When buying a property, it’s important to be aware of the legal risks associated with the land. One of these risks are restrictive covenants, which are conditions attached to the property title and recorded in the land registry. These restrictions, often decades old, can limit how a property owner uses their land and insured property.
If a restrictive covenant is breached—whether knowingly or unknowingly—it could lead to legal action, financial losses or reversing changes made to the property.
To mitigate these risks, many property owners, property developers, and mortgage lenders opt for restrictive covenant indemnity insurance. This indemnity policy provides financial protection in the event of enforcement action, covering legal fees, expenses incurred and any reduction in the market value of the insured property.
What Are Restrictive Covenants?
A restrictive covenant is a legally binding condition in the title deeds of a property. These conditions are usually imposed by previous owners, developers or local authorities to control the continued use of the land.
Common Examples of Restrictive Covenants
Restrictive covenants come in many forms but here are some common examples:
- Building Work – A restrictive covenant may prevent a purchaser from building an outbuilding, extending or converting a single dwelling into multiple units.
- Business Use – Some properties have covenants preventing others from running a business from the premises.
- Property Use – A covenant may require the said land to be used only for residential purposes, no commercial or agricultural use.
- Exterior Alterations – Some covenants prevent changes to the insured property, such as repainting, installing new windows or altering fences.
- Planning Permission – Some covenants require planning permission to be obtained before making certain changes to the property.
- Access and Shared Areas – Some covenants govern access to shared spaces, driveways or communal land. Even if these seem outdated they can still be enforced, leading to legal costs and other expenses.
What Does Covenant Indemnity Insurance Cover?
Covenant indemnity insurance is designed to protect property owners, buyers and property developers from the consequences of breaching a restrictive covenant. If enforcement action is taken the insurance policy will cover:
- Legal costs and fees – Pays for conveyancing solicitors, legal advisers and court proceedings.
- Compensation claims – Covers any expenses incurred if a covenant indemnity claim requires a financial settlement.
- Property value loss – Provides financial protection if enforcing the restrictive covenant reduces the market value of the insured property.
- Alteration and reinstatement costs – Covers the actual cost of modifying the property to comply with the restrictive covenant (e.g. removing an extension).
- Mortgage lender requirements – Many mortgage lenders require covenant indemnity insurance before approving a loan for a property with unknown covenants.
- Other costs – Covers additional expenses incurred, such as fees for planning consultants, surveyors or an independent broker.
Note covenant indemnity insurance does not remove or amend the covenant – it just provides financial protection in case of enforcement.
When is Covenant Indemnity Insurance Needed?
This insurance policy is required in the following situations:
- Buying a Property with a Restrictive Covenant – If a buyer is buying a property with known or unknown covenants, covenant indemnity insurance gives peace of mind.
- Previous Owner Breached a Covenant – If a previous owner did work in breach of a restrictive covenant, the risk of enforcement still exists.
- Planned Development or Alterations – If you plan to extend, convert or renovate a property, this insurance will mitigate risks associated with potential covenant breaches.* Leasehold Covenant Indemnity Policy – Leaseholders may require a leasehold covenant indemnity policy to protect against freeholder claims.
- Mortgage Lender Requirements – Many lenders demand covenant indemnity insurance before finalising a mortgage.
- Uncertainty Over Covenant Enforcement – If it’s not clear who has the right to enforce a restrictive covenant, this indemnity policy covers.
How Much Does Covenant Indemnity Insurance Cost?
The cost of covenant indemnity insurance is dependent on:
- Property value
- Nature of the restrictive covenant
- Level of risk of enforcement
- Type of development
- Past breach
Unlike some policies this is usually a one-off insurance premium not an annual payment. The policy remains valid indefinitely and can be transferred to future buyers.
Estimated Costs
- For lower-risk properties insurance premiums start at £100–£300.
- For proposed development or planning applications involving high-value properties the cost can be £1,000–£5,000 or more.
A conveyancing solicitor or insurance provider can get quotes and advise on the best cover.
How to Get Covenant Indemnity Insurance
To get covenant indemnity insurance follow these steps:
1. Consult a Conveyancing Solicitor
A conveyancing solicitor or legal adviser will review the title deeds to identify any restrictive covenants affecting the insured property.
2. Assess the Need for an Indemnity Policy
If there is a risk of enforcement your solicitor will determine if an indemnity policy is required.
3. Choose an Insurance Provider
Your solicitor will contact an insurance provider or independent broker to arrange the cover.
4. Pay the One-Off Insurance Premium
Once issued the policy requires a one-off premium and is valid for the lifetime of the insured property and covers future buyers.
Can You Remove a Restrictive Covenant Instead of Getting Insurance?
Instead of getting covenant indemnity insurance it may be possible to remove or modify a covenant by:
- Gaining Consent from Other Parties – If the party with enforcement rights agrees they may remove the covenant for a fee.
- Applying for a Court Modification or Removal – Under Section 84 of the Law of Property Act 1925 a property owner can apply to the Upper Tribunal (Lands Chamber) to have a covenant discharged.
- Allow the Covenant to Become Unenforceable – In some cases a covenant may no longer be enforceable due to changes in land use or planning decisions.
But this can be costly and time-consuming making covenant indemnity insurance the more practical solution.
Get Expert Advice from GEP Legal
Navigating restrictive covenants and understanding whether you need restrictive covenant indemnity insurance can be complex. Whether you’re a property owner, buyer, or property developer, it’s crucial to seek expert legal advice before making any decisions.
GEP Legal specialises in property law and can provide tailored guidance on covenant indemnity insurance, title deeds, and potential legal risks associated with your insured property.
Their experienced legal advisers can assess your situation, help you explore alternative solutions such as modifying or removing a restrictive covenant, and assist in securing the right indemnity policy from a trusted insurance provider.
If you’re dealing with unknown covenants, a proposed development, or concerns about enforceability, contact GEP Legal for further information and expert legal support.
Conclusion
Restrictive covenants can pose legal and financial challenges for property owners, buyers, and property developers. Whether they restrict a proposed development, impact planning applications, or create issues in the planning process, they present potential risks.
Restrictive covenant indemnity insurance offers a practical solution by covering legal costs, expenses incurred, and the actual cost of enforcement claims. If you are considering purchasing or developing a property with a restrictive covenant, seeking further information from a conveyancing solicitor or independent broker is crucial.
