Another way around restrictive covenants?
Introduction
With land values ever increasing and development land being at a premium, one of the fast growing areas of work for our Property Litigation team is advising on how to avoid or manage restrictive covenants that might otherwise prohibit development.
Legal advisers often think only of the possibility of an application to the Lands Tribunal for modification or discharge.
However a recent Court of Appeal decision has highlighted a little used route to varying restrictive covenants in certain specified situations which may be of interest to developers and to beneficiaries of such covenants.
The recent Court of Appeal case of Lawntown Limited v Mr and Mrs Camenzuli related to an application made by a developer to the County Court to vary a restrictive covenant imposed upon a freehold semi detached property. The covenant prevented the property from being converted into two flats, and the benefit of the covenant extended to all properties on the housing estate upon which the property was situated.
The developer had obtained planning permission for the conversion into two flats and then applied to the Court for an Order varying the restrictive covenant under Section 610 of the Housing Act 1985. This provision only applies to the case where the intention is to convert a premises into two or more dwellings, but as this is itself a not uncommon proposal, the section is surprisingly rarely used.
This section provides as follows:-
The local housing authority or a person interested in any premises may apply to the County Court where :-
(a) owing to changes in the character of the neighbourhood in which the premises are situated they cannot be readily let as a single dwelling-house but could readily be let for occupation if converted into two or more dwelling-houses or
(b) planning permission has been granted under Part III of the Town and Country Planning Act 1990 (general planning control) for the use of the premises as converted into two or more separate dwelling-houses instead of single dwelling-houses.
As a result its use is not limited to the local authority but can be used by the landowner too.
In Lawntown Limited v Mr and Mrs Camenzuli the County Court held that it should not have regard to matters that had already been considered by the planning authority and limited his consideration to the loss of benefit of the covenant, to the risk of setting a precedent and to the negative effect on the neighbouring property values. In carrying out a balancing exercise of these factors and the urgent demand for more housing the County Court judge allowed the application and varied the covenant.
The neighbouring landowners with the benefit of the covenant appealed. On Appeal the Court of Appeal held that it was for the Court to make its own assessment of relevant factors and the weight to be given to each. However, upon exercising the decision afresh the court found that in the circumstances objections based on external appearance, increased noise from higher density of occupation, traffic noise etc did not carry great weight. Of greater significance was the need to preserve the character of the neighbourhood and the fact that granting a variation would set a precedent. There was little evidence that there would be a diminution in value of neighbouring properties. Substantial weight was given to the shortage of properties and to the housing demand in the area. Taking all of these factors into account the Court of Appeal varied the terms of the covenant. It also found that this was not a case where financial compensation was appropriate so it refused the claim for compensation.
This section could therefore be of considerable interest to any developer considering subdivision of a premises into flats. It covers both freehold and leasehold covenants and is likely to be useful particularly where there is a planning permission for conversion and/or a good economic case for conversion.
There is a possible disadvantage though - until this case there have only been a handful of reported decisions so there has been little indication as to how the Court might exercise its discretion. In contrast the attitude of the Lands Tribunal can fairly accurately be anticipated and understood.
Ashfords is regulated by the Solicitors Regulation Authority. The information in this article is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.
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