Restrictive covenants can have a serious impact upon the potential for development of a piece of land. In some cases the development will fail completely. Simon Wood, Barrister within the commercial Litigation department at law firm Hart Brown, summarises how restrictive covenants work and how they may be circumvented.
The first point for the developer to appreciate is that planning permission does not override the covenant. The planning authority will usually only consider the application in respect of its planning merits and will not consider the private rights as between the respective parties. This can also often be a source of confusion to the person who has the benefit of the covenant and who is intending to object to the planning application.
The developer should then check that the covenant still affects the land. Usually, this can be confirmed at the Land Registry where extant covenants will be recorded in the Office Copy Entry for the property. If the land is unregistered it may be more difficult to establish whether the covenant still has effect especially if it was granted many years in the past.
The developer should then find out who may have the benefit of the covenant: anybody who currently owns any part of the land originally benefitted by the covenant will be able to enforce the covenant provided they can show that the covenant benefits or preserves the value of that land.
The developer should certainly not simply proceed with the proposed development without considering the possible consequences. This is because any beneficiary of a restrictive covenant can apply to the courts to have any threatened breach (e.g. the building of another property on the land) stopped by an injunction, and/or they can claim damages.
Nevertheless, the developer has several options to circumvent this potential stumbling block.
The first is to try and negotiate the release or variation of the restrictive covenant. This will only be effective and should only be attempted where the full extent of the land that benefits from the restrictive covenant can be ascertained and all of the owners of the benefitting land can be identified and located. The developer should be prepared to make some payment for any release or variation of the covenant. However, this need not be unreasonable if the developer has done his or her homework and can show what efffect the new development would have on the value of the land with the benefit of the covenant.
Secondly, it is possible to obtain indemnity insurance to protect against the risk of a person with the benefi t of a restrictive covenant seeking to enforce it. However, it is unlikely to be available in circumstances where beneficiaries of the covenant have made it clear that they will seek to enforce the covenant.
Finally, the developer can make an application to the Upper Tribunal (“UT”) (formerly the Lands Tribunal) for the modification or discharge of the restrictive covenant pursuant to section 84 of the Law of Property Act 1925.
The UT can discharge or modify the restriction if satisfied that one of the following grounds apply:
1. The covenant is obsolete because of changes in the character of the land and/or changes in the character of the neighbourhood or other material circumstances;
2. The covenant impedes some reasonable use of the land. If planning permission has been obtained, this may assist in proving that the covenant impedes some reasonable use of the land;
3. The beneficiaries expressly or impliedly agree.
It should be noted that the UT has power to order the applicant to pay compensation to the person or persons entitled to the benefit of the covenant, either for any loss or disadvantage suffered as a result of the discharge or modification of the covenant, or to make up for any reduction in the price originally received for the land on account of the imposition of the restriction.
In conclusion, restrictive covenants can have a serious impact upon the potential for development of a piece of land and the grant of planning permission cannot override their effect. Nevertheless, there are measures which the developer can take in order to sidestep the problem; the likelihood is that they will involve additional expenditure.
Simon Wood is a Barrister within the Commercial Litigation department based at Hart Brown’s Guildford office. He was called to the Bar in 1987. He was a tenant in chambers in Middle Temple for 10 years where he had a broad practice in general commercial and civil litigation before specialising in property litigation.