Property essentials for charities: restrictive covenants

For legacy professionals, property gifted to charity is often one of the most valuable and complex assets in an estate. While attention is naturally given to title and valuation, restrictive covenants can be easily overlooked. When they are, the consequences can be significant.

A restrictive covenant may limit how land can be used, reduce its market value, or affect its development potential. Identifying these restrictions early is key to ensuring charities maximise the benefit of their gift and avoid unnecessary legal risk.

What are restrictive covenants?

A restrictive covenant is a legally binding agreement, usually contained in a deed, that restricts how land can be used for the benefit of other land.

Importantly, these obligations “run with the land”, meaning they bind not only the original parties but also future owners. Common examples include:

• Limiting use to residential purposes.
• Prohibiting business activities.
• Restricting building or development.

They are typically designed to preserve the character or value of neighbouring land or prevent nuisance.

Why legacy professionals should be alert to them

Where property passes to charity, either as a specific gift or via the residuary estate, restrictive covenants can directly affect both value and marketability.

At an early stage, it is important to establish:

• Whether the property is subject to restrictive covenants; and
• Whether it benefits from covenants affecting neighbouring land.

This information should be shared with surveyors or valuers (including for section 119 Charities Act reports), as any restrictions on use or development may materially impact valuation.

Assessing enforceability

Not all restrictive covenants will be enforceable, but many are. Determining this requires careful consideration of several factors, including:

• Whether the covenant was validly created and is sufficiently certain.
• Whether there is identifiable benefiting and burdened land.
• Whether the party seeking to enforce the covenant has the benefit of it.
• Whether the covenant has been properly protected (for example, by registration in the charges register for registered land).

Given the technical nature of these requirements, early legal input is often essential.

Risks of getting it wrong

If a charity (or personal representatives acting on its behalf) breaches an enforceable restrictive covenant, the consequences can include:

• An injunction, preventing continued breach or proposed use.
• A claim for damages.

These disputes can delay a sale, reduce proceeds, or create unexpected liabilities, which are all particularly problematic where estate administration is time-sensitive.

Practical options where covenants cause issues

Where a restrictive covenant adversely affects a property, there are several potential routes to consider:

• Indemnity insurance
  Often used where the risk of enforcement is low, providing financial protection without engaging the benefiting party
• Negotiated release or variation
  If the benefiting landowner can be identified, it may be possible to agree a release or modification, typically in return for payment
• Application to the Upper Tribunal
  To discharge or modify the covenant—though this process can be lengthy and, if contested, costly
• Court declaration
  Useful where there is genuine uncertainty as to the covenant’s scope or enforceability

A key practical point: approaching the benefiting owner prematurely can invalidate indemnity insurance options, so legal advice should be taken before you take any step.

Conclusion

Restrictive covenants are a common but often underappreciated issue in the context of charitable legacies involving property. For legacy professionals, early identification and proactive management are essential to protecting value and ensuring smooth estate administration.

Taking the time to investigate these restrictions and involving the right professional advisers can make a material difference to the outcome for charity beneficiaries.

Please contact our Charity Property team to discuss any queries you have regarding restrictive covenants.