Phillip Collins thought he had sold his former council house in Dorchester to a couple from Glasgow offering £192,000.
But Synergy Housing Group, which took over Purbeck District Council's housing stock, blocked the sale.
The group said they should have been aware of the rule but Mr Collins now fears he will not find a buyer quickly.
Mr Collins said: "That creates an exceedingly restricted market for us in a time when the housing market is already at one of its lowest points.
"There is no date by which we can sell it outside the covenant.
"This property could be on the market for 40 years and we would still only be able to sell it to Dorset people."
The covenant was part of Right to Buy government legislation brought in in the 1980s.
The Collins' house is in an Area of Outstanding Natural Beauty.
There are some exemptions for key workers and people with close relatives in Dorset, the BBC has learned.
Brian Miller, of Synergy Housing group, said: "The covenant was there when they purchased the property and they should have been aware that there may be these issues on re-sale."
There's been chatter, in recent years, of similar covenants returning, in a bid to stop second home buyers pricing locals out of rural beauty spots. While this former council property languishes on the market, its value diminishing, I'm sure the Collins's will be keen to tell all just what good such a covenant does for the local community.
Until the next time,
Mr Jackson.
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