Do you have a restrictive covenant on your title that is ruining your dreams to develop your property? These are your options for ending the nightmare.

Member News published by Howes Percival LLP, under Legal / IP

You have found the perfect site to develop. You have instructed your solicitor to commence the due diligence and they quickly discover that there is a restrictive covenant on the title limiting or even prohibiting development of the land. Your plans for the site appear to be in ruins – but is there anything that can be done to salvage your development?

There are 5 potential options available for landowners who are faced with this issue. Which approach is the most suitable for you will depend on the circumstances of your particular case.

What are my options?

1. Deed of Release

If all parties with the benefit of the restrictive covenant can be identified and found, and they agree to release the restrictive covenant, a deed of release can be negotiated and entered into. The deed will operate to release the land from the burden of the covenant and enable you to develop the land freely. The party with the benefit of the restrictive covenant may well, however, command a hefty sum for the release of the benefit of the restrictive covenant. The amount you will need to pay will be a matter for negotiation between you and the other parties and will depend on the commercial circumstances.

If a reasonable release payment can be agreed between the parties, a deed of release can be a very quick and easy way to release a restrictive covenant. It is worth noting, however, that if you do approach the parties and they are not agreeable to the deed, you will be unable to fall back on the option of obtaining title indemnity insurance as it will no longer be available

2. Title Indemnity Insurance

This is arguably an inexpensive and quick solution, however, indemnity insurance does not resolve the fundamental issue at hand. The policy will simply operate to protect you financially against the risk of the restrictive covenant being enforced. Indemnity insurance will generally cover your legal costs, any damages awarded to the party with the benefit of the restrictive covenant and any compensation that you may be entitled to for the loss of your development. The restrictive covenant will still burden your land and will continue to pose a potential risk to your development plans if the cover provided by the indemnity insurance later proves to be inadequate or ineffective. If proceeding by way of indemnity insurance is your preferred option, the policy terms and level of cover will need to be scrutinised carefully to ensure that the risks are adequately mitigated against.

Indemnity insurance is particularly suited to situations where the restrictive covenant has been on the title for a very long time and the beneficiaries cannot be identified. In practical terms, it is worth emphasising that if there is any real risk of the restrictive covenant being enforced, indemnity insurance cover will not be available as an option to begin with. This will usually be the case where the restrictive covenant is relatively new or if the beneficiaries have already objected to your plans.

3. Application to the Upper Tribunal (Lands Chamber) under s.84 of the Law of Property Act 1925.

Another option is to apply to the Upper Tribunal to modify or discharge the covenant under s.84 of the Law of Property Act 1925. It is important to note, however, that your application should be made before any development work that might breach the restrictive covenant is commenced. Retrospective applications are not viewed favourably by the Upper Tribunal and may prove a costly mistake.

In order to make an application under s.84, you need to satisfy one of the four grounds. These are as follows:

a) There have been changes in the character of the property, neighbourhood or other circumstances, which mean that the restriction should be deemed "obsolete" (s84(1)(a)).

b) The continued existence of the covenant would impede the reasonable use of the property, confers no practical benefit of substantial value and the loss of the covenant can be compensated with money (s84(1)(aa)).

c) Those with the benefit of the covenant have agreed to discharge or modify it. (s84(1)(b)).

d) Modifying or discharging the covenant would cause no injury to the persons entitled to the benefit of the restriction (s84(1)(c)).

Ground (1) (aa) is the most commonly relied on. The existence of planning permission can be highly persuasive in an application under this ground but is not vital nor is it a guarantee of success.

An application under s.84 is not the quickest nor the cheapest approach but it does offer a tangible solution to the problem, if successful, as the burdensome restrictive covenant is formally discharged or modified.

The main disadvantage to this approach is, however, that unless the objectors to your application have acted unreasonably, the Upper Tribunal will usually order the applicant to pay the objector’s legal costs. This is, therefore, part of the price you will pay for the benefit of obtaining a modification or discharge.

4. Application to the County Court under s.610 Housing Act 1985

This is a rarely used remedy for getting around a restrictive covenant as it has limited scope but is a viable alternative to an application under s.84 where the facts at hand allow for it.

s.610 HA 1985 is designed to provide relief against restrictive covenants where they prevent the conversion of a large property into two or more smaller dwellings. In these particular circumstances, the County Court has discretion to vary the terms of the restrictive covenant.

The benefit of applying under s.610 instead of s.84 is that its provisions are less formal and more straightforward than those in s.84. This approach should, therefore, be considered as an option where appropriate.

5. Reconfiguring your development plans

A practical solution would be to consider whether reconfiguring your site layout would avoid breaching the restrictive covenant on the land. This may not be suitable in all circumstances but it is an avenue worth exploring particularly if the covenant only restricts the development or use of part or certain areas of the land. If you are able to successfully plan around the covenant, the possibility of breach can be circumvented.

Conclusion

As stated at the outset, it is worth considering all of the options available before making a decision on which approach is the most appropriate for your circumstances. The advantages and disadvantages of each option will need to be weighed and evaluated.

What you should not do is simply proceed with obtaining planning permission and commencing construction in the hope that the party with the benefit of the restrictive covenant will agree to enter into a deed of release or that you will make a successful application to modify or discharge the covenant. As recent case law highlights, (the Supreme Court decision Alexander Devine Children's Cancer Trust v Housing Solutions Ltd [2020]), the court is most likely to reject your application if you commence works before making an application on grounds of poor conduct.

Timing is crucial. Your chosen way forward should be considered carefully and approached with the benefit of tailored specialist advice. If you have a restrictive covenant on your title and you wish to discuss any of the above options, please contact the Commercial Property Team.

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