What is a Deed of Covenant?
A Deed of Covenant is part of the leasehold management pack when buying a leasehold property. Signed by the buyer and management company, it contains property details such as the address, postcode, and Register of Title. The deed declares that one party will pay the other a certain amount of money.
A covenant is a promise related to property that is legally binding between parties. They lay out the positive and negative obligations that a tenant has to abide by when purchasing a leasehold property.
In this guide, we’ll be taking you through everything you need to know about the Deed of Covenant. This will give you a better understanding of how the document works and whether you will need to sign one.
What Does Signing a Deed of Covenant Mean?
Under common law, a Deed of Covenant serves to protect the freeholder and management company. The Landlord and Tenant (Covenants) Act 1995 states that tenants can sue based on the landlord's covenants because they are liable.
If the landlord does not abide by the rules laid out in the covenant, the tenant is protected by the Act. The landlord is responsible for any repairs and must have permission before entering the property.
If a Deed of Covenant is signed, the landlord can use it as a means to collect the charges stated in the agreement. The charges can include ground rent and maintenance fees for communal areas.
It is important to bear in mind that signing a Deed of Covenant is not a legal requirement. However, if the buyer or tenant refuses to sign the deed, it can cause complications. This is because most management companies dictate that the Deed of Covenant must be signed in order to complete the transaction.
If you're buying the freehold, you should speak to your solicitor about the Deed of Covenant.
What Does a Deed of Covenant Cover?
It will usually cover paying service charges such as ground rent and maintenance fees. It can also include other conditions such as restrictions on pets and forbidding any subletting amongst others.
There are two types of covenants known as positive and negative covenants. Each deed is different due to the specific clauses. Therefore, it’s important to make sure that you read through the document and agreed terms thoroughly before signing.
Deed of Covenants can also provide restrictions on flying freehold properties.
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Positive Covenants
The first type of covenant is the positive covenant. These relate to the tenant’s obligations that will contribute to a positive environment for those in the residence.
Some examples of positive covenants include the following:
- Agreeing to pay certain charges such as maintenance fees and ground rent
- Agreeing to any further work or renovation subject to committee discussions
- Ensuring that all communal areas are kept tidy
- Maintaining the exterior of the property when needed
If you have any queries or concerns, your conveyancer can provide you with advice and negotiate with the seller’s solicitor.
Negative Covenants
Negative Covenants are also known as restrictive covenants. They refer to the constraints that freeholders can put on the leaseholders. The negative covenants can differ depending on the freeholder’s preferences.
Here are some typical negative covenants that you may come across:
- Restrictions against subletting the property or using it as a holiday or service accommodation
- Restrictions on owning pets
- Forbidding any commercial business to run from the property
- Certain areas of the property may also be restricted depending on the development
If you are found to be breaching your contract, you could be subject to forfeiture, meaning that you could lose your property. Disputed Deed of Covenants may also be subject to court action. Therefore, you should ask your conveyancer to provide expert legal advice.
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Do I Need a Solicitor?
Instructing a leasehold solicitor will ensure that you understand the terms and conditions of the deed. They will also be able to check through various details of the freehold and the Land Registry title numbers.
When a buyer is purchasing their leasehold property, the seller’s conveyancer will be instructed to draw up a draft deed. This draft is then reviewed by the buyer’s conveyancer who will then create the final copy of the deed that needs to be signed by all parties.
How is a Deed of Covenant Executed?
A Deed of Covenant is executed during the conveyancing process using the appropriate execution clause. This clause will ensure the Deed is legally binding once signed. The buyer and freeholder must hire leasehold solicitors to assist with the transaction.
All parties to the agreement must sign a deed in the presence of an independent witness. This is known as a wet signature. The witness must be someone not related to any party, over 18, and not living at the same address as the signee.
Read more about the Conveyancing Process for Buying a House
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How Much Does a Deed of Covenant Cost?
The average cost of a Deed of Covenant is £280. It is usually paid for by the current owner of the property and the funds are sent to the landlord or management company. They will then pay for the Deed of Covenant to be drafted. Paying the fee as soon as possible and receiving the signed Deed of Covenant will prevent delays and financial penalties.
The Deed of Covenant is viewed as a conveyancing disbursement and may appear as such on your bill. Therefore, it’s best to ask for a specific breakdown if you are unsure. This is especially important if you are making multiple payments at once.
Finding a Conveyancer
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