Restrictive Covenant Dispute: Our Panel of Experts

What is a restrictive covenant?

A restrictive covenant is a legal agreement between parties, typically included in contracts or title deeds related to property or piece of land, employment contracts, or business agreements. These covenants impose certain limitations or restrictions on the activities or behaviours of one or more parties involved.

In property, restrictive covenants may govern how a property can be used or developed. For example, a homeowner’s association or the original developer of the property might impose restrictions on the type of architecture allowed, landscaping requirements, or limitations on certain activities like running a business from the property.

In employment contracts, restrictive covenants restrict an employee’s ability to work for a competitor, solicit clients or employees from the employer, or disclose proprietary information.

These restrictive covenants are enforceable and legally binding, but the specific terms and enforceability can vary based on the initial agreement. It’s important to note that restrictive covenants can’t be too broad. Courts will generally only enforce them if they are reasonable and necessary to protect the legitimate interests of the person who benefits from the restriction.

If you would like assistance with your restrictive covenant dispute, please get in touch with us today. We have access to an experienced panel of commercial law solicitors who are highly knowledgeable in this area of the law.

Disputes that arise over restrictive covenants

Disputes over restrictive covenants can arise for various reasons, often stemming from disagreements between parties regarding the interpretation, enforceability, or fairness of the covenant. Some common disputes arising from restrictive covenants include:

  • Breach of Covenant: One party may allege that the other has breached the terms of the covenant by engaging in prohibited activities or failing to comply with specified obligations.
  • Enforceability: Disputes may arise over whether the covenant is legally enforceable. This could be due to issues such as ambiguity in the language of the covenant, overreach in its restrictions, or changes in circumstances that make enforcement unfair or unreasonable.
  • Reasonableness: Courts may be called upon to determine whether the restrictions imposed by the covenant are reasonable in scope, duration, and geographic extent. If a restriction is deemed overly broad or excessively long-lasting, it may be deemed unenforceable.
  • Misrepresentation or Fraud: Disputes may occur if one party alleges that the other party misrepresented the terms or effects of the covenant during negotiations or failed to disclose material information that would have affected their decision to enter into the agreement.
  • Change in Circumstances: Changes in circumstances, such as economic conditions, technological advancements, or shifts in market dynamics, may render the restrictive covenant obsolete or impractical. Parties may dispute whether such changes justify modifying or terminating the covenant.
  • Public Policy Considerations: In some cases, a restrictive covenant may be challenged on public policy grounds if enforcing it would have negative consequences for competition, innovation, or other societal interests.
  • Defences: Parties may raise various defences to challenge the enforceability of a restrictive covenant, such as lack of consideration, unconscionability, undue influence, or duress.

Resolving disputes over restrictive covenants often involves negotiation, mediation, arbitration, or litigation, depending on the nature and complexity of the issues involved. Courts typically consider the specific facts and circumstances of each case when determining the outcome of such disputes.

Can you challenge a restrictive covenant?

Yes, restrictive covenants can be challenged under certain circumstances. However, the ability to successfully challenge a restrictive covenant depends on various factors, including the specific terms of the covenant and the circumstances of the case.

Section 84 of the Law of Property Act 1925 is a provision of law that allows restrictive covenants affecting property land to be discharged or modified. It sets out the circumstances under which a person can apply to the Upper Tribunal Lands Chamber for an order to modify or discharge a restrictive covenant affecting their property.

The section applies to all types of restrictive covenants, whether they are contained in deeds, conveyances, or other legal documents. To apply for an order under section 84, the applicant must demonstrate that the covenant either, impedes the reasonable use of the land or that it is obsolete, and no longer serves any useful purpose to the party who has benefit of the covenant.

If the Lands Tribunal is satisfied that one of these grounds is met, it may make an order to modify or discharge the covenant. The order may set out the terms of the modification or discharge and may also include any necessary compensation to be paid to affected parties. You will need to modify this change and make an application to the Lands Registry to ensure it is legally binding.

It is important to note that the Lands Tribunal has a wide discretion in deciding whether to grant an order under section 84, and each case will be considered on its individual merits. It is also essential to seek legal advice from a solicitor or conveyancer who has experience in dealing with restrictive covenants before applying for an order under section 84, as the process can be complex and may incur extensive legal costs.

Remedies for disputes surrounding restrictive covenants

There are several remedies available to address disputes arising from restrictive covenants, depending on the nature of the dispute and the desired outcome.

For the party seeking to enforce the covenant:

  • Injunction: This is a court order that prohibits the other party from continuing to violate the covenant. It’s a preventative measure to stop ongoing harm.
  • Damages: The court can award compensation for financial losses suffered due to the breach of the covenant. This could include lost profits, damage to reputation, or other quantifiable losses.
  • Account of Profits: In some cases, the court may require the party who has breached the restrictive covenant to hand over any profits they earned as a direct result of violating the covenant.

For the party challenging the covenant:

  • Declaration: The court can issue a declaration that the covenant is unenforceable. This essentially removes the restriction and allows the challenging party to proceed with their desired action.
  • Modification: The court may be willing to modify the covenant to make it more reasonable. This could involve things like shortening the duration of a non-compete clause or adjusting limitations on property use.
  • Discharge: In rare cases, the court may completely discharge the covenant, effectively removing it from the property deeds or employment contract.

Alternative Dispute Resolution (ADR):

  • Negotiation: This is often the most cost-effective way to resolve a dispute. Both parties can come to a mutually agreeable solution, such as the beneficiary agreeing to modify the covenant or the challenging party offering compensation for any potential harm caused.
  • Mediation: A neutral third party facilitates a discussion between the parties to help them reach a settlement. This can be a good option if direct negotiation is unsuccessful.

The choice of remedy will depend on several factors, including:

  • The specific terms of the restrictive covenant
  • The nature of the alleged breach
  • The severity of the harm caused (or potentially caused)
  • The willingness of both parties to compromise

It’s important to consult with a lawyer to understand the available remedies and determine the best course of action in your specific situation. They can advise you on the legal strength of your case and the most effective way to achieve your desired outcome.

How can Expert Commercial Law assist?

When dealing with restrictive covenants disputes, it is important to seek expert legal advice and assistance. A property litigation team can ensure the right approach is being taken and that applications are being made correctly.

Please note we are not a firm of solicitors. We maintain a panel of trusted and regulated legal experts and litigation solicitors. If you contact us in relation to a commercial law case, we will pass your case on to a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.

Each solicitor is vetted before being allowed onto our panel, and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our panel solicitors also help with commercial claims, such as breach of contractwinding up proceedings and statutory demands.

Please get in touch with a member of our team today using the form below to speak to a solicitor on our panel.

 

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Please note, we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case onto a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm. 

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