Could we see the demise of restrictive covenants?

In an application to the Upper Tribunal (Lands Chamber) brought by Mrs Susan Geall, the Tribunal discussed whether a restrictive covenant, which prevented the conversion of an agricultural barn into a residential dwelling, could be modified under the Law of Property Act 1925.

 

Background

The applicant had purchased a cottage in 1987, within the grounds of which there was a barn used for agricultural storage. The applicant wanted to develop the barn into a three bedroom property for her children and so in 2015, an application for planning permission was made. Planning permission was granted in July 2015, together with the necessary approval for a change of use of the land; however, the development could not proceed because of restrictive covenants created in the original transfer of the land back in 1987.

The applicant had covenanted with the then owners of the neighbouring properties (and expressly their successors in title) not to build on the land without their consent (6.1.1), not to use or permit use of the land for any trade or business and to only use the land as “a single private dwelling house grounds and outbuildings” (6.1.4). The neighbouring properties included a large detached period property with extensive grounds (“Cowden Hall”) and two other properties which comprised a total estate of 90 acres. The estate also incorporated a private driveway used to access the applicant’s property.

In September 2017, Mrs Geall applied to modify covenant 6.1.4 pursuant to grounds (aa) and (c) of section 84(1) of the Law of Property Act 1925, but the new owners of the neighbouring properties objected to the application. The objection was made on the basis that the planned development would cause a significant loss of amenity, including in terms of “noise… access and traffic along the driveway…smoke and fumes; visibility and amenity within the gardens and grounds.” It was agreed that the value of the estate with the benefit of the covenants was £2.6 million and that the proposed development would have a diminishing effect on the value in the region of 2.5% or £65,000.

 

Issues

The grounds Mrs Geall relied on to modify the restrictive covenants were:

1. 84(1)(aa) - that the continued existence would impede some reasonable user of the land for public or private purposes...or, as the case may be, would unless modified so impede such user; or
2. 84(1)(c) - that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction.

The Upper Tribunal had the discretion to modify the restrictive covenants if grounds (aa) or (c) were made out and the Upper Tribunal was satisfied that the restriction, in impeding that user, either:

1. 84(1A)(a) - does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or
2. 84(1A)(b) - is contrary to the public interest;

and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.

 

Conclusion

A diminution in value in the region of 2.5% was not considered substantial and although £65,000 was generally considered a significant sum of money, it was less so when dealing with an estate worth £2.6 million. As a result, it was considered that the objectors could be adequately compensated with money and the court, therefore, used its discretion to allow the modification of clause 6.1.4 in order for the development to proceed.

This case demonstrates that landowners with the benefit of restrictive covenants are arguably becoming less able to rely on and enforce them, where a modification or breach can be compensated with money. The Tribunal will consider other factors such as how long ago the restrictive covenant was entered into, and whether the parties are the original covenantee/covenantor, but it is unlikely that those additional factors will have any significant effect on the outcome in this type of matter.

Whether you are looking to enforce a restrictive covenant, or need advice on how one may affect your development plans, this is a complex area of law, and it is important that you seek advice at an early stage. Our experienced property disputes team at Boyes Turner are well-placed to assist you.