Deed of Covenant for Leasehold Property
A deed of covenant binds new leaseholders to the obligations in their lease. Understanding this document is essential when buying or selling a leasehold flat, and your managing agent plays a key role in the process.
What Is a Deed of Covenant?
A deed of covenant is a legal agreement signed by the purchaser of a leasehold property. It formally binds the new leaseholder to comply with the covenants and obligations set out in the lease, including paying service charges, contributing to the sinking fund, maintaining the property in accordance with the lease terms, and observing any rules set by the freehold management company or residents management company.
The requirement for a deed of covenant is typically found within the lease itself. When a leasehold flat changes hands, the outgoing leaseholder's personal obligations end, and the deed of covenant ensures the incoming owner takes on those responsibilities. Without it, there may be a gap in the contractual chain between the leaseholder and the management company or freeholder.
For blocks managed by a professional block management company, the deed of covenant is processed as part of the standard property transfer. Your managing agent will coordinate with the buyer's solicitor to ensure the document is prepared, signed, and registered before completion.
When Is a Deed of Covenant Needed?
Buying a leasehold flat
Most leases require the buyer to enter into a deed of covenant with the freeholder or management company as a condition of the transfer.
Inheriting a leasehold property
If you inherit a leasehold flat, the personal representative or executor may need to arrange a deed of covenant for the new owner.
Transferring ownership within a family
Even gifts or family transfers of leasehold property usually trigger the need for a new deed of covenant.
Remortgaging or refinancing
Some lenders may require confirmation that a valid deed of covenant is in place as part of the remortgage process.
Share of freehold transfers
When a flat in a share of freehold building changes hands, a deed of covenant ensures the new owner is bound to the management company rules.
The Managing Agent's Role in the Deed of Covenant Process
When you appoint a professional managing agent, they handle the administrative side of deeds of covenant as part of the property transfer process. This includes:
- Preparing or commissioning the deed of covenant document
- Coordinating with the buyer's and seller's conveyancers
- Ensuring the document reflects the obligations in the lease
- Registering the new leaseholder on the management records
- Updating service charge accounts and contact details
- Issuing the leasehold management pack with all required information
At Block, we ensure the deed of covenant process is handled efficiently, so property transfers proceed without unnecessary delays. We work closely with solicitors to provide all documentation promptly.
Deed of Covenant and the Freehold Management Company
In many blocks, a freehold management company or residents management company holds the freehold on behalf of the leaseholders. The deed of covenant typically requires the new buyer to become a member of this company, taking on the rights and obligations of membership alongside their lease.
This membership is important because it gives the leaseholder a say in how the building is managed, including voting rights at the annual general meeting, the ability to stand as a director, and access to the company's financial records. The deed of covenant formalises this relationship.
For blocks where the freehold is held by an external freeholder, the deed of covenant instead establishes a direct contractual link between the new leaseholder and the freeholder or their appointed managing agent, ensuring continuity of obligations.
Frequently Asked Questions
What is a deed of covenant in leasehold property?
A deed of covenant is a legal document signed by a new leaseholder when they purchase a leasehold flat or house. It binds the buyer to the obligations in the lease, including paying service charges and ground rent, complying with building rules, and respecting the terms of the freehold management company or residents management company. Most leases require this document to be signed upon transfer.
Is a deed of covenant legally required when buying a leasehold flat?
Whether a deed of covenant is required depends on the terms of your lease. Many leases include a clause requiring the new owner to enter into a deed of covenant with the freeholder or management company upon purchase. If the lease requires it, failure to sign can technically put the buyer in breach of the lease terms. Your conveyancer should check the lease and arrange for the deed to be signed during the purchase process.
How much does a deed of covenant cost?
The cost of a deed of covenant varies, but typically ranges from one hundred to three hundred pounds plus VAT. The fee is usually charged by the freeholder or managing agent to cover the administrative and legal costs of preparing the document. Some management companies include it within the leasehold management pack, while others charge separately. Your solicitor can confirm the exact cost during conveyancing.
What is the difference between a deed of covenant and a lease?
The lease is the primary legal document that grants you the right to occupy your property for a set number of years and sets out your obligations as a leaseholder. A deed of covenant is a supplementary agreement that personally binds a new leaseholder to the obligations in the lease, particularly to the management company or freeholder. The lease transfers with the property; the deed of covenant is a personal commitment from each new owner.
Who prepares the deed of covenant?
The deed of covenant is usually prepared by the freeholder, the freehold management company, or their appointed managing agent. In practice, the managing agent or their solicitors draft the document as part of the property transfer process. The buyer and their conveyancer review and sign it before completion. The cost of preparation is typically passed to the buyer as part of the transfer fees.
Can a deed of covenant be refused?
If the lease requires a deed of covenant, refusing to sign it could put you in breach of the lease. However, the terms must be reasonable and consistent with the obligations already set out in the lease. If you believe the terms are unfair or include obligations not in the original lease, you should seek legal advice before signing. A managing agent cannot use the deed of covenant to impose new obligations beyond those in the lease.
Need Help With a Deed of Covenant?
Whether you are buying, selling, or managing a leasehold property, our experienced team can guide you through the deed of covenant process and ensure a smooth transfer.