Property conveyancing in the UK is an intricate matter, filled with numerous legal complexities and challenges. One of these complexities include the Deed of Covenants. A deed of covenant is one of the most critical, yet misunderstood, elements in the conveyancing process.
What is a Deed of Covenant?
A Deed of Covenant is quite simply a form of legal agreement between two parties. it can take various forms, but in conveyancing, it is usually used to lay out legal responsibilities and obligations between a property freeholder and their leaseholder. The deed is essentially the document that lays out the covenants (or promises) that should be adhered to when a new leasehold property owner takes control.
Why have a Deed of Covenant?
Having a Deed of Covenant in place means that one can essentially protect the freeholder and management company as leaseholders are legally bound by the clauses. Under The Landlord and Tenant (Covenants) Act 1995, tenants can sue based on the landlord’s covenants If the landlord does not abide by the rules in the covenant.
If a Deed of Covenant is signed, the landlord can use it as a way to collect the charges stated in the covenant. The charges can include ground rent and maintenance fees for communal areas.
Types of Deed of Covenants
Covenants are broadly divided into 2 types, positive and negative:
Positive Covenants: Positive Covenants refer to situations where leaseholders are required to carry out obligations. These are often aimed at creating a pleasant living environment for all. Positive covenants could include things like:
- Agreeing to certain funds being spent on maintenance;
- Paying service charges promptly;
- Agreeing that the external parts of the property are maintained;
- Agreeing to larger works
- Keeping communal areas in good condition
Negative Covenants: Negative covenants refer to certain acts that leaseholders are effectively barred from carrying out. This could include things like:
- Owning pets
- Subletting
- Running a commercial business
- Making excessive noise after certain hours of the day
What does signing a Deed of Covenant mean?
When a deed of covenant is signed, both the positive and negative covenants are passed from seller to the new buyer and leaseholder. By signing a deed of covenant, breaching any terms could result in a claim in damages and quite possibly a court injunction. Some deeds of covenant even specify forfeiture as a consequence of breaching some 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.
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Do I have to sign a Deed of Covenant?
Most leases state that a signed deed of covenant is compulsory upon any transfer, assignment, or underletting of a leasehold property. A wet signature (referring to signing a physical paper document with a pen) will typically be required.
Not signing the deed effectively means a breach of contract. In this case, the freeholder will often refuse to accept ant service charges or ground rents. The consequence is that these payments accumulate and further financial penalties and interest charges could be charged down the line.
However, if you are not willing to buy the property, then you should not sign a deed of covenant yet. 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. 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.
Importance of a Deed of Covenant in the Conveyancing Process
Conveyancing, the legal transfer of property ownership, is a long process involving various legal documents and procedures. A deed of covenant plays a significant role here, often forming a part of the legal paperwork that dictates the terms of property use and ownership.
Understanding and managing deeds of covenants is crucial for several reasons:
- Legal Compliance– Ensures that all parties are aware of and comply with the property’s legal obligations
- Property Value– Can impact the value of the property, either positively or negatively, depending on the covenant’s nature
- Future Sales– Affects future conveyancing processes, as these covenants often pass on to subsequent property owners.
There are also some key considerations in the deed of covenant for conveyancing that one should be aware of. This includes:
- Identification: Accurately identifying all covenants attached to the property
- Clarification: Providing clear explanations of each covenant’s implications
- Compliance: Ensuring legal compliance with the covenant’s terms
- Risk Assessment: Evaluating potential risks associated with the covenant
- Future Implications: Considering the covenant’s impact on future property transactions
How Starck Uberoi can help
At Starck Uberoi we are committed to providing you with efficient and clear legal advice. We understand that finding a reliable conveyancer can be a time consuming and difficult task; to make it easier for you, we provide a free, online conveyancing quote calculator to save you time on your search. Just click this link to get an instant conveyancing quote.
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Frequently Asked Questions
How long does a covenant last?
This can vary from covenant to covenant. If there is no time limit mentioned, covenants could last indefinitely, unless the requirements in the covenant have been met and discharged, or the parties have agreed to modify or release the signed deed of covenant for instance.
What does a Deed of Covenant cover?
A Deed of Covenant will cover all the relevant obligations and responsibilities of the leaseholder to the freeholder. These include the length of the lease itself, followed by a list of ‘positive covenants’ and ‘negative covenants’.
How do you arrange a Deed of Covenant?
To arrange a Deed of Covenant, first you should see if the freeholder has a standard version that they prefer to use. If not, you can arrange for a general solicitor or conveyancer to draft one. Alternatively, you can draft your own using an online template provided by a reputable site.
How much does a Deed of Covenant usually cost?
A standard Deed of Covenant typically costs around £150-£200 plus VAT to draft and execute. This price could rise if the deed is filled with complicated clauses that requires more legal work to explain and execute.
Why do you need a Deed of Covenant?
You may need to a Deed of Covenant if you are buying or renting a leasehold property. This sets out all the terms and conditions between the freeholder and you, the leaseholder
What does a Deed of Covenant look like?
Deeds of Covenant follow a fairly standard format. The document will lay out the property details, typically including the address, postcode, title number and details of the relevant parties.
The deed will also lay out all the positive and negative covenants as well as an execution clause at the end
Is a Deed of Covenant always needed for leasehold?
If you’re buying a leasehold property, you should expect to sign a Deed of Covenant as part of the purchase process. Most leases include mention of a signed deed of covenant as a compulsory step.
However, this is not always required. It often depends on whether the landlord requires you to sign one. If so, the landlord will often state this in the lease. If there is not one in the lease, then you do not need to have a Deed of Covenant. It is always best to check with your landlord whether a Deed of Covenant is required or not.
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