Deed of Covenant Definition
A deed of covenant is a legal document that a new buyer of a leasehold property must sign, binding them to all the obligations and restrictions contained in the lease. It effectively makes the new leaseholder a direct party to the covenants, even though they were not the original signatory to the lease.
Without a deed of covenant, the freeholder or management company may have difficulty enforcing the lease terms against a new owner - particularly positive covenants such as paying service charges and maintaining the property.
When is a Deed of Covenant Required?
A deed of covenant is typically required whenever a leasehold property is sold or transferred. The lease itself, or the rules of the residents' management company, will usually specify that the incoming owner must enter into a deed of covenant. Common situations include:
- Buying a leasehold flat: The most common scenario - the buyer signs the deed before or on completion
- Transfer of ownership: Gifting, inheriting, or transferring a leasehold property to another person
- Remortgaging: Some leases require a deed of covenant when the mortgage lender changes, though this is less common
- Shared ownership staircasing: When a shared ownership leaseholder purchases additional shares
Relationship to the Lease
The lease is the primary document governing the rights and obligations of the leaseholder. The deed of covenant does not create new obligations - it binds the new owner to the existing obligations in the lease. These typically include:
- Service charges: Contributing to the cost of maintaining communal areas, buildings insurance, and shared services
- Ground rent: Paying the annual ground rent to the freeholder (though this is now £0 for most new leases under the Leasehold Reform Act 2022)
- Repairs and maintenance: Keeping the interior of the property in good condition
- Restrictions on alterations: Not making structural changes without the freeholder's consent
- Use restrictions: Using the property only for the purposes permitted by the lease (e.g. residential use only)
- Nuisance and noise: Not causing nuisance or annoyance to neighbours
Who Prepares the Deed of Covenant?
The deed of covenant is usually prepared by the freeholder's or management company's solicitor. The buyer's solicitor reviews the deed to ensure it does not contain any unusual or onerous terms beyond what is in the lease. The buyer then signs the deed, and it is returned to the freeholder or management company.
Costs
The cost of a deed of covenant typically ranges from £100 to £400, though some freeholders charge more. The fee covers the legal cost of preparing the document and registering the new leaseholder. Key points:
- Who pays: The buyer usually pays the cost of the deed of covenant
- When it is paid: The fee is typically settled on or before completion, handled by the buyer's solicitor
- What to watch for: Some freeholders charge excessive fees for deeds of covenant - your solicitor should flag any unreasonable charges
Enforceability
A deed of covenant is a formal legal document executed as a deed (not just a simple contract). This means it is enforceable even without consideration (payment) passing between the parties. If a leaseholder breaches the covenants - for example, by failing to pay service charges or making unauthorised alterations - the freeholder or management company can take legal action to enforce compliance.
In the absence of a deed of covenant, the freeholder may still be able to enforce some lease terms through the doctrine of privity of estate, but a deed of covenant provides much clearer and stronger enforceability, particularly for positive covenants.