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Taking out a Restrictive Covenant.
If you happen across a restrictive covenant in a contract, what is it and why is it in place?
Restrictive covenants are normally used in two areas of law but can be found in others, namely employment law and property purchase be it business or residential.
The purpose of the covenant is to limit activity, this can be to stop a business from conducting activities or protecting your interest as a seller for any future development, for example if you owned a commercial property and lived next door, you may wish to restrict the use so it does not affect you by perhaps a noise restriction.
Employment restrictive covenants will be included within the contract of employment, and will normally focus on what an employee can't do if they were to leave employment.
They are designed to protect the interest of the company, for example they can -
- Restrict the use of information.
- A non solicitation agreement - so clients cannot be poached.
- Restriction of trade, for example the employee cannot work within a certain geographic area.
Having restrictive covenants in a contract may deter a competitor from approaching or employing a member of staff, or distract an employee from looking to join a competitor.
The problem with covenants is they can be unworkable and conflict with public policy as it constitutes a restraint of trade, saying that, if the ex-employer can convince a court that the covenants do protect the companies interest and are reasonable, then it could be enforceable and we recommend that covenants should, in all cases, be drafted by an expert.
When covenants are being drawn up consideration must be given to the detail, for example, if the covenant restricts the employee for working in a certain geographic location, is the location specified?, as leaving this out or being to general by saying the, 'whole of the UK' will unlikely stand up in court.
Details are very important and omissions and generalisations could leave the covenant useless, it's also advisable to review covenants over time to ensure they are still effective.
So what happens if an employer feels the covenant has been breached?
In this case the employer can seek an injunction, and a court case will follow to assess the evidence, an employer will need to prove a loss which will normal be financial, when seeking an award for loss the employer may wish to sue the new employer rather than the employee if once again it can be proven that it was the new employers fault the breach occurred.
If you are in this situation as an employee or employer you should seek legal help.
Restrictive covenants on land and property.
It's very important when buying land or property that your solicitors check to see if restrictive covenants apply before you commit to the purchase.
Any covenant will be attached to the title which is available via the land registry; no matter how old they are they can only be removed by agreement which can be quite a process.
It's important that you realise that covenants are king, even if you have planning permission the covenant would overrule it, if the covenant said the land cannot be developed and the planners said you can, the covenant would prevail.
In addition to covenants you may come access Easements or Wayleave, Easements grant someone a right over land, normally access rights, and in the case of Wayleave it gives the right to run services under the land.
Each case is different and their are exceptions to the rules so always consult a solicitors.
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