Whether you are in the process of buying property or taking a lease, the consideration of restrictive covenants can form an important part of the acquisition process. Indeed, once property is acquired and during your period of ownership/occupation, the impact of restrictive covenants will continue to affect your use and enjoyment of the property.
What are restrictive covenants?
A restrictive covenant is a promise given in a property deed/transfer or lease not to use the land in a particular way or not to undertake certain acts on it. This promise once given in most circumstances binds the parties who made the original promise and their successors i.e. subsequent owners. In practical terms what this means is that if such a promise is broken, even if subsequent owners were not a party to the original document creating the commitment, the person who benefits from the promise may be able to seek remedies against those that have broken the promise. The remedy can be an injunction that stops you committing the breach or compensation for losses incurred as a result of the breach.
The most prevalent examples of breaches in restrictive covenants within a dental field in our experience relates to restrictions on use. Usually there are restrictive covenants contained in the title which in effect prohibit the use of the premises as a dental practice, or although use as a dental practice is permitted, any ancillary complimentary use such as a chiropodist, laboratory or beauty treatments are prohibited.
You should also be aware if the acquisition of the practice is through lender finance supported by a charge over the property, then those acting for the lender will want some form of assurance that any restrictive covenants will not affect the future mortgageabilty or marketability of the property.
Have us consider the title/property documents from the outset or even contact us when you wish to make major changes in the property, particularly to expand your business. We will see if there are any restrictions in the title and provide you with a full report.
Depending on the nature of the restrictive covenant, how old it is and whether it is a pre-existing historical breach, we will be able to guide you as to how to proceed. There are various options available, ranging from obtaining a release or variation to the covenant from those that benefit from the covenant, to obtaining indemnity insurance or seeking remedy under statutory provisions. The final resort if no viable option is suitable would be to re consider the acquisition or expansion plans.
I am selling how does it affect me?
If you are granting a lease to a tenant, selling only part of the building or will remain an adjoining neighbour after the sale, restrictive covenants are important tools to ensure the person acquiring does not carry out any acts which would result in loss to you and to ensure the acquirer does not block a particular access or does not carry out a particular activity which would result in a nuisance to you or be harmful for your business. Again we can help you identify what is important to you in the sale process and ensure your concerns are protected.
For further information on restrictive covenants, please contact Ifath Khan at our Liverpool office [email protected].