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Modification of Restrictive Covenants – Hope for Developers

Thu 16 Feb 2017

In 2011, the Lands Tribunal case of George Wimpey Bristol Ltd v Gloucestershire Housing Association Ltd [2011] UKUT 91 suggested that the courts were intent on taking a hard line against those seeking modification of restrictive covenants they were already breaching. The recent case of Millgate Developments Limited v Smith and Another [2016] UKUT 515, however, offers hope for developers challenged by such covenants.

Restrictive covenants in general

Modification of a restrictive covenant affecting development is rarely a first choice. When it appears from due diligence on a site acquisition that there is such a covenant, one of the first questions will be ‘in favour of whom?’ If this is unclear, and the covenant is of a historic nature, then indemnity insurance may be the most prudent course of action. Alternatively, if the developer is aware of the beneficiaries of the covenant, it may be possible to negotiate a deed of release.

In other circumstances, it may be worthwhile to apply to the Lands Tribunal for discharge or modification of the covenant in spite of the implications in terms of time and cost. This is especially so where the covenant is clearly enforceable and there are a number of affected beneficiaries whose agreement would be required to any release. According to section 84(1) of the Law of Property Act 1925, the developer must show that (a) the covenant is obsolete or (b) the covenant impedes some reasonable use of the land. Under this latter ground, it must be shown that the covenant is contrary to the public interest or does not secure any practical benefit of substantial value or advantage.

The facts

Millgate purchased a site for the construction of nine houses and four bungalows on the fringe of Maidenhead, subject to a covenant dating from the early 1970s prohibiting its use for anything other than parking. This was expressed to be in favour of all other owners within a radius.

In 2014 Millgate was granted planning permission for the development, and construction was completed in 2015. This was notwithstanding that the proposal was deemed inappropriate in principle for the green belt; part of the reasoning for the permission was that it would enhance the character and amenity of the area, and improve the access to and relationship with a young persons’ cancer hospice, granted planning permission in 2011. The hospice and the adjoining owner of the land from which it was gifted objected to the modification of the covenant to accommodate the newly constructed houses. Millgate maintained both that the covenant conferred no substantial advantage on either landowner, and that it was contrary to the public interest.

The decision

Though the Tribunal accepted that there were substantial advantages to the covenant for the hospice, the covenant was nevertheless modified as contrary to the public interest.

In so finding, the Tribunal took account of the waste of homes standing empty by reason of the covenant. The Tribunal also described the development favourably as regards appearance and quality. Perhaps most importantly, however, it deemed it ‘highly material’ that the offending properties were social housing for tenants who had been waiting to be housed for a long time.

The Tribunal noted a proposal to plant a line of conifers by way of ‘immediate mitigation’. With this in mind, Millgate was required to compensate the hospice for the loss of amenity experienced in the sum of £150,000, decided roughly on the basis of what it had already offered.

Hope for developers

For developers of social housing, the Millgate case certainly contrasts with the Wimpey case; while the Tribunal referred to the comment in Wimpey that it was ‘not inclined to reward parties who deliberately flout their legal obligations’, it also highlighted that the Tribunal’s discretion in modifying restrictive covenants was not to be used with a view ‘simply to punishing a covenant breaker’.

Nevertheless, an application to modify a restrictive covenant should still be approached with some caution. The development was praised for its quality, and the covenant had only a few, quite accommodating beneficiaries. The Tribunal was able to propose a practical solution which could be represented by a tangible monetary award. The conduct of the developer will also be up for examination by the court in the exercise of its discretion. These factors will not apply equally in every situation.

The Millgate case offers hope to developers faced with awkward restrictive covenants, especially where a scheme is being developed for affordable housing. However, it remains a challenge to convince the Tribunal to modify such covenants, and it is still to be seen whether the case is part of a larger trend of friendliness towards applications for modification.

 

 

Charlie Proddow
Partner
T. +44(0) 7593 5131

E. cproddow@wslaw.co.uk

 

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