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Restrictive covenants, as applied to freehold land, are agreements created by a deed that one party will limit the use of its land for the benefit of another party's land, such as by capping the number of buildings which can be built on a site.
Restrictive covenants attach directly to land rather than to individuals. Often, the restrictive covenant can be enforced not just by the initial parties to the agreement but by one party's successors in title (i.e., owners and occupiers) against the others.
Our Property Litigation experts have previously discussed cases in relation to the discharge of restrictive covenants. In this article, we take a look at an example scenario that a property developer may find themselves in, as well as potential solutions. For the purposes of this blog, we will refer to the party with the covenant's benefit as the 'beneficiary'.
An example case study
Mr Smith, a property developer, has discovered a plot of land he wants to develop. The site appears perfect; for example, it lacks contamination, gas pipelines, and pylons.
However, he discovered a restrictive covenant attached to the land, which appears to hinder the intended development. This can lead to further costs, delays, and a need for development plans to be amended, and it can even prohibit Mr Smith's development. What can be done?
Enforceability of the covenant
The sole existence of a restrictive covenant does not necessarily mean that the beneficiary can enforce its terms. For the covenant to be enforceable, the following requirements must be met:
- The restrictive covenant ought to 'touch and concern' or benefit a different piece of land, with such benefit deliberately intended to run with this benefiting land. Indeed, the restrictive covenant cannot just personally benefit the initial contracting party or obtain an obligation for monetary payment. It also cannot purport to benefit land which is too far away.
- The beneficiary must own the benefitting land.
- The restrictive covenant must be clear, both in terms of its wording and the scope of the benefitting land.
- The covenant must be truly restrictive rather than positive.
- Since the enforcement of the restrictive covenant, the land that benefits from the covenant must not have been in common ownership with the land that is burdened by it. This could be seen as blending together the covenant's benefit and burden.
- The restrictive covenant's benefit must pass to the beneficiary via 'annexation', 'assignment' or 'scheme of development'.
It is important that the enforceability of the covenant is considered at the outset. If the covenant is unenforceable then Mr Smith will be able to continue with his plans.
Apply for a waiver, modification or discharge
Under section 84 of the Law of Property 1925, Mr Smith could make an application to the Lands Chamber of the Upper Tribunal for restrictive covenants to be waived, modified or discharged.
If the covenant is unenforceable, such as by way of satisfaction of any of the above criteria, it is recommended that Mr Smith applies for the covenant to be discharged from the land. As for modification, this could make a covenant less restrictive. One or more of four grounds must be met for a restrictive covenant to be modified or discharged.
Consent
One way of solving Mr Smith's issue could be simply asking the beneficiary, if they are identifiable, to release the land from the restrictive covenant's burden. Practically, this may not be possible, given that the beneficiary may demand a large sum for doing so or even refuse to collaborate at all.
Also, it is unlikely that Mr Smith would be capable of insuring the potential breach after alerting the beneficiary, as this could be seen as tipping them off about it. Therefore, this can be a risky approach.
Planning Permission
If the restrictive covenant could be enforced, it may be sensible for Mr Smith to get planning permission for his proposed development in the first instance. Indeed, one does not have to own land to apply for planning permission.
Doing this would present the beneficiary with the opportunity to object to the purported development, which would give Mr Smith a chance to gauge the likelihood of a complaint.
Insurance
The most popular way of resolving a restrictive covenant issue is to insure against the risk of the covenant's enforcement. Planning permission for Mr Smith's plans would likely be needed for this to be allowed, and the cost of the premium payment would vary depending on the level of cover and risk.
However, insurance may not be granted if the beneficiary is known and the covenant is new.
What if no steps are taken?
Choosing to ignore the existence of the restrictive covenant could result in the beneficiary making a substantial claim for damages against Mr Smith or applying to the Court for an injunction to prevent any works from taking place.
Although Mr Smith is likely to be understandably concerned about the presence of a restrictive covenant on land he wishes to develop, there are solutions available.