Moving into a new property is an exciting time in your life. It’s the chance for a fresh start, in a new area and a new property. However, it can quickly become overwhelming, especially if the property that you are moving into is a leasehold property that comes with a Deed of Covenant.
In this blog post we will be looking at what a Deed of Covenant is, the different types of covenants on a property and whether or not you will need to sign Deeds of Covenant.
Looking for a quick answer? Check out our interactive menu below!
- What Is A Deed of Covenant?
- What Are Positive Deeds of Covenant?
- What Are Negative Deeds of Covenant?
- What Does Signing A Deed Of Covenant Mean?
- Deed Of Covenant Fee
- Direct Deed Of Covenant
- How Do I Know If I Need A Deed Of Covenant?
- Will I Need To Sign A Deed Of Covenant?
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What Is A Deed of Covenant?
A Deed of Covenant is a legal document which mostly affects leasehold properties. A covenant on a property will state that the leaseholder agrees to oversee an obligation or series of obligations that are laid out by the freeholder (landlord).
In essence, the Deed lays out the covenants that should be upkept by the new property owner once they take control. Having a Deed of Covenant in place is in the best interest of both the freeholder and the management company as leaseholders are legally bound by the clauses. Covenants can be broadly divided up into two different types, positive and negative. Below we will look at what these mean and what they include.
What Are Positive Deeds of Covenant?
In order to create a pleasant living environment for all residing within the development, leaseholders are often required to carry out obligations that are outlined within the Deed of Covenant. These can often include:
- Paying any service charges you receive promptly.
- Agreeing to any larger works that may take place in the development.
- Agreeing to set funds being spent on maintenance.
- Agreeing that parts of the external property are maintained.
- Making sure that communal areas are kept in a good condition.
What Are Negative Deeds of Covenant?
However, the other side of the coin to positive Deeds of Covenant is a negative covenant on a property.
Negative covenants on a property can include leaseholders being effectively banned from acts such as:
- Being able to sublet
- Running holiday or accommodation lets
- Owning a pet
- Running a commercial business
- Making noise after certain hours
There is also the possibility of restrictions on accessing certain parts of the development. These are referred to as easement restrictions.
What Does Signing A Deed Of Covenant Mean?
When you buy a leasehold property with a covenant on a property, you will sign the deed at which point all covenants, both positive and negative, are passed from the seller to the new buyer (leaseholder).
As it is essentially a contract issued by the freeholder, by failing to uphold any of the covenants then the leaseholder risks a claim in damages or a court injunction.
As every leasehold property is different from the next, it is vital that you have your solicitor examine any covenant before you sign, as each one comes with its own nuances.
An example of this would be having your solicitor check for any attached certificates of compliance and what implications they would bring.
Deed Of Covenant Fee
There are no set rules on charging a fee for issuing a Deed of Covenant so it would be down to the individual to check with the freeholder. The fee for this may form part of the administrative charge that some freeholders make when forwarding the leasehold management back onwards to the conveyancer. There isn’t one set price for this, but it does not usually exceed £300.
Chances are, there may be further fees charged by conveyancers. These will often increase directly in line with how complex the document is.
Usually, the deed is considered a disbursement, or a supplementary cost to conveyancing fees. It is worth keeping in mind that there may also be an additional Notice of transfer and Notice of Charge Fees.
Direct Deed Of Covenant
Whilst a negative covenant will usually prohibit a leaseholder from subletting, as long as they have the freeholder’s permission, subletting could take place.
However, the Deeds of Covenant may state that a separate Deed of Covenant may be required between the subtenant and the landlord.
This would not impose any obligations on other leaseholders and is referred to as a Direct Deed of Covenant.
Who Provides The Deed Of Covenant?
Should a Deed of Covenant be required, the buyers’ solicitors will be given a draft form by the sellers’ conveyancers. The purchasers’ conveyancers will then form the final deed so that the buyer can agree to the terms of the lease.
How Do I Know If I Need A Deed Of Covenant?
The majority of leases will state that the Deed is required upon any transfer, assignment, or underletting of the property.
Will I Need To Sign A Deed Of Covenant?
When it comes to transfers, assignment or underletting of a leasehold property, the majority of lease will state that a signed Deed of Covenant is a necessity.
If you are required to sign the Deeds of Covenant, then as a rule of thumb this will need to be in the form of a wet signature that is overseen by an independent witness. A wet signature is when a document is signed physically with pen or ink.
If you fail to sign the deed, then it will be viewed as a breach of contract. If this occurs, then often what will happen is the freeholder will refuse any service charges or ground rents. This is because if they do this then it could later affect their ability to enforce future covenants in the lease.
As a result of this, payments will accumulate and there could also be financial penalties and interest claims further down the line. As far as selling the property goes, the freeholder will be able to lawfully claim for this amount before allowing anything to happen.
However, it is always a good idea that you should only sign any document after you have had a consultation with either your solicitor or your conveyancing solicitor.
This covers everything you need to know about Deeds of Covenant and what they are. If you have any questions, queries, or insight into the matter, then please feel free to get in touch!
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Alexandra is a junior content producer who enjoys writing articles and finding out more about the property market. Read more about Alexandra here.
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