Buying a freehold home?
Don’t be fooled into thinking you can now do what you want with it, or that you’re free from money-grabbing managing agents.
Buried deep in the small print of your property deeds might be a list of rules you have to stick to, or clauses which create an income stream for a third party.
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This article is part of a series of articles on buying your first home: click here for more
What are covenants?
Many freehold homes aren’t actually “free from hold” – and covenants are to blame.
These are binding conditions in a property’s deeds which determine what a homeowner can or can’t do in their home.
Covenants themselves are nothing new. They’ve been around for centuries and can be either “restrictive” or “positive”.
Traditionally, restrictive covenants were used to keep estates looking uniform, and stop people altering the appearance of their home.
Historical covenants were typically used to prevent someone from, say, turning their home into a pub or brothel, brew alcohol, or keep livestock.
All this sounds fair enough.
But a new wave of restrictive covenants ban everyday activities such as hanging washing outside, installing a satellite dish, getting a dog, or parking certain types of vehicle on your own drive.
For example, Persimmon bans commercial vehicles, caravans, mobile homes, camper vans and boats from being parked on properties on many of its estates.
This effectively bans tradespeople from buying homes on the estate unless they keep their vehicles elsewhere.
Someone breaching the covenant could be sued either by their neighbours or Persimmon.
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Watch out for estate maintenance charges
Positive covenants work in a different way and mean an obligation to do something: usually pay money.
For example, a positive covenant might oblige a homeowner to contribute to the cost of maintenance of the roads and grass verges on a private estate not adopted by the council.
Hopefully, a salesperson will mention this fee during the sales process.
It might be referred to as an “estate charge”, “maintenance fee” or “rentcharge”.
If it slips their mind, the first you hear of it might be a bill from a management company once you’ve already moved into your home.
Either way, this set-up is open to abuse.
Many new build estates are not adopted by the local council with the original developer retaining ownership of communal areas (roads, play areas, grass verges etc).
In turn, the developer will hire a management company to maintain these areas.
But these companies have no obligation to keep costs down or provide evidence the services they charge for are being carried out.
As a result, homeowners often find costs spiral but they get little for their money.
Complaints are likely to be met with a brick wall: the managing agent works for the developer, not for you.
If you refuse to pay, you can expect a heavy-handed response pointing you to the covenant in your property deeds and a threat of legal action if you don’t cough up.
And if you think your estate not being maintained by the council means you’ll pay less Council Tax, think again: you’ll still be charged the full amount.
Breaking covenants for cash
Some homebuilders appear to be using covenants to extract more money from their customers, long after the sale has completed.
A common covenant is for homeowners to be obliged to seek permission from the original builder if they want to alter or extend their home.
But this permission isn’t free – you’ll be charged an undisclosed fee that can increase at the whim of the developer or whoever they later sell the land to.
‘Permission fees’ have come in for criticism from campaign group the HomeOwners’ Alliance.
“Either the developer does not want sheds or conservatories to be built on the development or it does,” says HOA chief executive Paula Higgins.
“To say homeowners can’t erect one unless they pay £300/£400 just exposes the clause for what it is – a moneymaking initiative,”.
Permission fees don’t necessarily just apply to significant changes to a property, but minor ones too, with some homeowners being charged for permission to paint their front door, install a doorbell, remortgage to another mortgage lender, or let their property to tenants.
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Check your documents for covenants
Whether you’re buying a new build home or an older property, it’s vital to know if it has any covenants before you sign on the dotted line.
If you’re buying a new build, your conveyancer should give you a “report on title”, detailing any covenants.
Covenants should also be listed in a TR1 or TP1 form, which you’ll be given to read and sign before exchanging contracts.
Ask your solicitor for these documents as early on in the sales process as possible so you know exactly what you’re buying.
If you’re buying a second-hand home, your solicitor should check the registered title and title plan held by the Land Registry.
The “charges register” will list restrictive covenants and the “property register” positive covenants.