Homeowners challenging Restrictive Covenants

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restrictive covenant (montreal)

Restrictive Covenants: How they impact Homeowners and how to challenge them

WHAT IS A RESTRICTIVE COVENANT?

A restrictive covenant appears on your property deed or may be highlighted in your sale and purchase contract as binding and enforceable conditions listing impermissible activities in relation to your property. This could significantly impact your rights as an owner and is therefore a very important factor to watch out for in a purchase transaction. For instance, the deed may include a restrictive covenant preventing you from carrying out commercial or business-related activities on the premises of the property, or prevent you making alterations to your property such as converting a house into a flat, building an extension or installing certain types of security lights. You may also be prevented from building certain structures because that may limit the use of the land.

It is important to note that restrictive covenants apply to the land in question and are not linked to a particular purchaser. Therefore, change in ownership does not relieve the new owner of the restrictions.

Moreover, a restrictive covenant does not have any time limits on enforceability. You can only perform activities excluded by the restrictive covenants if you have successfully challenged and eliminated the covenants using the options discussed below. However, restrictive covenants in relation to properties whose owners cannot be traced can be challenged. Likewise, if the property is very old making the terms of the covenant unapplicable.

THE PURPOSE OF RESTRICTIVE COVENANTS

Restrictive covenants help landowners maintain a degree of control over the property. While this may negatively impact the rights of a purchaser, it may assist in maintaining an overall appeal of a neighborhood or the surroundings. For instance, you may be required to ensure your garden is in good health, or that any structure built on your property is not obstructing the use or enjoyment of the neighborhood.

Additionally, restrictive covenants may be used to combat any potential nuisance that may be caused in the neighborhood by restricting certain types of business activities, or the erection of satellite dishes, and that may arise regarding other issues such as parking, gardens etc. This can help maintain the value and appeal of the neighborhood. For period properties, restrictive covenants can also assist in maintaining the structural appearance and integrity of the property by preventing alterations.

A BREACH OF RESTRICTIVE COVENANTS

A breach of a restrictive covenant can prove to be a costly and arduous affair. The party in breach may have to undo any changes made and/or face legal action or have to pay hefty fines, thus making it crucial for a potential purchaser to recognise such covenants and their effects in the early stages of the transaction.

However, if your breach of a restrictive covenant has gone unchallenged for a period of at least 12 months, you may be eligible for Restrictive Covenant Indemnity Insurance.  Such insurance helps ensure that the changes made are protected.

HOW DOES IT IMPACT YOUR RIGHTS WHILE SELLING/BUYING?

Apart from placing limitations on the use and enjoyment of the property by the owners, the nature of the restrictive covenants in place may also play a role in impacting the overall value of the property. For instance, mortgage lenders may assess the ‘saleability’ of a land depending on the number of restrictive covenants and the extent of the limitations. Therefore, conditions that prevents you from making certain alterations or building an extension will be factored in by mortgage lenders.

HOW TO CHALLENGE RESTRICTIVE COVENANTS?

A restrictive covenant may be challenged using the following mechanisms-

  1. If you believe that the restrictive covenant is no longer serving any useful purpose, or is very old and therefore inapplicable, you may challenge it through the Lands Chamber of the Upper Tribunal.
  2. You may also attempt to negotiate the release of the covenants with the beneficiaries of the covenant.
  3. In some scenarios, a beneficiary of the covenant may require compensatory  payment to release or amend the covenant. You may then opt to make the payment to discharge or release the covenant.
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