Restrictive covenants and property finance
A restrictive covenant is a legal promise that limits how land or property can be used. It can restrict development, business use, letting, alterations or subdivision, and may affect mortgageability or development finance.
What restrictive covenants are
A restrictive covenant is a legal obligation attached to land that restricts its use. Created by deed, it typically limits building, changes of use, subdivision, business activity or alterations. It runs with the land and binds successive owners.
Common restrictions
Common restrictive covenants include: not to build above a certain height, not to use for business purposes, not to subdivide or let, not to alter the external appearance, not to keep animals or run a trade, and not to erect boundary structures above specified heights.
Development and conversion risk
Restrictive covenants can directly affect development potential. A covenant preventing subdivision could block a flat conversion. A covenant restricting business use could prevent commercial development. The development appraisal must account for covenant risk.
Indemnity insurance
Where a covenant is old, the beneficiary is unknown, or enforcement is unlikely, indemnity insurance may be available. This can satisfy lenders in some cases but does not remove the covenant. Policy terms, exclusions and lender acceptance must be checked.
Release or variation
The covenant beneficiary (person who benefits from the restriction) can agree to release or vary the covenant, usually for a payment. Alternatively, the Lands Tribunal can modify or discharge covenants that are obsolete, impede reasonable use, or where the beneficiary has agreed.
Lender and solicitor review
The solicitor reports restrictive covenants to the lender as part of the certificate of title. The lender decides whether the covenant affects their security and whether insurance or resolution is needed. This review should happen early to avoid late delays.
FREQUENTLY ASKED
Frequently asked questions
No. Your solicitor must advise on enforceability, risk and possible solutions.
Sometimes, but policy terms and lender acceptance matter.
It can if it affects the planned use, GDV or exit.
Related guides
Ready to compare rates?
Get indicative rates from multiple lenders in minutes. No fees, no obligation.
Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting.
Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting. Commercial finance may be unregulated. Some property finance can be regulated depending on borrower, property use and loan purpose.