Restrictive Covenants: What Are They?

A restrictive covenant is a part of a contract that prevents you doing something. Although they are often included in business deal contracts, as an individual you are most likely to encounter them in employment and property contracts.

Restrictive covenants are legally binding. That means you could face legal action if you agree to one and then go against it.

This makes it essential that you read all contracts you enter into carefully so you know exactly what you’re allowed to do – and what could get you in trouble.

Restrictive covenants in employment

Employment contracts can feature restrictive covenants to protect the employer’s interests. This happens when a company wants to protect the information and knowledge it has. There are different ways it may go about it, but these covenants all impose restrictions on what an employee can do.

Restrictive covenants are typically used to reduce competition – typically after a person’s employment has ended.

For example, an employment contract might set out that an employee can’t work for a direct competitor after leaving that company. This is because the employee will have skills and knowledge they could use to give the competitor an advantage over their current employer.

It’s also common to see restrictive covenants preventing former employees from poaching staff members and current clients of the company.

Enforcing employment-related restrictive covenants

You do have some protection when it comes to restrictive covenants, even though you’ve agreed to them. For example, if your employer tries to stop you making a living in your chosen area, a court is unlikely to enforce the restrictive covenant.

It’s also unlikely that a court will uphold a restrictive covenant if it has a time limit that runs too long. This will usually be judged on an individual basis but if a restriction runs longer than 12 months, it’s less likely that it will be enforced.

The covenant can’t be too restrictive or there is very little chance it will be upheld. So it’s unlikely that you’ll be treated unfairly. But it still makes sense to look over any contract carefully before agreeing to its terms.

Restrictive covenants in property

Property is the other main area where you might have to deal with restrictive covenants. These prevent you doing certain things to a property you own.

Even though you may own a property, it’s not always possible to do what you want to it. So if you have definite plans for a property, checking for restrictive covenants should be one of the first things on your list.

The most common property restrictive covenants are:

• Not being allowed to extend the property
• Not being allowed to turn a property into multiple properties, like flats
• Not being allowed to run a business on a piece of land – this could include a home business or even a home office
• Not being allowed to build on a piece of land

But there are all kinds of restrictive covenants you could encounter when buying a property. If you’re buying a newbuild, your home’s developer may want to stop you keeping certain animals on your land, for example, or adding certain features to the property.

Restrictive covenants can complicate a property sale, so the right conveyancing team will be essential in driving your transaction forward. Get a quick quote for your conveyancing needs here.

Breaching property restrictive covenants

Restrictive covenants can also be found on older properties. This is generally done to protect the building. There is more of a chance that these won’t be enforced by a court if they are very old – but never assume that this will be the case.

If you breach a restrictive covenant, the consequences you’ll face will usually depend on the covenant you’ve breached. For example, if you built an extension you weren’t allowed to build, you may have to pull it down. You could also face paying a fine or even legal prosecution.

Your solicitor should always make you aware of any restrictive covenants that apply to a property you’re buying before you conclude the purchase. If you’re concerned about the risk of them cropping up after you’ve bought the property, ask your solicitor to check for them early on in the process.

It’s possible to challenge a restrictive covenant on a property. If you can show that it is no longer relevant, you can take it up with the Upper Tribunal (Lands Chamber).

If you’re dealing with restrictive covenants, whether they’re in your employment contract or on a property you’re buying, First4Lawyers may be able to help.