Restrictive Covenants Insurance Policies

A restrictive covenant is a contract that restricts the use of land and property. This contract can date back hundreds of years and, usually, has a historical application. If enforced now, a restrictive covenant could impede, or completely halt, the progress of your build. Some covenants, as an example, were put in place when houses were first developed on a plot of land. A developer would build five houses. One to live in and four to sell. To ensure that his land wasn’t overdeveloped, he would limit any additional building or additions to the houses, such as additional stories, by use of a restrictive covenant. With the passage of time, this contract wouldn’t become apparent until a new developer – perhaps fifty or a hundred years later – proposed to develop the existing properties. If the covenant is enforced, perhaps by neighbouring properties, the development would be unable to proceed. A Restrictive Covenant will usually be highlighted by a solicitor when the deeds for the new purchase are read through. They will advise their client of the details of the restriction and recommend the client purchases a restrictive covenant insurance policy.

What is Restrictive Covenant Insurance?

Restrictive Covenant Insurance would be obtained by the developer/building contractor or home owner, either pre-planning stage, post-planning, during the build, or even post-build, to ensure that a development Is protected. Then, if the restriction were to be discovered, the build can still proceed unencumbered by time or cost constraints. Without a policy, the development can be financially damaged by the cost of a settlement with neighbours. It could also mean that your build would be slowed down, or stopped, while negotiations take place. With a policy, your insurers would handle any case arising from the restrictive covenant. They would negotiate and pay any settlement costs, which might be five times the cost of the premium. Even if, in a worst-case scenario, the buildings had to be returned to their original condition, the insurance would cover those costs.

Commercial Restrictive Covenants

These types of covenants were also applied to commercial properties. For instance, the developer of a retail area could discover that there is a restriction on alcohol sales on the land. In which case, Restrictive Covenant insurance would allow them to sell the property to a business with an alcohol license. It would also continue to protect the buyer in the future. The same would apply for a change of use from residential to commercial if a restrictive covenant was in place preventing them from doing so.

Why do you need Restrictive Covenants Insurance?

As a property developer you know, from experience, that even the most perfect plot of land can contain hidden pitfalls, both actual and legal. As mentioned, one potential legal issue is if there’s a restrictive covenant on the land. This could effectively stop you from any development to the land, but it’s something you can protect yourself, or your client, against, with Restrictive Covenants Insurance. To reiterate, a restrictive covenant is a restriction that’s been placed on the title of a property that restricts the buyer from using or developing it in specific ways. For instance, the covenant could restrain the buyer from erecting any buildings or structures on the land, or limit construction to a specified number of properties. It could stipulate the dimensions of any building project or stop the land from being used for business purposes. It could also contain clauses against causing a nuisance or annoyance.

Getting the right protection

So how do you protect yourself against the financial risk of encountering a restrictive covenant on land you want to acquire or build on? By obtaining Restrictive Covenant Insurance. You can get cover at the earliest stages of your project, even before any planning costs are incurred. Which means that, if the restrictions came to light after you’d obtained planning permission, you’re covered for the investment you’ve already made. In fact, for most developers, arranging this kind of indemnity insurance is a routine part of site acquisition. At Construction Insure, we know the potential damage a restriction can do to a project. We’ve been brokering insurance to protect property developers and contractors like you for forty years, so we know how to get you the cover you need.

How does Restrictive Covenants Insurance help you?

The policy will cover any damages awarded against you by the courts, your legal defence costs or the cost of a settlement. It will protect you from the costs of altering, demolishing or rebuilding any part of the property, if construction has already begun. It will also protect you from a reduction in the market value of the land, or the property you’ve built on that land. In order to protect you from financial damages, we’ll broker a policy to the specifications of your project. And the policy provides cover in perpetuity. So, it will benefit successive owners of the property and their lenders.

How do you get the right advice?

You need to be protected, financially and legally, at the very beginning of a development project, which is what Restrictive Covenants Insurance will do for you. Even if a covenant is deemed to be obsolete, or the person who imposed the restriction is unknown, it may not stop an attempt to legally enforce it. It could be used as a way of delaying a development by an interested third party. So, a Restrictive Covenant Insurance policy will cover you for any financial commitment you’ve made to a project, or the cost of delaying it while waiting for a legal ruling, including business interruption. Get in touch today for more information!

Restrictive Covenants Insurance

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