Restrictive Covenants

Whether you are a homeowner with the benefit of covenant, want to do a deal for the release of a covenant, or want to challenge a covenant to permit a change or development of land, our property dispute specialists at Allan Janes can help.

What are Restrictive covenants?

Restrictive covenants over land arise from an agreement recorded in a deed that one party would restrict the use of its land in some way for the benefit of another's land. Restrictive covenants are usually enforceable by the successors in title, that is to say subsequent people who own the land benefiting from the covenant, which they can then enforce against the owners of the "burdened" land. Restrictive covenants are distinct from positive covenants, which require the burdened landowner to do something, which tend to be between the original parties and are not binding generally on subsequent owners. Restrictive covenants limit the possible uses of land, for example to residential purposes only, or can prohibit particular trades and undesirable activities, or restrict the number or type of buildings that can be erected so as to maintain peace and tranquillity and density of a site.

Anyone purchasing land which has the burden of a restrictive covenant will usually be required to give an agreement to uphold and adhere to the covenant, usually with an indemnity policy to cover the prospect of being sued for any historic breaches.

One should not act in breach of a restrictive covenant lightly; the remedy for a breach is damages (money) but if someone is suing they are more likely to want the breach stopped by injunction. As with any litigation, it can be very costly and risky to go down that route.

Can restrictive covenants be unlocked?

There are many ways in which a restrictive covenant can be challenged. It may be possible to negotiate and agree their release, but sometimes will require an application to Court or a Tribunal.

By negotiation and agreement

Some may be argued against on a basis that the covenant is too uncertain or ambiguous, or on the grounds it is prohibited by competition law, or is contrary to the public policy.

To be enforceable, covenants must "touch and concern" land owned by the person seeking to enforce it. This means that it must affect the land itself and not merely be of personal benefit to the original party (such as a payment of money which whilst benefiting the original party, but does not benefit the land). It must affect the nature, quality, mode of user or value of the land and not be expressed be personal of nature. If for example a covenant secures a money payment rather than genuinely protecting amenity or value of land it will not be enforceable as a restrictive covenant against subsequent owners.

In addition to challenging the enforceability of a covenant, there are other options to explore; it may be possible to agree with the benefiting party a release of the covenant can be documented by a deed. The form and content of this should be done with consultation with specialist solicitors to ensure it is effective.

Another route is to obtain indemnity insurance against the risk of the benefiting owner seeking to enforce it. Any insurer would need to take a view as to how likely, unsuccessful, a challenge by an owner will be.

The other routes available for people seeking to avoid the effects of a restrictive covenant, either when purchasing land for development (or after), or before acting to develop contrary to the covenant for example (or indeed after development has occurred although not ideal) parties may seek a declaration from the upper tribunal (lands chamber).

Application to the Upper Tribunal

Such claims to the Upper Tribunal are brought under section 84 (1) Law of Property Act 1925 (LPA 1925) which this gives the Court jurisdiction to discharge or modify covenants.

Applications for a covenant to be discharged or modified are brought under the following grounds:

• The covenant is obsolete (section 84 (1)a LPA 1925)

• The covenant impedes some reasonable use of land (section 84 (1)aa LPA 1925)

• The beneficiaries expressly or impliedly agree (section 84 (1)b LPA 1925)

• No injury will be caused (section 84 (1)c LPA 1925)

Arguments as to the covenant being obsolete, whilst appearing straightforward especially if the covenant is old, are often difficult to run as the test is more akin to whether the covenant can be enforced and is capable of achieving its original purpose, rather than it simply appearing anachronistic. The Upper Tribunal may decide that a covenant is obsolete due to changes in the character of the burden land, changes in a character of the neighbourhood or any other material circumstances. Whether changes in the character of the burden land have occurred may be a question of whether property has been in breach for many years, or alternatively the original use of the property has ceased. The changes in character of the neighbourhood will depend on what has occurred since the covenant was granted, for example there may be more dense population in development in the neighbourhood whereas the area was undeveloped at the time of the covenant. Other material circumstances may include covenants that are outmoded such as prohibiting the sale of alcohol.

Whether a covenant impedes some reasonable use of the land (section 84 1AA) the Upper Tribunal will ask whether the covenant secures any practical benefit of substantial value or advantage, and whether money would be an adequate compensation arising from the discharge or modification of the covenant. The key phrase here is "practical benefits of substantial value or advantage" and there is a raft of case law which gives some guidance as to what the Upper Tribunal will look for. Covenants maintaining peace and quiet on land which has remained largely unchanged since the covenants were imposed has been held to be a practical benefit of substantial value or advantage.

Where a party has obtained planning permission to develop, the Upper Tribunal will consider this to be on the face of it "reasonable” use, and will take some persuading to depart from that view.

In relation to whether the benefiting party will suffer an injury should the covenant be modified or restricted, this is a similar test to section 84 (1)aa and can be used as a fall back argument. In practice, very few applications are made on this ground alone.

Compensation

The Tribunal has jurisdiction to award compensation to benefiting owners for any loss or disadvantage as a result of the discharge or modification, or be to make up for any reduction in the price received the land due to the imposition of the covenant. The latter is often difficult to prove (especially if it requires a retrospective valuation of property), but on the whole the amounts of compensation are relatively modest sums. As such, whilst some benefiting landowners may seek to extract a ransom sum before agreeing the removal of a covenant to permit development for example, burden landowners should consider carefully whether it might be better to apply to court for discharge or modification on the basis that awards of compensation may be lower.

However, if contemplating such an application, one needs to consider the costs of litigation. The general rule is that a successful applicant bears its own costs unless there has been unreasonable conduct on the part of objectors), and if they lose they may need to pay the objectors costs in addition to their own. Alternative Dispute  Resolution should always be considered and at an early stage so that a commercial solution may be reached without the recourse cost and risk of litigation.