Restrictive Covenant Legal Indemnity Insurance

The availability of this form of insurance can be useful and should not be forgotten as a whole or partial solution to restrictive covenant issues.

It is always best to try and find a complete answer to the validity and enforceability of any particular covenant if possible.

There are a number of insurers who offer insurance for restrictive covenant risks where no other obvious solution can be found.

Typical cases where restrictive covenant insurance will be appropriate are as follows:

1. Unauthorised buildings or extensions to properties

A very common restrictive covenant is of a type where a previous owner's consent is required before a building can be erected or altered. The owner of the land or property may have contravened the covenant and the person entitled to give the consent cannot be traced. Usually the property owner is unaware of the covenant and the covenant is discovered when the property is being sold or re-mortgaged. As long as the unauthorised building works have been in place in for more than 12 months and have not been challenged by the covenantee then it is likely that insurance will be available.

2. Breach of covenant by an unauthorised use

This situation is similar to number 1 above but in this case a use is prohibited by the covenant and is taking place and has been going on for some time. Typically the covenant on a shop may prohibit the sale of alcohol but the owner is perhaps running a convenience store which includes an off-licence to sell beers, wines, spirits etc. which has been going on for a number of years without complaint. In this case a restrictive covenant insurance policy may well be the answer.

3. Unknown covenants

It is quite common for the documentary title of a property to indicate the presence of restrictive covenants but they may be unknown because the document in which they appear cannot be traced. Again, restrictive covenant insurance would be an answer to this situation.

4. What cover does the policy provide?

  1. Any damages or compensation awarded to the claimant
  2. The cost of demolishing or altering the property
  3. The loss in value between the market value at the time any successful enforcement of the covenant takes place and the current open market.

It is possible to approach an insurer and outline the circumstances prevailing in an individual case and ask for a bespoke insurance policy. The cover can be provided for the owner, future owners or any mortgagee or occupier.

5. Premiums

The amount of the premium will depend upon a number of factors but is usually rated to the value of the property at the time the insurance policy commences. Depending on the value and type of property premiums can vary for a few hundred pounds for a private dwellinghouse up to a few thousand pounds for larger commercial properties.

6. Important Warning

Do not attempt to contact the person who you think may have the benefit of the covenant as insurers will almost always invariably refuse to insure if there has been any attempt in this respect. Once you have approached the other party insurance may well become impossible and this would effectively close down a valuable means of solving your restrictive covenant problem.

Restrictive CovenantsWe invite you to take advice. We may be able to indicate that a restrictive covenant is not valid or enforceable. Equally there are other cases where a suitable policy may be the best solution.

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