instance, a café owner might find they are unable to obtain a licence to sell alcohol or a developer may discover that their plans to convert an office block into residential flats are legally blocked.
How restrictive covenants can affect your plans
If you’re buying or leasing a commercial property, restrictive covenants can be a serious obstacle. The last thing any business owner wants is to invest time, energy and capital into a property, only to discover later that their intended use breaches a binding restriction.
Restrictions can limit your ability to run the business you had planned, reduce the profitability of your investment or complicate resale or subletting down the line. In some cases, lenders may even be unwilling to finance a purchase if the covenants in place significantly affect the value or commercial viability of the property.
Even where a business is currently operating within permitted use, future plans such as expansion, redevelopment or diversification may not be possible without addressing these restrictions. That’s why it’s critical to identify and understand any covenants before proceeding with a purchase or lease.
Are restrictive covenants enforceable?
Restrictive covenants are enforceable in UK law but there are certain conditions that must be met. For a covenant to be valid, it must be clear in its language, it must serve a legitimate purpose and there must be a party with legal standing to enforce it – usually the original landowner or their successors in title.
However, enforceability isn’t always straightforward. In some cases, a covenant may no longer be relevant or practical due to changes in the surrounding area. For instance if a restriction was originally placed to prevent commercial activity in a residential area but the area has since become predominantly commercial, the covenant may be open to challenge.
Additionally if the wording of the covenant is vague or ambiguous or if the benefiting party cannot be identified, it may not be enforceable. Disputes over restrictive covenants can become complex and courts will consider the wider context and original purpose of the restriction before making a decision.
Can restrictive covenants be removed or modified?
Yes, restrictive covenants can be challenged or modified through legal channels. One option is to apply to the Lands Chamber of the Upper Tribunal under section 84 of the Law of Property Act 1925. The tribunal can discharge or modify a covenant if it finds that:
- The covenant is obsolete due to changes in the character of the area.
- It impedes reasonable use of the land.
- The person entitled to benefit from it consents.
- There is no injury caused by its removal.
Alternatively, parties can negotiate with the benefiting landowner to formally release or vary the covenant. This is often quicker and less costly than a tribunal application, though it requires agreement from all relevant parties.
It’s important to note that unauthorised breaches of restrictive covenants can result in legal action, injunctions or financial penalties. That’s why it’s essential to seek legal advice before proceeding with any development or use that might conflict with an existing restriction.
Due diligence: what to look for before signing
Whether you’re a buyer, tenant or investor, it’s vital to carry out thorough due diligence before finalising any commercial property transaction. Restrictive covenants will typically be revealed during the title search process as part of the legal conveyancing procedure.
A qualified commercial property solicitor will examine the deeds and title documents to identify any restrictive covenants and assess how they might affect your plans. They can also advise on the likelihood of enforceability, explore potential avenues for removal or modification and negotiate with the other party where appropriate.
In some cases, indemnity insurance may be available to protect against the risk of enforcement. This can provide financial cover in the event of a future claim but it’s not a guaranteed solution and should be used with caution.
Why legal advice is essential
Restrictive covenants may seem like a minor technicality but they can significantly influence the commercial value and long-term potential of a property. Whether you’re launching a new business, expanding operations or investing in development, understanding your legal position is crucial.
At Osbourne Pinner Solicitors, we help clients identify and navigate restrictive covenants with confidence. Our commercial property solicitors provide clear, practical advice to help you understand your rights, assess risks and take the right steps to protect your interests.
Get legal advice on commercial property restrictions
If you’re buying, leasing or developing commercial property, our experienced team is here to help. We offer a free 30-minute consultation to discuss your situation and guide landlords and tenants through the legal complexities of restrictive covenants.
Contact us today via the form below, call 0203 983 508 or email [email protected] to speak with a commercial property solicitor near you.
You can come to our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester – or speak to us on a video call if you’d prefer a remote consultation.
