Will a restrictive covenant prevent a proposed development?
You are a developer. You have just purchased a plot of land ripe for development. Will a restrictive covenant burdening that land prevent you from commencing the proposed development?
Ordinarily, a developer will need to obtain planning permission before carrying out a development. Fortunately for developers, the existence of restrictive covenants are not material to a planning application. Accordingly, the relevant planning authority should not factor in the existence of a restrictive covenant when considering a developer’s application.
Beneficiaries wishing to assert their rights
Where a restrictive covenant burdens a developer’s land, the owner of a neighbouring plot of land will have the benefit. As the beneficiary of a restrictive covenant, they have an enforceable right. In these circumstances, a developer has two options:
A beneficiary that does not oppose development may be open to a negotiation. In simple terms, the beneficiary would consent to the development going ahead in exchange for payment. The developer may agree to a one-off or (less likely) periodic payment and the beneficiary may agree to release the restrictive covenant or merely not to enforce it.
A negotiation may be impractical or commercial unviable depending on, for example, the number of beneficiaries.
Apply to the Upper Tribunal
Where a beneficiary has a principled objection to the development, a developer can make an application to the Upper Tribunal (UT). Under section 84 of the Law of Property Act 1925, the UT has a discretionary power to discharge or modify a restrictive covenant. The application can, of course, be challenged by a beneficiary.
Under section 84(1), a develop can apply to the UT if:
- The restrictive covenant is obsolete;
- The beneficiary agrees to having the restrictive covenant discharged/modified; or
- The beneficiary would not be harmed by the discharge/modification.
Where a developer’s application is granted under section 84(1), the UT may also order that the beneficiary receives monetary compensation.
Under section 84(1A), a developer can apply to the UT if the restrictive covenant impedes a reasonable use of the land (eg. the building of affordable housing) and the restrictive covenant:
- Does not secure any practical benefit to the beneficiary; or
- Is contrary to public interest.
Where an application is made under section 84(1A), money must also be an adequate compensation for the loss that a beneficiary would suffer from the discharge/modification of the restrictive covenant.
Once a developer has established that it has the legal right to have the restrictive covenant discharged/modified (ie. because the conditions stated above have been satisfied), the UT must then exercise its discretion to determine whether it should discharge/modify the restrictive covenant. This second, discretionary stage, is decided on the particular facts relevant to the developer’s application (see below).
Clearly, the UT is always likely to consider the building of affordable housing to be both a reasonable use of land and a public benefit. However, this does not mean that a developer is guaranteed to make a successful application. This is for two reasons. First, it may be that a beneficiary cannot be adequately compensated in monetary terms for the discharge/modification of their restrictive covenant – even though a discharge/modification of the restrictive covenant would be in the public interest. Second, even if the beneficiary can be adequately compensated for by money, the UT may exercise its discretion to refuse an application on the specific facts of the case. The recent Supreme Court decision in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd is a good illustration of this. The Supreme Court refused to grant the developer’s application on account of the developer’s cynical conduct in commencing the development before making the application. (For more information on this case, see my recent article).
If the UT does refuse a developer’s application, the covenant remains enforceable and the development cannot be commenced.
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