Restrictive covenants – Developers warning

The Supreme Court, has heard a case for the first time which was to decide on an appeal in relation to section 84 of the Law of property Act 1925. This legislation is what gives the Upper Tribunal discretion to discharge or modify restrictive covenants to allow development of land, that has restrictive covenants in place, also known as burdened land.

This case is one which developers should pay attention to as it could affect any future developments they may have and highlights that restrictive covenants should be taken seriously. Before a developer commences any building work they should undertake full and proper due diligence. This case also showed the importance of conduct throughout a development process as the Upper Tribunal will take conduct of the developer into consideration when making their decisions especially if the conduct is deliberate or knowingly breaching the covenants. The remedy for this is an injunction therefore if a developer builds on land that is burdened by restrictive covenants and cannot obtain modification or discharge of the covenant then the work may need to be demolished. This can prove to be very costly for a developer and as such serious consideration should be taken when developing land with restrictive covenants.

The facts of the case in brief were that the developer was engaged to build 13 properties for a registered housing provider on a plot of undeveloped land. The land overlooked grounds of a  hospice, owned by a Trust,  used as outdoor space where ill children could recuperate. The development land contained restrictive covenants which were simple and prohibited building on the land and prevented it from being used for anything other than a car park. The developer ignored these restrictive covenants and proceeded to build houses without dealing with the covenants. The Trust made objections throughout the development but the developer dismissed correspondence and had more or less completed the building work before making an application to the Upper Tribunal under section 84 of the Law and Property Act 1925 to modify the covenants.

The Upper Tribunal, concluded in the first instance that the covenants should be modified along with payment to the Trust of £150,000 in compensation. The Trust appealed its decision to the Court of Appeal who overturned the Upper Tribunal decision and found in favour of the Trust stating that the covenants should not be modified.  The Supreme court agreed with the Court of Appeal that the covenants should not be modified.

There are two strands to section 84, Jurisdictional and Discretionary, it was decided that the developer had met Jurisdictional as they cited public interest  as the development was needed for affordable housing. However, they did not satisfy discretionary. This was because the  developer could have developed on part of the site that did not have a restrictive covenant and the local planning authority would have accepted the application. The developer failed to engage with the Trust and deliberately tried to get round the proper procedures by only applying to the Upper Tribunal after they started building on the land being fully aware of the covenants that were in place.

The conduct of the developer heavily swayed the decision in this case. Developers should be aware of the existence of covenants as early in the process as possible and consider all options for their release or modification prior to commencing works. The Commercial team at Bromleys are regularly involved in negotiations surrounding restrictive covenants and applications to the Tribunal when there is no alternative method of enabling development.

At Bromleys we have the expertise and knowledge to assist you with all manner of commercial property related matters including property litigation. Call our dedicated Corporate and Commercial helpline on 0161 694 4143 for assistance.