Restrictive covenants require caution

Many landowners have restrictive covenants associated with their land that impede them from developing it for certain purposes. Often the restrictions will be historic, yet they can have a significant impact on marketability and value. However, it may be possible to modify or discharge these covenants by applying to the Upper Tribunal Land Chamber (UTLC).

Nowadays, the UTLC is granting applications far more frequently than it was five years ago, and it is generally a much swifter procedure. This article explains the purpose of restrictive covenants, and how a landowner can get them modified or discharged with the help of a property dispute resolution solicitor.

An enforceable restrictive covenant prohibits the landowner from using the land or building at all or for a particular purpose. This burden will endure over time, so successive owners or occupiers are bound by the restriction. Typically, it might restrict the appearance of a development or the activity that takes place.

If a landowner wants to modify or discharge a covenant, they should first check whether it is enforceable by examining its terms and determining its scope and extent. Consideration should always be given to whether the covenant applies to what the landowner is doing, and if it comprises an identifiable beneficiary. If the landowner intends to develop the land and continues doing so without an agreement in place, the beneficiary of the covenant could seek an injunction that prohibits the work. This could be after the landowner has paid professional fees and planning costs. They may also have started building work and be required to undo such works.

Subject to the terms of any title indemnity insurance, a landowner may need to negotiate a private agreement or settlement. The starting point for a release is often, say, one-third of the resulting increase in value or development profit, but the possible fee could be anywhere between five and 50 per cent. Legal advice at the outset could pave the way for negotiations and alternative dispute resolution and ensures that the landowner's case is properly put forward to the beneficiary of the restrictive covenant. Care should be taken in this respect: it may well be impossible to approach the beneficiaries or be a breach of any existing restrictive covenant insurance cover.

Facts and details are important in these applications: for example, who benefits from the covenant and what is their standing, legally or financially? Do you need their consent, and what happens if they refuse? The tribunal will be looking to all these important evidential points. The landowner and their professional team must prove what is special about the facts of the case throughout the application. Context is vital if you can prove that it is materially relevant: for example, the environmental, social and historical context of the covenant and application are all relevant in the tribunal's eyes, as in Thomas Pocklington Trust v Aikman [2018] UKUT 256 (LC).

What is the landowner’s planning position, and do they have anything concrete by way of planning consents or plans to demonstrate the potential development? In the case of Jackson & Anor v Roselease Ltd [2019] UKUT 273 (LC), an important factor in the application’s success was that the proposed development was already permitted under planning legislation. This ‘arguably indicate[d] that the proposed use is reasonable, since it furthers a planning policy to provide homes by making use of disused and redundant buildings’. If this is not the case, your application may end up failing, as it did in Morningside (Leicester) Ltd Re 169 Narborough Road [2014] UKUT 70 (LC).

A landowner should also be prepared for the costs involved in the process. Applications are typically disposed of within nine months, and inevitably result in, for example, legal fees throughout the duration and at the conclusion. Under paragraph 12.5(3) of the UTLC practice directions, objectors will not normally have to pay your costs, even if they lose. In fact, successful objectors will usually be awarded their costs unless they have acted unreasonably. Furthermore, compensation may even be payable under section 84(i) and (ii) of the Law of Property Act 1925 to objectors if they lose their rights derived from the covenant. Applicants should be aware of this when evaluating the extent of success of their application.

 A landowner must consider the grounds on which their application is based. The right choice can avoid the undesirable cost consequences mentioned above, while the wrong one can be disastrous. On the one hand, ground (a) that seeks to modify or discharge ‘by reason of changes in the character of the property or the neighbourhood’ is usually difficult to prove. The question is whether the original purpose of the covenant can still be carried out, and invariably it can. It is therefore a premise that the objector can win, which does not bode well in terms of costs for any applicant. On the other hand, ground (aa) that allows discharge or modification on the basis that ‘the continued existence thereof would impede some reasonable user of the land for public or private purposes’ is usually the best and most commonly used by applicants. Other grounds are available but rarely used.

In summary, the outcome will always be determined on the facts of each case, and no two developments are the same. By considering the factors raised above, you can help ensure your application has the best chance of succeeding, and thereby unlock the value in your land. This is a complex area of law and it is imperative to seek legal advice from specialist solicitors.