In Great Jackson Street Estates Limited v The Council of the City of Manchester, the Court of Appeal addressed the legal and practical complexities of redeveloping leasehold land, especially where local councils act both as landlord and planning authority. The case centred around a developer's attempt to modify/discharge leasehold restrictive covenants that were blocking a £300–£350 million residential development project in Manchester’s city centre.
Background
The developer, Great Jackson Street Estates Ltd, is the tenant of two 1970s warehouses owned by Manchester City Council. The warehouses are located within a regeneration zone identified for high-quality residential development under Manchester’s 2016 strategic plan. With just over 60 years left of the 99-year lease, the tenant submitted plans to replace the warehouses with two 56-storey residential towers. The Council, as planning authority, supported the proposal in principle and agreed to grant planning permission subject to a section 106 agreement.
However, as landlord, the Council withheld consent for the development, relying on a number of restrictive covenants in the tenant's lease. Concerned about the project’s scale and financial viability, it offered the tenant a new 250-year lease, at a premium, with staged development milestones. Tenants of leases exceeding 40 years can, after 25 years, apply to the Upper Tribunal to discharge/modify restrictive covenants in their leases. So instead of accepting the Council's proposal of a new 250-year lease on what it considered unfavourable terms, the tenant applied under section 84 of the Law of Property Act 1925 to modify or discharge the restrictive covenants so that it could proceed with the development under its current lease without requiring landlord consent.
Section 84 Application
The tenant relied on three grounds:
- Ground (a): The restrictions were obsolete due to changes in the area; and/or
- Ground (aa): The development was a reasonable use of the site, and the restrictions did not provide any practical benefit of substantial value or advantage to the Council; and/or
- Ground (c): The Council wouldn’t suffer any harm if the restrictions were modified/removed.
The Council objected, arguing that the covenants allowed it to manage long-term estate development beyond the planning system and protect its reversionary interest. The Upper Tribunal found in favour of the Council, holding that the restrictions continued to provide a “practical benefit of substantial advantage.”
Appeal
The tenant appealed, centrally on the ground that the Upper Tribunal was wrong to find that the lease restrictions secured a practical benefit of substantial advantage to the Council. It argued that the Tribunal should have assessed the practical benefits to the Council on the assumption that: the restrictive covenants remained in place and were complied with; that the proposed reasonable user (the development) would not be put into effect; and any benefits to the Council would derive from the continued existence and enforcement of the covenants, not from their discharge. The tenant also argued that the Council's use of the covenants to negotiate a new lease on more favourable terms did not constitute a "practical benefit of substantial advantage", and leveraging the covenants to extract concessions or premiums for a new lease was not the type of benefit envisaged under ground (aa).
The tenant also argued that even if the covenants should not be discharged outright, the Tribunal should have modified the restrictions and allowed the development to proceed on terms (such as requiring the tenant to take a new lease or comply with other conditions). The Court rejected this argument, clarifying that the Tribunal can only modify/discharge restrictive covenants on terms if the parties have agreed the proposed terms, which was not the case here.
The Court of Appeal dismissed the appeal, holding that the Tribunal had correctly applied the statutory test for "practical benefit of substantial advantage". The Council's ability to control the redevelopment through the covenants, to ensure that the development project proceeded in an orderly and timely manner, constituted a practical benefit of substantial advantage. The Council was using the restrictive covenants legitimately, in a manner consistent with its role as landlord in a regeneration area that aligned with the public interest, and not improperly to extract a financial premium or increase its bargaining power. There was no error of law in the Tribunal's evaluative judgment.
Key takeaways
- Lease restrictions can block redevelopment, even if planning permission is granted.
- Councils often wear two hats and may support a scheme as planning authority but resist as landlord to protect long-term estate management goals.
- Careful lease review is critical. Before investing heavily in design and planning, developers must assess whether lease terms support their long-term objectives, especially on council-owned land.
- Challenging restrictive covenants can be difficult, particularly where the public interest and legitimate estate management are at play. The Upper Tribunal has wide discretion to exercise an evaluative judgment in each case, which can be difficult to challenge unless there is a clear error of law.