Restrictive Covenants on Land: checklist for developers and land agents following the recent case of HAE Developments

The recent case of HAE developments may embolden the beneficiaries of restrictive covenants affecting land. In consequence, if a property development is affected by restrictive covenants, as ever it will be essential that the covenants should be considered carefully as early on as possible so that the various potential solutions can be explored and the covenants can be dealt with without unnecessary costs or delay.

Essentially, when dealing with restrictive covenants which will prevent your proposals for a parcel of land you should consider (1) whether you can arrange for the covenant to be released, (2) whether you can obtain indemnity insurance for the risk the covenant presents or (3) whether you can (or should) apply to the Upper Tribunal to have the covenant modified or discharged (as in the recent case of HAE Developments Ltd v The Croft Ealing Ltd and others [2022] UKUT 120 (LC) (“the HAE Developments case”). These are discussed further below.

1. What are restrictive covenants?

Restrictive covenants will restrict what an owner can do with their land for the benefit of a separate parcel of land. This can include restricting the use of the land, the number and types of buildings that can be built and the activities that may be carried out on the land.

For example, restrictive covenants include covenants preventing the construction of more than a single dwelling house or using the land as a private dwellinghouse only, or having to obtain a third parties’ approval prior to the erection of a building (as in the HAE Developments case).

2. How can you identify if land is affected by restrictive covenants?

The Land Registry title documents should be reviewed (if the land is registered) or, if the land is unregistered, a land charges search should be carried out. Enquiries can also be raised with the current landowner to discover as much information about the covenants as possible.

3. Who has the benefit of the restrictive covenant?

The benefitting party will need to be identified – this is often obvious from the document containing the restrictive covenant (such as a Transfer Deed). The benefitting party may be the original covenantee, or their successor(s) in title.

It will be important to identify the full extent of the benefitting land at the time the restrictive covenant was granted. For example, in the HAE Developments case, the objectors (those with the benefit of the covenant) were the owners/tenants of various flats and maisonettes on land which, at the time of the grant of the restrictive covenant, all fell within one estate which had since been split into parcels.

4. Is it enforceable?

There are a number of matters to consider relating to the enforceability of restrictive covenants, including:

a) Can the benefitting party be identified and/or traced?

For example, a covenant in the HAE Developments case prevented building on the land “without the consent of Mr William Booth” only. Mr Booth could not be traced and therefore this covenant was deemed obsolete.

b) Are the covenants obsolete?

For example, the objectors in the HAE Developments case argued that the covenants were not obsolete, and should remain in place, because they were imposed to protect and preserve the character of the local area and the amenity of the objectors’ land.

c) Has the covenant been correctly registered?

d) Is the covenant actually a personal covenant? This will be the case if the covenant does not benefit a piece of land but is instead a contractual arrangement.

e) Has the covenant ever been released (in part or in full)?

5. Will the restrictive covenant affect the proposed development?

The wording of the restrictive covenants should be carefully considered, as should the extent of the land affected by the covenants. For example, if only a section of the proposed development will be affected by a covenant not to build more than one dwelling then you could just ensure that this part of the land is allocated for some other use.

6. How can you deal with restrictive covenants?

If the proposed development would breach any restrictive covenant, action should be taken as soon as possible – the earlier action is taken, the more likely you will be able to make use of all of the options available to you. Invariably it is also essential to understand the relevant parcels of land and the enviros / locality at the present point of time and also at the time the restrictive covenant was entered into.

To deal with a restrictive covenant, you could:

a) negotiate a release of the covenant with the benefitting party:

It is likely that this is the most commercially beneficial option – once a covenant is released in full there is no risk of it ever being enforced against the land. Usually, this would involve paying the benefitting party a “compensation fee” in exchange for the release of the covenant.

However, before making contact with the benefitting party you should carefully consider if you intend to take out an indemnity policy (see below) as alerting a benefitting party of their rights will likely prevent the availability of insurance. Indemnity insurance needs to be handled very carefully, both in terms of its availability and if it is available so as to ensure it is not invalidated or prejudiced.

b) investigate the availability of indemnity insurance:

The availability of indemnity insurance can be affected by the date of the restrictive covenant, the benefitting party (for example if the benefitting party is an individual or a public body) and to what extent the covenant will be breached.

If you would like indemnity insurance, it is imperative that you do not make contact with the benefiting party at any point as this can preclude the availability of the insurance.

c) apply to the Upper Tribunal to modify or release the restrictive covenant (section 84 Law and Property Act 1925):

This option can give the most certain solution to issues arising out of restrictive covenants. However, in pursuing such an application, you may incur significant costs (particularly if the benefitting party object to the application, as in the HAE Developments case) and it can be time consuming, both of which can be avoided by the other two options available above).  A concern is also that following the HAE Developments case beneficiaries of a restrictive covenant may be emboldened to object in that even if unsuccessful they could be less at risk on costs.

In order to be successful in this application, you need to satisfy 2 stages: firstly, you need to establish that at least one of the 4 statutory grounds are satisfied (see below) and secondly, you need to persuade the Upper Tribunal to exercise their discretion to discharge or modify the covenant.

You can apply to the Upper Tribunal if you can show:

1. that the changes to the character of the property or neighbourhood (or there other circumstances) means that the restrictive covenant ought to be deemed obsolete (section 84, ground (a));
   
   For example, if land subject to a use covenant preventing any use other than as a single dwelling now sat in an area surrounded by blocks of flats and maisonettes, rather than the houses that surrounded it at the time the covenant was granted (as in the HAE Developments case) this may be supportive.
2. that if the restrictive covenant continued to exist, it would impede a reasonable use of the land for public or private purposes (section 84, ground (aa));
   
   When applying this ground, you must also show that the restrictive covenant:
   
   a) does not give the benefitting party any practical benefits of substantial value or any advantage to them; and
   
   For example, a practical advantage might include preventing the benefitting party from being overlooked (although the HAE Developments case demonstrated that if the permitted use under the covenant could still cause the benefitting party from being overlooked this would satisfy this ground).
   
   b) the restrictive covenant is contrary to the public interest.
   
   For example, if a proposal has been through the scrutiny of the planning process and permission has been granted, to prevent the development might be considered contrary to the public interest (as in the HAE Developments case).
3. that the beneficiary of the covenant has agreed that the covenant can be discharged (either expressly or by implication) (section 84, ground (b)); and/or
4. that the discharge or modification of the covenant will not injure the persons entitled to benefit from it (section 84, ground (c)).
   
   Satisfying this ground is similar to satisfying the ground discussed at (ii) above. For example, if the benefitting party already suffers disadvantages/injuries from other surrounding properties (such as noise, light or cooking smells), the discharge of a covenant preventing the use of a piece of land as anything other than a single dwellinghouse will not cause the benefitting party any further injury (as in the HAE Developments case).

For more information on this article, please contact Warren Reid from our Real Estate team.