Buried Obligations: The Archaic Property and Contract Restrictions Still Blocking UK Business Growth

Growth strategies are typically built around opportunity: a new market, an adjacent premises, a complementary service line, a strategic acquisition. What they rarely account for is the possibility that a legal obligation agreed by a predecessor entity, a previous owner, or a long-departed employee may have quietly foreclosed the very option the business is now attempting to pursue.

Restrictive covenants — legally binding obligations that prohibit or constrain specific activities — are embedded throughout the fabric of UK commercial and property law. They survive changes of ownership, corporate restructuring, and the passage of time. They bind successors who never negotiated them and burden properties whose current occupiers have no recollection of the original transaction. And they are frequently discovered only at the moment of maximum inconvenience, when the business is committed to a course of action it can no longer lawfully pursue.

The Three Categories of Hidden Restriction

Understanding the scope of this problem requires distinguishing between three distinct sources of restrictive obligation, each carrying different legal characteristics and remedial options.

Property covenants are restrictions registered against the title to land or premises, typically arising from the original sale or subdivision of a larger site. A covenant imposed when a Victorian terrace was converted into commercial units may prohibit certain trades, restrict the hours of operation, or prevent structural alterations. Under the rule in Tulk v Moxhay, negative freehold covenants can bind subsequent owners of the burdened land indefinitely, provided the covenant was intended to run with the land and the party seeking to enforce it retains the benefiting land. Leasehold covenants present a similar but distinct framework, typically binding successors through privity of estate.

Commercial contract covenants arise from historic supply agreements, franchise arrangements, distribution contracts, and business sale agreements. A company acquired through a management buyout may carry non-compete obligations from the original vendor's sale agreement that prevent it from entering markets it is now actively targeting. A franchise that was wound down years ago may have left behind territorial exclusivity provisions that technically survive the termination of the franchise relationship.

Employment-derived covenants are perhaps the most widely understood category, but their scope is frequently underestimated. Non-solicitation and non-dealing clauses from senior employees who left years ago may still technically bind the business in respect of clients who were active at the time of departure. Non-competition clauses from founder-level hires, if they were ever valid and have not been formally released, can create residual uncertainty about the business's entitlement to operate in adjacent sectors.

The Discovery Problem

The reason these obligations cause such damage is structural: they are rarely surfaced through ordinary due diligence unless specifically sought. Title registers held by HM Land Registry will reflect registered covenants on property, but the language is often opaque, the benefiting party may be difficult to identify, and the practical enforceability of a very old covenant may be genuinely uncertain. Commercial contracts are frequently archived or destroyed after the expiry of standard retention periods, leaving the business unaware of obligations that technically remain in force.

The discovery moment, when it comes, tends to be triggered by a specific transaction or expansion proposal. A planning application reveals a restrictive covenant that prohibits the proposed use. A solicitor conducting due diligence on an acquisition identifies a non-compete clause in a historic business sale agreement. A competitor threatens injunctive relief on the basis of a territorial restriction that the business had assumed was spent.

At that point, the business faces a choice between abandoning its plans, attempting to negotiate a release, obtaining insurance, or applying for statutory discharge. Each option carries cost and delay. None of them would have been necessary had the restriction been identified and addressed proactively.

Practical Remedies and Their Limitations

For property covenants, the primary statutory remedy is an application to the Upper Tribunal (Lands Chamber) under section 84 of the Law of Property Act 1925 for modification or discharge of the restriction. The Tribunal may grant relief where the covenant is obsolete, where it impedes reasonable use of the land, or where the benefiting party will not be substantially injured by its discharge. However, applications are time-consuming, outcomes are not guaranteed, and the process can take twelve months or more.

Covenant indemnity insurance has become a widely used alternative, particularly where the benefiting party cannot be identified or where the covenant appears historic and potentially unenforceable. Insurers will underwrite the risk of enforcement for a one-off premium, providing comfort to lenders and purchasers. The limitation is that insurance does not remove the covenant — it merely transfers the financial risk of enforcement. A business that relies on covenant insurance rather than securing a formal release remains technically in breach of an obligation and cannot be certain that a future insurer will offer equivalent terms.

For commercial contract covenants, direct negotiation with the original counterparty or their successor in title remains the most reliable route to a clean release. Where the original party no longer exists or cannot be located, legal advice on the enforceability of the covenant — taking into account the reasonableness doctrine developed through cases such as Tillman v Egon Zehnder — may provide sufficient comfort to proceed.

Embedding Covenant Review in Strategic Planning

The appropriate response to this risk is not reactive — it is structural. Businesses that incorporate a covenant audit into their strategic planning process, rather than treating it as a due diligence exercise reserved for transactions, are significantly better positioned to identify and address restrictions before they become obstacles.

A comprehensive covenant audit should examine the title to all property occupied or owned by the business, the contractual history of any acquired entities or business units, and the employment agreements of senior individuals who have departed within the relevant limitation period. Where restrictions are identified, they should be assessed for enforceability, mapped against the business's current and anticipated activities, and either released, insured, or formally noted as a constraint on strategic options.

At AC Norris Advisory, we have encountered businesses whose expansion plans were materially delayed — and in some cases abandoned — because a restriction that could have been addressed at modest cost was identified only after significant resource had been committed to the proposed initiative. The covenant that was buried in a 1987 conveyance does not know it is inconvenient. It simply remains in place, waiting to be discovered at the worst possible moment.