Can restrictive covenants be a matter of public interest?

Monday, 6th March 2017

In a previous article, "Grand Designs - what to consider when buying buildings or land", we considered the potential implications that restrictive covenants may have on development land.

As we explained, restrictive covenants may be imposed over land to control its use for the benefit of other land nearby, usually where a seller thinks that the conduct of certain activities or trades on the land to be sold would disadvantage their remaining land.

If a later owner of the land subject to the restrictive covenant wants to develop or carry out other activities on the land which would breach the covenant they may be able to:

  • Negotiate its release by the benefitting owner;
  • Take out indemnity insurance to compensate them should the benefitting owner enforce the covenant; or
  • Apply to the Upper Tribunal (Lands Chamber) for the restrictive covenant to be removed or modified. The Tribunal has grounds to do so where the covenant does not secure the befitting party any practical benefit of substantial value or is contrary to the public interest, provided that the applicant can establish that their proposed use of the land is reasonable and money will be an adequate compensation for any loss or disadvantage caused to the benefitting party.

The question whether or not a restrictive covenant is contrary to the public interest cannot always be determined at first glance, as highlighted by a recent application to the Upper Tribunal (Lands Chamber).

In Millgate Developments Limited and another v Smith [2016] a developer asked the Land Tribunal to modify restrictive covenants imposed in 1972 which prohibited the use of land for building or any purpose other than vehicle parking.

The developer constructed 13 social housing properties on the land in the knowledge that this would breach the covenant.

These properties on the burdened land were to be transferred to a housing association. This did not happen, presumably because the association would not accept them until the breach of covenant had been resolved. The developer was also bound by the terms of a planning agreement with the local authority which prohibited the developer from disposing of a further 15 properties on another site until the 13 social housing properties were transferred to an affordable housing provider.

The parcels of land benefitting from the covenants were owned by an individual and the trustees of a children's cancer trust who, at the time of the application to the Land Tribunal, were building a children's hospice. The trustees had asked the developer to cease building on the burdened land. The developer had not done so but offered the trustees a sum of money, which they did not accept.

When the matter was heard by the Land Tribunal, construction of the properties had been completed but the 13 social housing properties (and the 15 on the other site) were unoccupied.

Several interesting points were considered by the Land Tribunal which acknowledged that the construction of the houses on the land subject to the covenants had cost the hospice land the real and substantial advantage of enhanced privacy and exclusion, although probably not to the extent that the trustees were claiming. The Tribunal therefore decided that it would only have the statutory power to modify the covenants if they were contrary to the public interest.

In assessing this the Tribunal considered that it was highly material that the 13 properties were social housing intended to provide homes for tenants whom the Tribunal was told were likely to have been waiting for it for a very long time. The Tribunal said that "it would indeed be an unconscionable waste of resources for those houses to continue to remain empty" and decided that as the covenants were the only reason that these properties were not immediately available to meet a pressing social need, the way in which the covenants operated was contrary to the public interest.

This conclusion satisfied the Tribunal that the public interest was sufficiently important to justify the exercise of the Tribunal's powers to override the trustees' rights, as long as money would be an adequate compensation. The Tribunal decided the sum of £150,000 would compensate the trustees for the loss of amenity and the cost of designing and maintaining a remedial additional planting scheme. This was the same sum as was offered by the developer to the trustees previously.

This interesting decision shows that in some circumstances the public benefit to be gained from the intended use of the land can tip the balance towards allowing the covenants to be modified. The Tribunal warned though that this is not to be taken to mean that developers will be rewarded for flouting restrictive covenants - but it highlights the importance of influences which can be beyond the contemplation of either the original or subsequent parties to the covenant.

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Stephanie Gillam

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