Where employees do attempt to compete in breach of their obligations, we can advise on the prospects and potential pitfalls involved in seeking to enforce restrictive covenants or obtain springboard injunctions preventing use of confidential information. If a restrictive covenant is breached then the usual remedy is to seek an injunction to stop the breach. Copyright © Gateley, All Rights Reserved. A restrictive covenant can be defined as a private agreement between land owners where one party will restrict the use of its land in some way for the benefit of another's land. Off the shelf contractual terms with boilerplate restrictive covenants prove difficult if not impossible to enforce. A restrictive covenant is a provision in a deed imposing some form of restriction on the use of the property that is the subject of that deed. A brief summary of the requirements to achieve vacant possession if required by a conditional tenant break, and the reasons why that may not be as straightforward a…. How do restrictive covenants interact with garden leave? You can also be liable for damages. It is therefore important that you are aware of any restrictive covenants on your title and how they may affect your use of the property. For this reason, it is important that restrictive covenants are bespoke – drafted after understanding the employee’s role and how they might be able to damage the business after leaving. As part of the sales transaction they required a restrictive covenant preventing the defendants from building on their retained land without the claimants’ consent. 668114 ‘Freemans Solicitors’ is the trading name of Freemans Law LLP which is a limited liability partnership registered in England and Wales (with number OC It can be sought whether or not that employee has restrictive covenants against competition provided that there is breach of duty regarding confidential information. Property covenants are promises that come with a property, are attached to it, and bind the present owner of the property . A restrictive covenant is a promise by one person to another not to do certain things with specific land or property We regularly advise clients in relation to the validity and enforceability of restrictive covenants whether they are considering purchasing a property to live in, … Breaching a Restrictive Covenant. The defendants wanted to undertake a barn conversion in the vicinity of the claimants’ property and had twice commenced works without their consent. This applies in the case of constructive dismissal. The remedy for breach of a restrictive covenant is an injunction. The most common types of covenants are restrictive covenants. They may also be imposed when someone is transferring part of their property to another person. Before commencing injunctive proceedings, it is usual for an employer to have a Solicitor write to their former employee requesting undertakings to avoid a High Court claim for an injunction. Who can enforce (by way of an injunction) a restrictive covenant on land (I.e you may only build a maximum of one dwelling/home). The claimants applied for an injunction. (2) Although the default position is that a restrictive covenant is annexed both to the whole and each and every part of it,8section 78 of the Law of Property Act 1925 does not prevent the parties from providing that a given covenant will have some more limited geographic application. Restrictive covenants are binding conditions that are written into a property’s deeds or contract by a seller to determine what a homeowner can or cannot do with their house or land under particular circumstances. It is common for a Settlement Agreement to confirm that the restrictive covenants in the Contract of Employment will remain in force. The applicants owned a property subject to a restrictive covenant "for the benefit and protection of so much of the adjoining or adjacent land of the Corporation as is capable of being benefited thereby" which prohibited the use of the land other than as a private dwelling-house and/or “for the practice of a medical practitioner dentist solicitor or other professional person". In short, it uses names of locations where activities occur rather than … Sometimes a covenant can be worded negatively but be positive or vice versa, for example “not to allow the fence to fall into disrepair” … For example, if someone was selling off part of t… A springboard injunction is used when employees have used confidential information to gain a head start in a competing business. They commonly include non-competition, non-dealing and/or non-solicitation clauses in respect of both clients and key employees. and. Historically, it was for the wrongdoer to demonstrate that there was an exceptional reason for the Court to make such an alternative award. Often developers with land affected by restrictive covenants can have the covenant removed by seeking the permission of the landowner that has the benefit of the covenant or by applying to the Upper Tribunal to have any restriction on that land cancelled or modified . As well as or instead of claiming an injunction, the covenant owner can claim damages. Restrictive covenants can take many forms, they can give a right or forbid certain actions. Will the Court issue an injunction when a party breaches a restrictive covenant, or will it make an award for damages instead? The agreement is enforced by granting an injunction forbidding the landowner to break the agreement. The main remedies for a breach, or a threatened breach, are damages or an injunction to prevent the breach or to discontinue one. Restrictive covenants allow surrounding property owners, who have similar covenants in their deeds, to enforce the terms of the covenants in a court of law. Frequently, restrictive covenants will also control some of the activities that take place within the boundaries of the properties they apply to. The latest insight, news and updates from across our group, Straight talking audio updates from our experts. Unsurprisingly, the defendants appealed, arguing that the trial judge had applied the Shelfer test too stringently, and not fully considered the fact that the claimants could be compensated by damages. Restrictive covenants are legally binding promises made by the owner of a property, which also bind subsequent owners of that property, not to do certain things. A covenant can be either positive or negative. Where fixed fees are not possible (such as when dealing with open ended correspondence or proceedings regarding an injunction), we will provide the best estimate we can and keep you fully informed about the costs you are likely to incur. The Supreme Court considered that each case should turn on its own facts and the application of the four principles, as set out in Shelfer should not “be a fetter on the exercise of the court’s discretion”. He had used the Shelfer principles as a starting point and had gone on to consider whether there were any factors in favour of damages, including the defendants’ reprehensible behaviour. Where a party applies for an injunction to restrain a breach of restrictive covenant, the Court has the option to award damages (i.e. None of these arguments was successful. Restrictive covenants, once agreed between the parties, are placed in the title deeds to the property … Are restrictive covenants enforceable when an employee claims constructive dismissal? An injunction may even be awarded after the completion of building works on land burdened by a restrictive covenant not to build or erect any further structures (Mortimer v Bailey [2005]). This procedure is known as “committal”. It is usually possible to agree a fixed fee to draft a contract containing restrictive covenants. The main remedies for a breach, or a threatened breach, are damages or an injunction to prevent the breach or to discontinue one. The law is set out in Bean: Injunctions at pp 30-38: “Restrictive covenants between neighbours continue to be treated as prima facie enforceable by interim injunctions as the balance of convenience will normally fall in favour of preventing nuisance or interference with property rights.” 426561)© Copyright Freemans Solicitors 2021. The Court will attach weight to factors that a party can show are more important than money. If an injunction is awarded, it may even require a completed building to be demolished. In this webinar, we consider the changes we can expect on the high street, along with the challenges and opportunities these changes present to the property market. Home > Media > News > Injunctions to enforce restrictive covenants – some pitfalls Tue, 08 Sep 2020 If you are looking to enforce a restrictive covenant in a business protection case, the High Court’s recent decision in Peltrade Ltd v Scanlan [2020] 9 WLUK 34 is a timely reminder of how not to do things: If you choose to ignore a restrictive covenant, you could potentially face a claim in damages for the breach in addition to any injunctions granted. If a landowner A sells part of their land to someone else B, the deed ("conveyance" or "transfer") giving B ownership of the land may contain a covenant … In Coventry –v- Lawrence, reprehensible and unneighbourly conduct was referred to as being a factor that may sway the court towards an injunction over damages. A commercial view will need to be taken comparing the cost of action and the potential damage of inaction. The geographic scope of the restrictive covenant was limited to property owned within one mile of the leased property. Restrictive covenants on property are important legal agreements that can affect not only the parties signing them, but also the parties that purchase or inherit property with restrictive covenants. This confirms that the Court is no longer limited to considering exceptional circumstances in respect of damages and will carry out an assessment of all of the relevant circumstances of the case. Positive covenants are obligations to do something, such as keep contribute to a maintenance fund or maintain a wall. Contact us on 020 7935 3522, fab@freemanssolicitors.net or using the contact form. Restrictive covenants are rules preventing certain things from being done on the land, such as keeping animals or using the property for business purposes. The Courts can enforce a restrictive covenant through an injunction prohibiting the landowner from taking an action which breaches the covenant. The law on the enforceability of restrictive covenants is complex. Solicitor Emma Styles examines a recent High Court case which illustrates the Courts’ current approach. The Court made an assessment of the amount of damages it thought the claimants would be entitled to, but went on to find that it would not be an appropriate remedy given the circumstances of the case. The case concerned the activities carried on at a motor sports stadium, which was used for stock car racing and speedway events. More specifically does the enforcer need to be a “beneficiary” of the covenant or is there a legal mechanism for other parties to serve an injunction to enforce? By submitting this form I am agreeing to the full Privacy Policy of this website. The question is more one of practicality: if the work the employee did is no longer done by the employer, there will be little commercial incentive to enforce a non-competition covenant. Our advice to you on this is privileged from disclosure; so if you opt for a restriction we think might be difficult to enforce, your employee cannot demand to see that advice if you end up in litigation. A restrictive covenant is, in effect, a restriction registered against the title to a property, which prevents a particular activity being carried out on the land. There are two types of damages that can be awarded: 1. A restrictive covenant is a promise attached to the land which binds the owner for the time being and forbids him from doing something with the land. These can be compensatory (to account for the other party’s reduced land value caused … Provided that there is no breach of contract by the employer, restrictive covenants can still apply in a redundancy situation. They also argued that if the building works could not be completed, then the value of both the claimants’ and defendants’ properties would be diminished. In the first instance the injunction was granted, on the basis that the restrictive covenant had been a key consideration when deciding to buy the property. They are often attached to older properties that may have sold off buildings or land in the past. Sign up now. Failure to comply with a restrictive covenant can be financially costly. There is nothing to prevent you from … The restrictions usually relate to the ex-employee not working for a competitor within a specific geographical area for a specific period of time and not poaching your key staff members. Here, the claimants had purchased a house and land from the defendants. The property was situated in a rural location and the secluded nature of the area was important to the claimants. The Court found that the judge had not confined himself to the Shelfer test, but had set out the consequences of both remedies. Many senior level employment contracts contain restrictive covenants. If you need emergency help on a criminal matter, if you have been arrested or are worried that you, or someone you know, may be arrested, our line is open 24 hours a day. Do restrictive covenants apply after redundancy? Failing to do so can prevent recovery of legal fees. Before commencing injunctive proceedings, it is usual to write to an ex-employee suspected to be in breach of restrictive covenants to seek undertakings that they will cease the activities said to be in breach. Well drafted, bespoke restrictions tailored to your business provide a real disincentive to employee competition. The Court made an assessment of the amount of damages it thought the claimants would be entitled to, but went on to find that it would not be an appropriate remedy given the circumstances of the case. Restrictive covenants may amount to an unfair restraint of trade so they are only enforceable if they go no further than protecting the employer’s legitimate business interest. The subject matter that is restricted can vary from caravans being parked on the property, using the property for the purposes of a business or even the placement of a new satellite dish. Settlement Agreements and Negotiated Exits, Disciplinary, Capability and Grievance Procedures, Leave and Flexible Working for Parents and Carers, Equal Opportunities, Diversity and Discrimination. This does not apply to Employment Consultancies or other advisors, whose emails and other communications would need to be disclosed to an employee in injunction proceedings. Remedies for Breach: Damages and Costs. Gateley Plc is authorised and regulated by the SRA (Solicitors' Regulation Authority). Restrictive Covenants apply to many properties and are usually created to limit the development or use of land to protect the amenity of land still owned by the seller. These two cases were considered in the recent case of  Humphrey v Rogers [2017]. The courts would look at that claim on its merits before determining whether there had indeed been a breach of contract by the employer before confirming whether or not the restrictive covenants should be enforced. enforceability of restrictive covenants by injunction. A restrictive covenant is frequently found in relation to the use of residential property. Restrictive covenants can be used in conjunction with garden leave, but they are more likely to be enforced if the time period is reduced by the amount of time spent on garden leave when the employee is not able to contact key clients and staff. The court will make a decision on the matter and may grant an injunction that upholds the covenant, prohibits changes being made or forces any completed changes or building works to be reversed or demolished. We believe, the current neighbour resides in the ‘original dwelling’ from which, decades ago, numerous parcels of land were sold off as single building plots all I imagine bound by the same covenant. For all these reasons, the appellate court found that the restrictive covenant did not violate the Sherman Antitrust Act. The injunction was not found to be oppressive to the defendants as they had agreed to the original restrictive covenant and all they would lose was the profit from the development. Pre-action correspondence seeking undertakings is not however prohibitively expensive and can be used to scope out the ex-employee’s likely response to proceedings. As examples, common covenants that our conveyancing solicitors see on a daily basis include: - Not to use the property for any other purpose other than that of a private dwelling house; Blanket bans on working for a competitor are less likely to be enforced than time-limited focused restrictions on contacting or working with key clients. If you are a looking to purchase a property when your legal team make the searches they can sometimes identify a restrictive covenant attached to the property. (iv) would it be oppressive to the defendant to grant an injunction? Sign up to insight, news and updates from across the Gateley group of companies. He also recognised that living a quiet and undisturbed rural existence was more important to the claimants than money. What are undertakings regarding restrictive covenants? Our property is subject to a restrictive covenant held by our neighbour & it states that only a single dwelling to be built upon our property/land. There is the possibility of two types of damages being awarded against the party breaching the restrictive covenant or you may receive an injunction to prevent you from continuing the breach. This topic is generally addressed in the author’s previous ar-ticles reviewing the law of restrictive covenants and deed restrictions in Michigan.1 A restrictive covenant or deed restriction represents a contract between the buyer and the seller of property… A restrictive covenant is, in effect, a restriction registered against the title to a property, which prevents a particular activity being carried out on the land. In such cases, it is possible to seek compensation for lost profits as well as or instead of an injunction to prevent further breaches. If the employer breaches the Contract of Employment, any restrictive covenants fall away and can no longer be enforced.