Legal update


application might be made would include where the development of the surrounding area since the restrictive covenant was imposed means that the covenant is now obsolete; where the covenant impedes the reasonable use of the land; and where the discharge/modification causes no harm to the neighbours who have the benefit of the covenant. However, the decision whether or not to modify or discharge the covenant lies entirely within the discretion of the Tribunal. In a recent case, a property developer made an application to discharge a covenant which prohibited land from being used as anything other than garden land. The developer did not wait for the Tribunal to make its decision, and went ahead with the building works. The works which were completed before the Tribunal reached its decision. The Tribunal found that the developer had carried out its works in deliberate breach of the restrictive covenant and refused the developer’s application. The final outcome of that particular case is awaited. The Tribunal did not have the legal power to ask the developer to pull down the house which it had built in breach of the covenant. However, because the restrictive covenant remains valid, the adjoining landowners could potentially apply to the civil courts for further remedies.


The importance of indemnity insurance In practice, solicitors acting for care home owners who wish to build on land affected by covenants facing this dilemma will look carefully at all the circumstances and may advise that title indemnity insurance is a possible solution. There are some very important points to note about indemnity insurance. First, it is absolutely essential that, under no circumstances should the adjoining landowner be approached. No communication whether verbal or written with that adjoining landowner, or to any of their representatives or to any third- party must be made at any point, or this is likely to result in the insurers rejecting any application for indemnity insurance. It is usually easier to obtain a quote for


restrictive covenant indemnity insurance once the planning application process has been completed. The reason is that, when the planning application is first submitted, as mentioned above, adjoining landowners may make objections based on the existence of the restrictive covenant (which increases the risk of a claim being made on the policy,


June 2024 www.thecarehomeenvironment.com


Indemnity insurance policies are subject to strict conditions which must be observed


once issued). Once the time period for adjoining landowners to make objections based on the restrictive covenants has expired, indemnity insurers will have a better idea of the likely risk of a claim being made on the policy.


It is sometimes possible to obtain


restrictive covenant indemnity insurance before the planning application process has been completed or even started, but this is unusual. Insurers would normally be far more thorough in their due diligence, and the perceived risk would be higher, resulting in a higher insurance premium. Indemnity insurance policies – once


issued – are subject to very strict conditions which must be observed. Even a trivial breach of an insurance policy condition can render the policy capable of being avoided by the insurer. A common condition is that once the policy is in place no third-party approaches must be made. Therefore, if the insurance policy is in place and the care home owner mentions the existence of the policy or the restrictive covenant to a neighbour or to any third-party, this could invalidate the indemnity policy. Indemnity policies such as this can normally be issued so that they protect not just the original care home owner but also future buyers of the care home, and their respective lenders.


Some insurers will include an ‘escalator clause’ which means that the value of the insurance payment in the event of a claim would increase on a yearly basis. It is crucial for operators to know what limitations on development are contained in the title deeds to their property. It is very easy to forget about problematic restrictive covenants affecting a care home, especially where the care home has been owned for very many years.


Disclaimer The above article is not intended as legal advice and must not be relied upon as such.


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Tom Lumsden


Tom Lumsden is a partner at CooperBurnett LLP in Tunbridge Wells, specialising in commercial property. He has particular expertise in the sale and purchase of care homes, including acquiring land for care home developments.


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