The Deed of Covenant meaning is a legal document which states a leaseholder agrees to a set of obligations laid out by a freeholder.
Leaseholders have to sign a Deed of Covenant when they agree to lease a property from a freeholder or buy a leasehold property.
Why do freeholders use a Deed of Covenant?
Freeholders have leaseholders sign deeds of covenant to legally ensure they adhere to a set of promises, known as covenants.
This enables freeholders to maintain a level of control over their property and cover maintenance costs via their leaseholders.
If a leaseholder breaches the terms of the Deed of Covenant, the landlord can take them to court for damages or, depending on the particular terms of the covenant, even have them evicted.
A Freeholder will have a leaseholder sign this either when they agree to lease the property from them, or when they buy a property from the previous leaseholder.
All the terms leaseholders must adhere to are contained in the Deed of Covenant.
These terms, or covenants, are divided into positive and negative covenants.
What is a Positive Covenant?
A positive covenant indicates a leaseholder is obliged to do something.
These covenants are often intended to improve the living conditions of everyone in the development and include requirements to:
- Pay a specified amount to fund maintenance
- Agree to fund occasional larger works, often subject to a committee decision
- Pay service charges on time
- Keep communal areas tidy and in good condition
- And conduct maintenance on certain parts of the property, for example painting
What is a Negative Covenant?
A negative covenant prohibits a leaseholder from conducting a certain act on the property.
This is often used to ensure a leaseholder cannot do things the freeholder does not want them to.
- Common negative covenants include:
- Banning subletting and/or renting the property as holiday or service accommodation
- Banning or limiting pets
- Limiting the amount of noise that can be made, either at certain times of day or generally
- Banning the running of specific types of, or all businesses
- Access restrictions, limiting where you can travel near the leasehold property, for example a farmer specifying which track you should use to access a farmhouse.
What does it mean to sign a Deed of Covenant?
When you sign a Deed of Covenant, you agree to the terms contained within it.
It is a legal contract issued by the freeholder, and the leaseholder is obliged to follow its terms.
If you breach these terms it could lead to the freeholder claiming damages, or even getting the court to issue an injunction, forcing you to stop.
Some deeds of covenant even specify forfeiture as a consequence of breaching some of the conditions, meaning you could lose your property.
As different covenants may apply to every leasehold property you should always have this document examined by an experienced conveyancer.
Do I have to sign a Deed of Covenant?
No…. if you are not willing to buy the property.
This is because most leases state a signed Deed of Covenant from the buyer is a compulsory requirement for the seller to be able to sell.
Typically, a wet signature will be required. This may also need to be independently witnessed by a nonrelated adult over age 18.
You should not sign this until coveyancing has been completed.
In the case of new leases, a freeholder is again under no obligation to lease you the property and will almost always make the lease dependent upon the Deed of Covenant being signed.
If you think a Deed of Covenant is too rigid or complicated, you should attempt to negotiate with the freeholder. They may be willing to compromise.
What is contained in a Deed of Covenant?
A Deed of Covenant typically comes attached to the lease, and a copy will always be included in the leasehold information pack.
This will usually contain the following specific points:
- Details of the freehold and leasehold, including the address, postcode and both Land Registry title numbers
- Background information summarising the contents of the deed
- The full names and addresses of both parties to the agreement, the covenantor and the covenantee
- Definitions and references for complicated terms in the deed, particularly regarding ambiguous terms
- Details on the full terms of the covenant, specifically drafted by a conveyancer to state the requirements of the deed
- An execution clause and a signature area, which ensures the terms contained are legally binding.
What is the ‘direct Deed of Covenant’ meaning?
If a freeholder gives a leaseholder permission to let their property this is referred to as a sublet.
Often, when a freeholder allows subletting, this will state that a separate deed of covenant is required between them and any subletters.
This is known as a direct Deed of Covenant. It only impinges on the person who signed it, and it does not impose any conditions on the other leaseholders.
Who pays for a Deed of Covenant?
When initially leasing a property, a freeholder will pay their conveyancer to draw up the deed. This can cost £150-£250.
Normally, freeholders charge a fee to a person buying a leasehold property for issuing this.
Usually this is included in the charge the freeholder makes for forwarding the leasehold management pack to the buyer’s conveyancer. Freeholders normally charge around £300 for this pack.
In addition, your conveyancer will charge for looking over and summarising this document for you. An older, more complicated document is likely to be more expensive.
Conclusions
A Deed of Covenant is an important tool for freeholders to us to control their properties.
They can limit what a leaseholder can do with a property, or enforce requirements, such as paying for maintenance.
While signing a Deed of Covenant is entirely optional, you will not normally succeed at buying a leasehold property unless you do so.
This is because most leases include signing this as a compulsory step in the transfer process.
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