When are restrictive covenants not development constraints?

When acquiring a property for development, covenants that restrict the type or form of development always need to be carefully considered. There are a number of ways in which restrictive covenants can be addressed, and in two recent cases developers sought to have the relevant restrictive covenants discharged following the grant of planning permission.

The power to modify or discharge

Section 84(1) of the Law of Property Act 1925 grants the Courts the power to wholly or partially modify or discharge restrictive covenants where the applicant can prove one of the following grounds:

• Ground (a) – established where the Court considers that changes in the character of the property or the neighbourhood or other circumstances that the Court may deem material means that the restriction ought to be deemed obsolete.
• Ground (aa) – established where the continued existence of the restrictive covenant would impede some reasonable user of the land for public or private purposes. In applying Ground (aa), the Court must be satisfied that the restrictive covenant (i) does not secure to the persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or  (ii) is contrary to the public interest.
• Ground (b) – established where the beneficiary of the restrictive covenant has agreed, either expressly or by implication, to the same being discharged.
• Ground (c) – established where the Court finds that the proposed discharge or modification will not injure the persons entitled to the benefit of the restrictive covenants.

HAE Development Ltd v The Croft Ealing Ltd [2022] UKUT 120 (LC)

The development site in the HAE Development Ltd v The Croft Ealing Ltd [2022] UKUT 120 (LC) case was subject to restrictive covenants from 1955 which prevented the building of more than one dwelling house on the site and restricted other uses that would cause a nuisance or annoyance to the objectors. The developer had obtained planning permission for the construction of eight flats and then applied to have the restrictive covenants discharged citing grounds (a), (aa) and (c) above.

The Court found in favour of the applicant; making out all three grounds.

Ground (a) – the objectors argued that the purpose of the restriction was to preserve the neighbourhood as an area of houses rather than flats and that such a purpose could still be achieved by retaining the restrictive covenant. However the Court found that as the neighbourhood had changed considerably since 1955, including many buildings being converted to flats (including the property owned by the objectors) the purpose was “entirely superfluous”.

Grounds (aa) and (c) – the Court considered the questions established in Re Bass [1973] P&CR 156:

Is the proposed use reasonable? As the proposed development had been through the scrutiny of a thorough planning process, the Court found that the proposed use was reasonable.

Do the restrictions, in impeding development, secure a practical benefit for the objectors? The objectors raised a number of prejudices that they claimed would be caused by the proposed development, including the adjoining land being overlooked and the impacts of intensification of user. The Court found that the drafting of the restrictive covenants was not specific enough to afford the objectors any “advantage” in not being overlooked – the development of a single dwelling house, as permitted under the restrictive covenants, would also have the potential to cause the same injury. The Court found that the other prejudices raised were dealt with by the conditions to the planning permission.

Specifically considering Ground (aa), the Court found that the restrictive covenants would impede development for a reasonable use of the land for housing and did not secure the objectors any practical benefit.

Mill Strand Developments Ltd v Tapp and Ors [2022] UKUT 143 (LC)

The second development site in Mill Strand Developments Ltd v Tapp and Ors [2022] UKUT 143 (LC) was subject to a 1972 restrictive covenant not to erect any structures that were not of an agricultural nature, which was aimed at protecting the value of the then recent residential development of the adjoining land. The developer had obtained planning permission for the construction of five detached houses and applied to discharge the restrictive covenant pursuant to grounds (c) and (aa).

Again, the Court found in favour of the applicant.

Ground (aa) – as before, the Court first considered the questions established in Re Bass. It was again held that since the proposed development had been through the “scrutiny” of the planning process it was a reasonable use for the land.

Whilst the Court found that the restrictive covenant did confer some practical benefit on one of the objectors, as the development would disrupt their current “rural view over undeveloped land”, they did not find that practical benefit to be substantial, concluding that if the land remained undeveloped it would most likely turn to scrub land that would have no economic value and would not be particularly attractive. The court found that £25,000 would be adequate to compensate the one objector who took some practical benefit from the restriction.

Ground (c) – this ground was not considered further by the Court as it had already found that the discharge of the restrictive covenant would cause injury to one of the objectors.

Conclusions

In the two cases considered in this article, the Courts have shown a willingness to discharge restrictive covenants where they consider that the proposed development has been through sufficient scrutiny through the planning process to deem the proposal to be reasonable. The Courts were critical of arguments from objectors focused on personal gain and injury where there is a wider public benefit to the developments being considered – the Courts have taken a very practical approach.

Development sites almost always include elements of risk – it is often the existence of development constraints that create the greatest potential value if the constraints can be dealt with. A lot of developers consider insurance as the best way to address restrictive covenants. However, the availability of the Court’s powers to discharge or modify such restrictive covenant should also be considered and these cases are helpful in providing additional guidance and a reminder of the availability of this option.