Restrictive covenant on property

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Ab647
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Restrictive covenant on property

Post by Ab647 »

I am in the process of purchasing a property with a view to using it as a holiday let. It is a new bungalow and there is a covenant stating that no trade, business or profession can be carried out and that it must be used as a private dwelling. I have researched the law regarding what is a business etc and what counts as using a property as a private dwelling. There is case law from the court of appeal stating that using a property as a holiday let is a business use and does not count as a private dwelling.
I would be interested to hear how anyone uses any property as a holiday let without breaching covenants as I would imagine that all private dwellings would have such covenants in place.
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greenbarn
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Post by greenbarn »

Hello and welcome to LMH.

First, a holiday let is indeed business use and not a private dwelling.

Second point - others mat have some specific knowledge, but AFAIK it's unusual but not unheard of for such restrictive covenants to be placed on private dwellings, so you won't find many cases of people breaching them. As it's a new build it should be possible to establish the reason behind the covenant and whether it is intended to apply to use as a FHL, but I think there's a big orange flag against going ahead with the purchase without getting the restriction eased.
Orsonthecat
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Post by Orsonthecat »

Welcome to LMH.
Do you know what year the restrictive covenant was placed? And for whose benefit?
So much to learn....so little time!
zebedee
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Post by zebedee »

+1 to Greenbarns comment

I know you don't want to hear this, but you have done the research, there is already case law about such matters. Do you really want to have the thought of adding to that case law hanging over you for as long as you have the property? Trust me, there is enough to worry about once you start taking guests without adding to the list needlessly.
Ab647
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Post by Ab647 »

Hi everyone,

Thank you for your thoughts on this issue. The property is a new build so the covenant has been placed on it from scratch. I'm guessing that as the property is one of four in the close it was placed to prevent possible disruption to neighbours. It could also have been placed by the local authority a as a condition for granting planning permission to prevent loss of housing stock for permanent residents. Therefore, I think the chances of getting it removed are remote.
I would think if anyone checked covenants for their own home there would be a covenant regarding restricting the use of the property for a business purpose, so I think that restriction is common if not universal for residential properties. I was just wondering if this type of covenant gets ignored until someone complains.
If I abort the purchase and look for another property that's the first thing I would look into; and I would expect such a covenant would apply to any other property I look at.
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greenbarn
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Post by greenbarn »

Ab647 wrote:
I would think if anyone checked covenants for their own home there would be a covenant regarding restricting the use of the property for a business purpose, so I think that restriction is common if not universal for residential properties.


Do you have any evidence for this form of restrictive covenant being common? It's something that would turn up on pre-purchase searches but I've not come across it, so it would be useful to know.
Hells Bells
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Post by Hells Bells »

It certainly doesn't exist on either my home in the UK, or on my French rental property.
Essar
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Post by Essar »

It is very common for flats to have this type of restrictive covenant applied to a lease. Here in Bournemouth nearly all blcoks do not allow any sort of business use including holiday lets.

We have a house in a 9 house residential development built in 2015. The houses have a shared car park, entrance and bits of greenery that we own jointly through a management company. All houses are freehold. In spite of this the developer had added a restrictive covenant banning business use. Through our solicitors we were able to persuade him to add "except for holiday lets" to the restrictive covenant. We are fortunate that all our neighbours are extremely friendly; all private gardens surround the car park and because of the management company we all get on very well. They are all interested in our guests (particularly the non-brits) and we often find our guests having drinky poohs with our neighbours. In return we are very selective of who we rent to; being expensive helps keep away the chavs.
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AndrewH
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Post by AndrewH »

I would raise the alert status from greenbarn's orange flag to red.

This is because I am guessing that this is a new build and one among a number of other bungalows built by a developer on a single large original plot of land. These neighbouring properties will likely have the same business restriction on their properties as on the one you have in mind to buy, but the important point is that they also have the benefit of this restrictive covenant and are likely to cause you trouble legally speaking if you run a business there. Holiday rentals is as much a business as any other. Neighbours have a tendency to do this either for genuine reasons or simply out of spite.

I am talking about freeholds here. Long leaseholds have a different set of rules, which are similar but not the same. I think that covenants restricting business use are not the norm for residential freeholds in the UK, but they will be found in particular with houses, bungalows etc. which form part of an estate.
Ab647
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Post by Ab647 »

Thank you for the information. I'll see if I can get the exception for holiday lets. If not I'll abort the purchase.
zebedee
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Post by zebedee »

Local authorities were set targets for the number of new homes to be built in their areas a couple of years ago.

I have been told ( but this is entirely hearsay) there are additional bonus payments if the targets are exceeded. As this is a public forum, I have decided not to say who I was told the payments go to! Anyway, it could all be rumour............🤔

Your new build bungalow may well be in the numbers needed by the LA to meet their target and this could be the reason for the restrictive covenant. In which case, you have little chance of success.
If you live in the area where the bungalow is, think about what has been in the local press for the last couple of years with regard to affordable housing and any controversial planning re change of use of land for housing. This won't cost you a penny, but will help to see if it is worth taking things further.

I'm sorry you are looking like you will be disappointed, but much better to find out before contracts are signed.

Edited to add:
Take a look at appendix 8 of this document and follow through to some of the links in that section https://www.gov.uk/government/publicati ... e-building

It seems LAs get additional bonus payments on top of the council tax for 6 years for every new build home they provide, or existing building brought back into the housing market.
This is what you will be up against, as your bungalow would move into the business rate sector and the council tax and bonus payments would be lost to the LA.
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Post by AndrewH »

zebedee wrote:It seems LAs get additional bonus payments on top of the council tax for 6 years for every new build home they provide, or existing building brought back into the housing market.
This is what you will be up against, as your bungalow would move into the business rate sector and the council tax and bonus payments would be lost to the LA.
That's interesting. While Local Authorities cannot off their own bat impose restrictive covenants, they are still able (so I would think) to put that requirement into a planning consent, to which the developer must conform when he sells on the plots with the bungalows he has built on them.
Ab647
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Post by Ab647 »

I understand that the amount payable in business rates on a holiday let is less than the amount payable in council tax. To be eligible for business rates the property must be available for let for 140 days or more per year. I assume that if it is available for let for fewer than 140 days then council tax would apply. In this case the local authority wouldn't lose the 6 year bonus payments. Does anyone know if it would still count as a business for the purposes of the restrictive covenant if the number of days available for let was fewer than the business rate threshold ie 140 days?
ianh100
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Post by ianh100 »

I don't think the number of days would come into it if you are letting it as a business. A lot of these rules from different departments do not line up with each other. For example in many places you must still pay for commercial wast collection even if letting for less days and staying on council tax.

I would also be careful with the comment that business rates are less, after the recent valuations my costs will be more on business rates. However If you have just one property you may get 100% rebate under SBRR.
zebedee
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Post by zebedee »

Hello again.
it appears you are some way down the purchase, so have incurred costs?? Have you signed contracts? I ask this because the situation appears different to a third party who is not involved in this case looking at it from an objective position rather than a financial loss already incurred, point of view.

I will try and say this as kindly but as succinctly as possible.,

There are 4 properties in the new build, so 3 other purchasers will now be sat with their solicitors all being told at the same time as you that no business can be run from the properties.

It only takes 1 disgruntled / jealous neighbour, or 1 set of disruptive guests (which you can get even if you let below 140 days) to cause a complaint to the local authority and your cover is blown.

(If the other properties are also bungalows, they are more likely to be purchased by the grey economy who look for peace and quiet!)

You have acknowledged something of this point earlier, but still want to continue (which is why I wonder if you are already committed and looking to make the best out of a mistake)?

You have asked (on a public forum) for advice on how anyone gets around a covenant, despite (you said) their being case law on such matters. Now you ask for help in getting around the business rate situation.
If you proceed, the local authority will have claimed money for the additional council tax plus £350 per year for your property fraudulently from the government.

This will not go down well.

It would likely cause the LA to have other new home claims scrutinised etc etc. This would generate a lot of work for the LA and the corresponding lack of sympathy for you.

How else could you be found out? Well, you will need to advertise. You will be amazed at who looks at adverts for holiday lets, including the LA.
The Valuation Agency who deal with business rates look at website and agency adverts to confirm the information submitted to them is accurate. They could easily stumble upon you even if you try and cover your tracks by not having a website and just list with an agency.

Other members of this forum may have different views to mine, but to me, you appear to be walking into this situation with your eyes wide open about what rules you are trying to get around.
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