Case Study: Restrictive Covenants

The development

We were contacted to provide insurance cover for a development of five new private dwellinghouses in a woodland area, expanding from the one private dwellinghouse that previously existed on the land. The purchase value was £2.5m, with gross development value estimated at £12m. The land was subject to restrictive covenants dated 12th October 1968.

The case

The risk specifics were assessed as follows:

Who benefits

The covenants bound successors in title and benefited the unsold parts of the Estate. No conveyancing plan was available, so the benefiting land could not be immediately identified.

Restrictions

The owner was not to make any alteration or addition without vendor consent (not to be unreasonably withheld). The land was not to be used for any other purpose than “a dwellinghouse”. The owner was not to carry on anything that might be a nuisance, annoyance or inconvenience.

Underwriting considerations

There were three objections post-planning. However, there was no mention of covenants and no objections from touched or concerned properties. Three of the adjoining titles were assessed to be burdened, not benefiting. Three others benefited, while five properties were either unassessed or unclear. There were also some pockets of unregistered, unbuilt-on land, which required further investigation.

The claim

After cover was on risk, a nearby property sought legal advice and threatened enforcement. The council (instructed at the Insurer's cost) advised there was a 50% chance of successful defence in court.

The solution

Based on Counsel’s advice, the Insurer decided not to allow the development to continue at risk. Approaches were made simultaneously to the appropriate properties to seek agreement or consent and remove covenant uncertainty. A valuation report was obtained to establish potential damages and compensation amounts should the matter go to court.

The result

We agreed releases with the appropriate properties. Since the owner of one had early-onset dementia, and walking their dog in the field close to the house was safer for them, we agreed a release of nil value on the basis that they could still walk their dog over a small area of land that wasn’t used as part of the development.

The development was completed without further issue, with a total loss incurred estimated at £200k, including legal fees and amounts demanded for the release of covenants.