SGS 1: Restrictive Covenants
When advising on insurance policies what do you need to bear in mind? (statute)
s 19(1) Financial Services and Markets Act 2000 (FSMA) - This prevents carrying out regulated activity unless authorised
What is the first thing you should always do if there is a past and continuing breach of an RC?
Ask the seller to obtain restrictive covenant insurance and pay the one-off premium for it
If you cannot get insurance for a future breach of RC what would you recommend next?
Attempt to arrange for the PWB to release or modify the RC to allowed for the proposed breach
Why is the upper tribunal being time consuming particularly important?
It can be impractical in the context of a property transaction which are usually over in a matter of weeks
Where are restrictive covenants found?
On the charges register
In an exam when explaining the point about the vendor, what should you include for extra marks?
That in practice you would need to identify the successors in title of the original Vendor
What is the third and final option?
The Upper Tribunal of the Lands Chamber under s 84 of the Law and Property Act
In most charges register's, whose consent is usually required in regards to a RC?
The Vendor
What is the issue with using the term 'vendor' in an exam?
The Vendor in the charges register is usually defined with someones name from a long time ago - This is an issue because the Vendor is likely to have passed and the benefit could have passed onto someone else who is either hard to track down or hard to identify therefore we refer to them as a person with benefit (PWB)
Who are restrictive covenants enforceable against?
The burden of a restrictive covenant runs with the land meaning that the PWB may be able to enforce it against the buyer s 79(1) LPA
What is the first thing you should advise if your client wishes to push ahead with breaching an RC?
(1) Advise them to purchase restrictive covenant insurance insuring against the possibility of PWB bringing action in the future
What are the first things you need to check/ask when you know there is a past, continuing breach?
(1) Ask the seller whether the PWB consented to that particular breach - you may need to look to the CPSE for this - if they did obtain copies of this in writing and the issue will be sorted
What can affect the chances of a buyer getting RC insurance for future breach?
(1) The age of the RC - If the RC is very new then the premium may be very high for obtaining insurance (2) Date of past breaches of the RC
What cause of action should you take first if you are aware your client wants to breach RC?
(1) Warn your client that the RC exists and propose some alternatives to breaching the RC
Under what circumstances may insurance be too expensive?
(1) Where the breach is very recent (2) Where the RC is very new
When you see a RC what are the two things you need to check?
(1) Whether there are any past breaches (2) Whether there are any future breaches likely to happen
Why might obtaining consent from the PWB be an issue?
- The PWB may be hard to identify/track down - The PWB is likely to charge for the pleasure of removing/amending the RC - The moment the PWB is aware you can no longer gain insurance because they have been tipped off
What is the final remedy you could get for a future breach of an RC?
Go to the Upper Tribunal (Lands Chamber) to have the covenant removed as being obsolete
What happens to liability if there is a past breach?
If there has been a past breach of a restrictive covenant by the seller and that breach will continue after completion of purchase the liability could fall onto the seller
Who will pay for RC insurance?
If there is a proposed future breach = buyers expense If it is a past breach = pressure the seller to pay it Where there are proposed future and past breaches = split the premium
If you have a past and future breach of different covenants created in the same conveyance what needs to be done about the remedy?
The remedy needs to be the same for past and future breaches even if the breaches are in relation to different covenants - this is because if you have asked the seller to buy insurance for a past breach and you approach the PWB for consent for a proposed breach, you will have tipped off the PWB and that will invalidate any existing insurance policy the seller has
What is a restrictive covenants?
These restrict the right of the covenantor and its successors in title to freely use the land
What can the Upper Tribunal do?
They can waive, discharge or modify a restriction
Why is the Upper Tribunal the last resort?
Time consuming Expensive Uncertain
If there is a non-continuing breach e.g. keeping livestock on land when it was not allowed, how would you advise a client?
To check whether there any complaints which have been made by the PWB in relation to this - If there has then use the method above
If you cannot get insurance, what is the next step?
To obtain retrospective consent from the PWB
