One of the questions asked of the Upper Tribunal Lands Chamber in Great Jackson Street Estates Ltd v. Manchester City Council (2023) UKUT 189 (LC) was whether covenants should be modified or discharged on the basis that they were obsolete.
The decision of the panel of the Tribunal is helpful not least because it gives a summary of the relevant law for ground (a) section 84 (1) Law of Property Act 1925.
For ease of reference, I have copied that here:
“Ground (a)
32. To succeed on ground (a) the applicants must demonstrate that by reason of changes in the character of the property, or the neighbourhood, or other circumstances of the case the restrictions ought to be deemed “obsolete”.
33. The circumstances in which a restriction will be deemed to be obsolete, and liable to discharge or modification under section 84(1)(a) were explained by Romer LJ in Truman, Hanbury, Buxton & Co’s Application [1956] 1 QB 261, at 272, in the context of an application to modify a scheme of freehold covenants imposed when a building estate was laid out:
“… these covenants are imposed when a building estate in land is laid out, as was the case here of this estate in 1898, for the purpose of preserving the character of the estate as a residential area for the mutual benefit of all those who build houses on the estate or subsequently buy them … If, as sometimes happens, the character of the estate as a whole, or of a particular part of it, gradually changes, a time may come when the purpose to which I have referred can no longer be achieved, for what was intended at first to be a residential area has become, either through express or tacit waiver of the covenants, substantially a commercial area. When that time does come, it may be said that the covenants have become obsolete, because their original purpose can no longer be served and, in my opinion, it is in that sense that the word “obsolete” is used in section 84(1)(a).”
34. In Chatsworth Estates Ltd v Fewell [1931] 1 Ch 224, Farwell J provided a more concise explanation, at 229:
“To succeed on [ground (a)] the defendant must show that there has been so complete a change in the character of the neighbourhood that there is no longer any value left in the covenants at all.”
35. These citations emphasise the extent of the change necessary for a covenant to become obsolete, but the critical consideration is not the degree of change which the character of a neighbourhood or a property undergoes, but the extent to which that change renders the original purpose of the covenant incapable of achievement.”
In the present case, it was argued on behalf of the applicant that the purpose of the covenants of maintaining use of the site as light industrial buildings or wholesale warehouses or repositories should be considered obsolete. The Tribunal held that, had they agreed that was the purpose of the covenants, they would have agreed. However, they disagreed that this was the purpose of the restriction in the first place.
Rather, the Tribunal held that the real purpose of the restrictions were a matter of control for the covenant holder - Manchester City Council. There was a strategic interest to influencing the use of the land on the fringe of the city centre and to ‘secure its orderly and appropriate development’.
The Tribunal concluded, at paragraph 43, agreeing with the test as submitted by the applicant Counsel: ‘the touchstone of obsolescence is whether the object of the covenant is still capable of fulfilment’.
On that basis, it held that covenant was not obsolete and the applicant's case on ground (a) was refused. Likewise, although not the focus of this article, the application on ground (aa) also failed, on the basis that the control which the covenant gave to Manchester City Council was a substantial advantage, and as such the Tribunal lacked jurisdiction to modify the covenant.
Slow to exercise discretion to interfere with a local authority
The Tribunal held that, even had the applicants succeeded at the jurisdictional stage, the Tribunal would have likely declined to exercise its discretion on the basis that a Tribunal should be ‘slow to interfere with a local authority which seeks to use its private rights as landlord to promote its strategic development plan, and to ensure that a desired development takes place’. In doing so, the Tribunal referred to a decision of the Lands Tribunal Scotland of Caledonian Associated Properties Ltd v East Kilbride DC (1985) 49 P&CR 410.
Summary and Conclusions
There is a well-worn test of applications seeking discharge on the basis of obsolescence: is the object of the covenant still capable of fulfilment? There may well be different arguments as to what that purpose or object is, and the Tribunal may take a different view. This test is not to be conflated or confused with changes in the character of the property, neighbourhood, or other circumstances of the case, which are part, but not determinative of, the question of when the purpose of the covenant can be fulfilled.
Toby Walker and his team specialise in disputes over property, include applications to the UTLC. They act for both owners and developers as well as those seeking to uphold covenants in all stages from initial advice, negotiations, deeds of variation and litigation. Toby has written extensively on covenants and you may wish to check out here for an overview on covenants and what you may be able to do with them. If you have an issue relating to restrictive covenants please contact Toby on 01494 893512 or by email.