Buying a home is one of the most significant financial decisions you’ll ever make. While location, price, and size are often at the forefront of a buyer’s mind, there’s another critical aspect that can influence your decision: property covenants. If you’re wondering, “What is a covenant in a real estate home?” you’re not alone. Many buyers are unfamiliar with property covenants and their potential to limit how you use or modify a property.
We’ll discuss their definitions, types, implications, and how they might affect your home-buying process. By the end, you’ll be equipped with the knowledge necessary to navigate buying a house with a covenant confidently.
What is a Covenant in Real Estate?
Buying a home with a covenant means agreeing to specific legal obligations or restrictions attached to the property. These covenants are legally binding agreements written into the property’s deed and are designed to regulate the use of the property.
In simpler terms, when you purchase a home with a covenant, you’re not just buying the house—you’re also agreeing to abide by the rules previously set by the property developer, previous owner, or governing body.
Types of Covenants
Covenants can take different forms, but they generally fall into three main categories:
- Restrictive Covenants
- These are rules that restrict specific actions on the property. For example, you might not be allowed to build extensions, run a business, or paint the exterior a particular color.
- Positive Covenants
- Positive covenants require you to take specific actions, such as maintaining a shared driveway or paying for the upkeep of communal areas.
- Deeds of Covenant
- This is a legal agreement that clarifies obligations between two parties, often involving payment obligations or specific rights related to the property.
Key Point: Covenants “run with the land.” This means that they apply not only to the current owner but also to all future owners of the property.
Common Types of Covenants Found in Property Deeds
When purchasing a house, it’s essential to understand the specific covenants attached to the property. These restrictions or obligations can vary widely, but here are some of the most common examples:
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Restrictions on Building Alterations
Many covenants prohibit certain types of construction or modifications. You may not be allowed to build a second story, add an extension, or even install certain fixtures, such as satellite dishes.
Prohibitions on Business Activities
If you’re planning to run a home-based business, be aware that some covenants strictly prohibit business activities on residential properties. This includes anything from opening a daycare to running a small shop.
Maintenance Requirements
Some covenants require homeowners to maintain their property to a specific standard. For instance, keep your lawn neat or ensure the exterior of your home remains in good condition.
Easements and Rights of Way
Covenants may include easements, which grant others the right to access parts of your property. For example, your property may consist of a shared driveway or a public footpath.
Fees for Changes or Services
Some covenants require homeowners to pay fees for services such as community maintenance or obtaining permits for alterations.
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Why These Covenants Matter
Understanding these covenants is crucial because they can directly impact how you use your property. For example, if you’re planning to renovate, a restrictive covenant could prevent you from moving forward with your plans. Always review the title deeds to identify any covenants before making an offer on a property.
How Covenants Affect the Home-Buying Process
When buying a house with a covenant, the process involves more than just a standard property purchase. Covenants can have legal and functional implications that affect your decision-making.
Role of Conveyancers and Solicitors
A conveyancer or solicitor plays a critical role in identifying and explaining the covenants attached to a property. During the buying process, your legal advisor will examine the title deeds and flag any covenants that might impact your plans for the property.
Impact on Renovations and Business Plans
If you’re buying a home with plans to renovate or start a home-based business, restrictive covenants can be a dealbreaker. For instance, a covenant prohibiting structural changes might prevent you from adding a new room or altering the property’s layout.
Covenant Consent
In some cases, you may need to obtain covenant consent before making alterations to the property. Failing to do so could lead to legal issues or even financial penalties.
When to Reconsider
If a covenant severely limits your intended use of the property, it might be worth reconsidering the purchase. For example, if you’re buying a property with plans to build an extension, but a restrictive covenant prohibits construction, it could render the property unsuitable for your needs.
Mortgage Considerations When Buying a House with a Covenant
Can You Get a Mortgage on a Property with a Covenant?
Yes, you can, but lenders may have specific conditions that you must meet. The presence of a restrictive covenant can influence a lender’s perception of the property’s value and marketability.
Key Factors Lenders Consider:
- Property Value: Covenants can impact the resale value, mainly particularly if they impose substantial restrictions.
- Legal Risks: Lenders assess the risk of covenant breaches and potential legal disputes.
- Loan-to-Value Ratio (LTV): Some lenders may offer less favorable terms if the covenant is seen as a risk factor.
Working with a Mortgage Broker
To navigate these complexities, consider working with a mortgage broker who has experience dealing with covenant properties. They can help identify lenders who are comfortable offering mortgages for such homes.
Risks and Legal Implications of Breaching a Covenant
What Happens if You Breach a Covenant?
Breaching a covenant can lead to severe consequences, including:
- Legal Action: The party enforcing the covenant can take you to court.
- Injunctions: You could be ordered to stop or reverse any work that breaches the covenant.
- Compensation Claims: In some cases, you may need to pay damages.
Real-Life Example:
Imagine building an extension without obtaining the consent of the covenant. The enforcing party may demand that you demolish the extension, resulting in significant financial and emotional costs.
Strategies to Navigate and Manage Covenants
If you’re set on buying a home with a covenant, here are some strategies to help you manage the situation:
Seek Professional Advice
Hire a solicitor or conveyancer who specializes in property law. They can guide you through the complexities of covenant agreements.
Negotiate or Remove Covenants
In some cases, it’s possible to negotiate with the enforcing party to remove or modify a restrictive covenant.
Conduct Due Diligence
Before signing any contracts, ensure you fully understand the covenants attached to the property.
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