A restrictive covenant is a legally binding agreement between a Vendor and Purchaser of land where the Purchaser agrees with the Vendor that he will not do certain acts in respect of the land, for example, a covenant not to carry on a particular trade or business on the land or a covenant not to subdivide the land. Restrictive covenants which are usually found on a registered Title operate for the benefit of the Vendor as well as persons who live in close proximity to the land and are enforceable against successors in Title. Lands which are subject to restrictive covenants may significantly impede Developers as well as Purchasers who will be securing financing from a mortgage institution. Below are some important points to consider when purchasing lands that are subject to restrictive covenants.
When purchasing real estate, it is crucial for potential purchasers to inspect the face of the Title in order to determine (i) whether there are any restrictive covenants endorsed on the Title and (ii) whether there are any breaches of same. Where the Purchaser will be securing financing from a mortgage institution, they will require the Purchaser to engage the services of a Commissioned Land Surveyor for the preparation of a Surveyor’s Identification Report (ID Report). The purpose of the ID Report is to indicate the boundaries of the land being purchased and whether the land is in compliance with any restrictive covenants endorsed on the Title. If found to be in breach, the mortgage institution will demand that the breach be rectified immediately or they will accept an undertaking from the Vendor’s Attorney-at-Law to make an application to the court in order to rectify same. Failure to do so will result in the mortgage institution withholding the mortgage proceeds.
Unless otherwise provided for in the agreement for sale of land, it is usually the obligation of the Vendor to transfer good Title to the Purchaser. The Vendor is therefore equipped with the responsibility and must agree with the Purchaser to modify or discharge the restrictive covenant in the event of a breach. If the Vendor has not agreed with the Purchaser expressly that he will take full responsibility for modifying or discharging the restrictive covenant then this may be the Purchaser’s responsibility. Likewise where a Developer is desirous of subdividing the land but is hindered from doing so as a result of a restrictive covenant endorsed on the Title, it will be his responsibility to discharge same.