The insurance market has evolved its product offering to address covenants and as a result, developers are increasingly using restrictive covenant insurance as a routine part of the acquisition process to minimise future project delays and risks, with the costs built into the overall project costs.
In some cases it may be that a full copy of the original document that created the restrictive covenant may be missing, and therefore it is difficult to establish the benefiting parties. If this is the case, and a restrictive covenant is unknown, it does not necessarily mean that a third party will not attempt to take action to enforce the covenant. For example, a third party could be motivated to prevent or delay development which, for the developer, is likely to be costly to resolve. . A restriction could even go as far as binding successors in title and the benefit may even belong to defined people, or groups of people.
It is a general rule that that the freeholder owns the airspace above a property and it was the ruling of Port v Griffith [1938] which stated that the freeholder has the right to use the property as they please, regardless of detriment to the leaseholder. This has been the position of the courts since that judgement was last made; in a case in 2016 a developer planned to develop 34 properties around a derelict church in East London and was granted planning permission in 2013, only for the upper tribunal to later refused to modify the restrictive covenants under s.84 of the Law of Property Act 1925. The tribunal ruled that since the estate had remained unchanged for some time since its construction, were clearly no grounds for modifying the restriction under the grounds of it being obsolete.
Therefore obtaining a restrictive covenant insurance policy can be highly efficient and a cost effective way of dealing with the issue of title to the property being subject to restrictive covenants. It is beneficial because it can help remove future impediments, delays, and can help mitigate increased costs in dealing with completed plot sales. Given a developer building multiple dwellings on a site that is subject to restrictive covenants will not necessarily want to have to deal with each solicitor of each individual plot purchaser that is subject to a restrictive covenant, a single policy covering the entire development will often represent the most efficient and cost effective solution. The developer will also benefit as the policy operates in perpetuity - meaning it can usually benefit successive owners of the property, and their lenders.
