Taking out a Restrictive Covenant.

Restrictive Covenants - in Property and Employment Contracts

A restrictive covenant is a legal promise that restricts what a person can do. Restrictive covenants are commonly found in property documents and employment contracts, but they can also appear in business sale agreements, partnership agreements and other commercial arrangements.

The effect of a restrictive covenant depends on its wording, purpose and legal context. A covenant affecting land will be treated differently from a covenant restricting an employee after they leave a job.

Property Restrictive Covenants

In property law, a restrictive covenant usually limits how land or buildings can be used. It may prevent certain types of development, restrict business use, prohibit alterations, limit noise, prevent subdivision, or control what can be built on the land.

Restrictive covenants are often imposed when land is sold. For example, a seller may sell part of an estate but impose restrictions to protect neighbouring land that they still own. The covenant may then continue to affect later owners of the property.

Examples of Property Covenants

Examples may include restrictions that prevent commercial use, prohibit additional buildings, limit the number of dwellings, prevent nuisance, restrict external alterations, or require land to be used only as a private residence.

Some covenants are clear and still relevant. Others may be very old, badly drafted or difficult to interpret. Even old covenants can still cause problems if they remain enforceable and someone benefits from them.

Planning Permission and Restrictive Covenants

Planning permission does not automatically override a restrictive covenant. A property owner may have planning permission for an extension or development but still breach a private covenant if the title documents restrict the works.

This is an important distinction. The local planning authority grants planning permission. A restrictive covenant is a private legal right that may be enforced by a person or landowner who benefits from it.

Checking for Covenants Before Buying

Before buying property, the buyer's solicitor should check the title documents to identify any restrictive covenants, easements, rights of way, wayleaves or other title restrictions.

Buyers should ask questions before the exchange of contracts if they plan to extend, develop, run a business from home, let the property, keep animals, alter the building or use the land in a way that may be restricted.

Removing or Changing a Property Covenant

A restrictive covenant may sometimes be released by agreement with the person or landowner who benefits from it. This may involve negotiation and, in some cases, payment.

Where agreement is not possible, it may be possible to apply to the Upper Tribunal to have the covenant discharged or modified. The tribunal will consider the statutory grounds and the facts of the case, including whether the covenant is obsolete, whether it prevents reasonable use of the land, whether those benefiting from it have agreed, or whether discharge or modification would cause injury.

Indemnity Insurance

In some property transactions, restrictive covenant indemnity insurance may be considered. This can sometimes protect against enforcement risk, but it does not remove the covenant and may not be suitable where the issue has already been raised with the person who benefits from the covenant.

Legal advice should be taken before contacting neighbours, former owners or potential beneficiaries of a covenant, as doing so can affect whether insurance remains available.

Easements and Wayleaves

Restrictive covenants are different from easements and wayleaves. An easement gives someone a right over land, such as a right of way, a drainage right, or a right to use services. A wayleave usually allows utility equipment, cables, pipes or other apparatus to pass over or under land.

These rights can affect how land is used, developed or sold. They should be checked carefully during conveyancing.

Employment Restrictive Covenants

In employment law, restrictive covenants are usually included in employment contracts to limit what an employee can do after leaving a job. They are intended to protect the employer's legitimate business interests.

Common examples include restrictions on using confidential information, approaching clients, dealing with former customers, poaching staff or working for a competitor for a limited period.

Types of Employment Covenants

A non-solicitation clause may prevent a former employee from approaching clients, customers or staff. A non-dealing clause may prevent them from doing business with certain clients, even if those clients approach them first. A confidentiality clause protects sensitive business information. A non-compete clause may restrict work for a competing business for a limited period.

Non-compete clauses are usually the most difficult to enforce because they can restrict a person's ability to earn a living.

Are Employment Covenants Enforceable?

Employment restrictive covenants are not automatically enforceable. A court will usually consider whether the employer has a legitimate business interest to protect and whether the restriction goes no further than reasonably necessary.

Relevant factors may include the employee's role, seniority, access to confidential information, client relationships, geographic scope, length of restriction, and whether a narrower clause would have adequately protected the employer.

Reasonableness and Drafting

Restrictive covenants should be clear, specific and time-limited. Wide or vague restrictions are more likely to be challenged. For example, a clause preventing an employee from working anywhere in the UK for any competitor may be harder to justify than a shorter, more targeted restriction linked to specific clients or confidential information.

Employers should review covenants regularly, especially where an employee is promoted or changes role. A covenant that was reasonable for a senior sales director may not be reasonable for a junior employee, and a covenant signed years earlier may no longer fit the current job.

What Can an Employer Do if a Covenant Is Breached?

If an employer believes a former employee has breached a restrictive covenant, it may seek an injunction, damages or other remedies. In urgent cases, an injunction may be used to stop the conduct before a full trial.

The employer may need to act quickly and provide evidence of the covenant, the legitimate interest being protected, the breach and the harm or risk of harm caused. Delay can weaken an application for urgent relief.

What Should Employees Do Before Moving Jobs?

An employee who is leaving a job should check their contract carefully before joining a competitor, contacting clients, using business information or setting up a competing business.

Employees should avoid taking confidential documents, customer lists, pricing information, business plans or other employer property. Even where a restrictive covenant is disputed, confidentiality obligations may still apply.

Business Sale Covenants

Restrictive covenants are also common when a business is sold. A buyer may require the seller not to set up in competition, approach customers or poach staff for a period after completion.

These covenants may be more enforceable than ordinary employment covenants where they are part of a negotiated business sale. However, they still need careful drafting and must be reasonable in scope.

When Legal Advice May Be Needed

Legal advice may be needed before buying property affected by a covenant, building on restricted land, applying to modify a covenant, considering indemnity insurance, or dealing with a covenant dispute.

Advice may also be needed before including restrictive covenants in an employment contract, enforcing them, leaving a job, joining a competitor, setting up a business or responding to a threatened injunction.

Current Position

Restrictive covenants can be powerful legal restrictions, but their effect depends on the wording, context and enforceability. In property matters, planning permission does not automatically remove a covenant. In employment matters, a covenant must usually be reasonable and protect a legitimate business interest.

Anyone affected by a restrictive covenant should take advice before breaching it, relying on it, trying to enforce it or assuming that it is invalid.

Disclaimer

Solicitors.com is not a firm of solicitors and does not provide legal advice. The information on this page is for general guidance only and should not be relied upon as a substitute for advice from a regulated solicitor. Property law, employment law and restrictive covenant rules can change, and how the law applies will depend on the facts of each case.

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