Many a developer has located a choice piece of development land, only to find their plans scuppered by a restrictive covenant. In this context, that means an agreement by a property owner restricting use of the land in some way, for the benefit of a neighbouring owner.
Restrictive covenants typically limit the number of buildings that may be constructed on a plot, or prohibit a particular trade or business. This can threaten to scupper a proposed development. In such cases, the normal approach is to negotiate the release or variation of the covenant, at a price, or to look for indemnity insurance. Both of these can be expensive.
There is an alternative – section 84
A property owner has the right to apply to the Upper Tribunal (Lands Chamber) for modification or discharge of the covenant under section 84 Law of Property Act 1925. The main grounds are:
- The covenant is obsolete, due to changes in the character of the land or neighbourhood;
- The covenant impedes some reasonable use of the land, and does not secure any practical benefit of substantial value;
- The beneficiaries of the covenant expressly or impliedly agree; or
- No injury will be caused.
The tribunal has power to award compensation when lifting or modifying a covenant. Helpfully, the tribunal tends to take a practical approach to these applications which have been demonstrated in some recent cases.
In Dean v Freeborn (May 2017) a covenant prohibited more than one house per plot. The applicants wanted to replace an indoor pool with an additional house, but the objectors said this would open the floodgates to further redevelopment. However, two additional properties had already been built elsewhere on the estate, one of which an objector had already consented to. The objectors' land was too far away to be adversely affected, so the tribunal agreed to lift the covenant. This would not open the floodgates to any further modifications, which would be considered separately on their own merits.
In another case, James Hall v Maugan (2016), local residents objected to an application to release a covenant prohibiting use of an existing pub as a shop. They said the pub was the centre of their community and the support it provided would be lost. However, the pub was no longer profitable and was closing down anyway. The tribunal refused to discharge the covenant completely, but modified it to allow use as a convenience store in addition to a pub, in case the proposed store did not materialise.
In Millgate Developments v Bartholomew Smith (2016), the applicants had built a social housing development next to land on which a children's hospice was being built. They had knowingly done this in breach of a covenant restricting use to car parking. They applied to modify the covenant, but the owners of the hospice argued that its peaceful environment and outdoor amenities were seriously compromised by the new development so close to their boundary. The tribunal accepted that the covenant conferred practical benefits by ensuring privacy and security of the hospice. However, provision of housing to meet a pressing social need was clearly in the public interest too, so the tribunal modified the covenant to allow the development. The developer was ordered to pay £150,000 compensation to cover the cost of additional boundary planting, the amount which they had privately offered as compensation anyway.
Of course, it's not a simple process
A tribunal decision can take months or indeed years if there are objections, which can disrupt a development timetable. A successful applicant may also have to pay compensation and even costs to the beneficiary of the covenant.
Developers: take care when acquiring a site to identify any covenants and prospects for negotiation or release. A tactical analysis should also be carried out: if the beneficiaries of the covenant are alive to it, a proactive approach to negotiation may result in a quicker resolution.
Adjoining owners: if you genuinely want to enforce a restrictive covenant, make your objections to the development known at the earliest opportunity, and take a pragmatic view as to your chances of success.