When you sell an estate or letting agency, the buyer will require you to agree to restrictions on what you can do after completion. These restrictive covenants are a standard part of every sale agreement, but their scope, duration, and commercial implications vary depending on how they are negotiated. Understanding the types of restriction, what parameters are reasonable, and where to push back gives you control over a clause that will constrain your working life for the next two years.
For an overview of the transaction process, see how to sell your estate or letting agency. For the full document set including the sale agreement itself, see the letting agency sale agreement.
The Types of Restriction
Non-Compete
A non-compete prevents you from operating a competing business within a defined area and period. The scope of what counts as competing is a commercial negotiation: a seller who has managed a residential lettings portfolio can reasonably resist a non-compete extending to commercial property, property management consulting, or other adjacent activities.
Non-Solicitation of Landlords
This is the most commercially significant restriction in a lettings portfolio sale. Landlord relationships are the primary asset the buyer is acquiring. Non-solicitation prevents you from actively approaching those landlords to move their properties to a different management provider.
The distinction between non-solicitation and non-dealing matters here. Non-solicitation prevents you from approaching landlords; non-dealing prevents you from working with them even if they approach you. Sellers should resist non-dealing in favour of non-solicitation. If a landlord independently seeks out the seller post-completion, that is a different commercial situation from the seller actively targeting relationships they transferred.
Non-Solicitation of Vendors and Applicants
Estate agencies will face additional restrictions covering vendors who had properties on the market with the sold business and applicants registered with the agency. These clauses are narrower in commercial significance but should be consistent in scope and duration with the non-solicitation of landlords.
Non-Solicitation of Staff
A restriction on approaching employees of the sold business is standard. This prevents the seller from taking key staff — particularly property managers with significant landlord relationships — out of the business post-completion.
Standard Parameters
Duration
For smaller transactions, typical restrictive covenant periods run between 18 months and two years from completion. Where the transaction includes an earn-out, the earn-out period sets a practical floor: restrictions that expire before the earn-out ends would allow the seller to begin competing before the earn-out AMFI measurement is complete, which no buyer will accept.
Push for 18 months to two years. Periods longer than two years are difficult for buyers to justify legally and face challenge if litigated.
Geographic Scope
The geographic restriction should match the catchment area of the sold agency — the area it actually operated in and from which its landlord base was drawn. Sellers should resist attempts to extend the restriction to a wider area, particularly where the seller has existing connections in areas the sold agency did not serve.
A restriction covering an entire county when the business operated from a single town is unlikely to be enforceable. Negotiate a precise geographic definition — ideally based on postcode districts or local authority boundaries — rather than a vague area description.
Definition of Competing
Where the transaction is a portfolio-only sale transferring the lettings management book without an estate agency sales arm, the definition of competing should be limited to lettings management, not residential sales. A seller who continues to operate an estate agency introducing sales should not be in breach of a non-compete scoped to lettings management only.
The Earn-Out Interaction
The earn-out is paid based on AMFI retention during a defined measurement period. If the seller solicits landlords back to their own management during that period, they directly reduce the AMFI that triggers their own earn-out payment. This creates a natural economic disincentive against solicitation that the restrictive covenant reinforces.
Buyers often seek an AMFI loss indemnity for active solicitation during the earn-out period — a right to recover from the earn-out payment any AMFI lost as a direct result of the seller approaching landlords. This is broadly reasonable as a commercial mechanism. Sellers should ensure it is narrowly scoped to active solicitation, not natural attrition: a landlord who independently decides to sell their property or switch manager should not trigger an indemnity even if the AMFI consequence is the same.
Carve-Outs
Remaining With the Sold Business
Where the seller is staying on during the earn-out period, this activity must be explicitly permitted and carved out from the non-solicitation clause. The seller cannot be in breach of a covenant for doing their job within the business they sold.
Employment Elsewhere After the Earn-Out
Restrictions typically run from completion rather than from the end of the earn-out. A seller who remains employed by the buyer throughout the earn-out and then leaves should not find themselves immediately bound by a fresh restriction. Confirm the start date is completion, not the date employment with the buyer ends.
Non-Residential and Commercial Activities
Commercial property, property investment, and related activities that the sold business did not engage in should be explicitly carved out from the non-compete. Sellers with existing interests in commercial property, land promotion, or non-residential lettings should identify these before heads of terms and have them excluded by name.
Tax Treatment
Consideration attributed specifically to a restrictive covenant in the sale agreement is treated as income, not a capital receipt, which affects the rate of tax applied. Sellers should resist any attempt to attribute a separate payment to a restrictive covenant. Where no separate attribution is made — where the restriction is simply a condition of the overall deal — the tax position is cleaner. If the buyer’s lawyers include a named payment for the covenant, take advice before agreeing.
Enforceability
A restrictive covenant must go no further than reasonably necessary to protect the buyer’s legitimate commercial interest. Courts will uphold landlord non-solicitation clauses in lettings business sales because landlord relationships are genuinely the asset being transferred — they are a recognised legitimate interest.
Restrictions that are too wide in geography, duration, or scope risk being struck out entirely. English courts will not usually sever an overreaching restriction and enforce a narrower version; they will decline to enforce the clause at all. Sellers facing an overreaching restriction should negotiate it during the transaction rather than rely on unenforceability as a post-completion defence.
Frequently Asked Questions
How long do restrictive covenants last in an estate agency sale?
Standard duration is 18 months to two years from completion. Where an earn-out is included, the earn-out period effectively sets the minimum — restrictions will not expire before the earn-out measurement concludes.
What is the difference between non-solicitation and non-dealing?
Non-solicitation prevents you from approaching former landlords or clients. Non-dealing prevents you from working with them at all, even if they contact you first. Sellers should push for non-solicitation rather than non-dealing.
Can restrictive covenants be struck out by a court?
Yes. An unreasonably wide restriction can be struck out entirely. This is why sellers should negotiate scope during the transaction rather than relying on unenforceability as a post-completion defence.
How is the tax treatment of a restrictive covenant different from ordinary sale proceeds?
Consideration specifically attributed to a restrictive covenant in the sale agreement is treated as income rather than as a capital receipt. Sellers should ensure no separate payment for the covenant is identified in the agreement.