When buying a property there can be a lot of different things to consider, much of which is wrapped up in legal jargon and paperwork that can be difficult to decipher. An area that's not discussed all that often, is restrictive covenants - legal clauses that can affect how the property is used, who can buy it, and the resale value. They are typically put in place for good reasons but can have an impact on how you use a property and its value when it comes to re-selling.
For example, one thing you might come across is a principal residence condition. It’s a topic that has made headlines in the seaside town of Salcombe in the South West, in recent years (and is also referred to as 'the primary residence rule'). In this article, we’ll look at what the principal residence condition is, how it affects property use and value, and who these properties are best suited to.
There are lots of different types of restrictive covenant, ranging from those that limit the amount or type of building you can do on a property, to whether you can use a property for commercial purposes. There are also regional applications like the 'Designated Rural Area Restrictive Covenants', also known as a Section 157 covenant or the Devon Rule, placed on rural ex-council houses, so they can only be purchased by someone who has either lived or worked in the area for the three years prior to purchase.
A principal residence condition, primary residence covenant, or primary residence rule, as it is variably referred to, requires that the property must be occupied as the owner’s main or sole residence - aka, their primary home. This means that it cannot be used as a second home, holiday let, or buy-to-let investment.
In practice what you need to know is:
● You must live in the property full-time
● You cannot use it as a holiday home or weekend retreat
● Letting it out (either short-term or long-term) is typically prohibited
● You may be required to prove that it’s your primary residence (e.g. being registered to vote, council tax records, GP registration)
These conditions are most often seen in:
● Tourism-heavy areas (e.g. Devon, Cornwall, the Lake District, North Norfolk)
● Affordable housing schemes
● New developments where local authorities aim to prioritise homes for local, full-time residents
In Salcombe, for example, the town is famous for having 574 second homes and 299 holiday lets, accounting for around 45.3% of all homes in the local area. In 2021, local frustrations led to the implementation of an amendment to their neighbourhood plan requiring new homes to be primary residences, in an effort to prevent them from becoming second homes. This includes properties which are purchased for redevelopment and are knocked down in order to build something entirely new.
Of course, this is not the only place in the UK trying to balance the needs of its local community with the benefits of tourism, but understanding the rules can help you make the best choices possible when purchasing, redeveloping, and renovating.
Principal residence conditions are often introduced as part of a local authority’s effort to:
● Tackle housing affordability in high-demand areas
● Prevent holiday home over-saturation that damages local communities
● Encourage year-round occupancy
● Stop house prices being pushed beyond local affordability
● Prevent ghost-town conditions in off-peak months
● Avoid the loss of local services and schools due to falling permanent populations
If you're buying a property with this type of covenant, it’s important to be aware of the following:
● You must live in it as your main home. You cannot rent it out (short-term or long-term) or leave it vacant for extended periods
● You may need to sign a legal declaration confirming it is, or will be, your primary residence.
● Some mortgage lenders may have additional requirements or restrictions when it comes to lending on properties with covenants
● This type of covenant won’t suit investors or second-home buyers, but it can be an excellent opportunity for first-time buyers or locals who want to live in the area full-time
When selling a property, a principal residence condition will naturally impact the process as well, including who can buy it. Things to be aware of include:
● Your market is more limited. You can only sell to someone who intends to live in the property as their main home
● You’ll need to disclose the covenant early, ideally during the marketing or conveyancing stages, to avoid complications
● It may impact the value of the property compared to similar unrestricted homes, but this is often offset by the original lower purchase price
● For estate agents, it's crucial to market the property accurately, targeting suitable buyers and avoiding delays or fall-throughs due to a misunderstanding the covenant
Removing or changing a restrictive covenant is legally possible but not straightforward, and it’s not typically favoured by local councils or communities, especially where housing supply is under pressure. It's best to assume you can't remove it, however, options include:
● Negotiating with the beneficiary (usually a council or developer)
● Applying to the Lands Tribunal under Section 84 of the Law of Property Act 1925 to have the covenant discharged or modified
Properties with a principal residence condition are ideal for local communities, especially the following prospective buyers:
● First-time buyers looking for a more affordable property
● Local workers or families priced out of unrestricted properties in high-demand areas
● Retirees wanting to downsize and settle into a permanent home
● Buyers who want a home, not an investment
In short, principal residence conditions are designed to put homes into the hands of people who will truly live in them. While they may narrow your options as a seller or buyer, they also help ensure vibrant, year-round communities and can offer excellent opportunities for homebuyers.
At Chase Buchanan we’re experienced in marketing and managing properties with legal covenants and restrictions, and have a talented team with offices covering the South West. If you would like to talk to us about a property purchase with a restrictive covenant, contact your nearest branch and we would be delighted to help.