Restrictive covenant – Development in breach – Application to modify covenant – Compensation to persons entitled to benefit of restriction – Section 84(1A) of Law of Property Act 1925 – Whether compensation payable on basis of negotiated share of development profits – Lands Tribunal taking different approach – Appeal dismissed
The respondent demolished a single dwelling and constructed two houses on the land in question. Although the development was in breach of a restrictive covenant limiting the use of the land to one dwelling-house, the respondent had negotiated a suitable variation of the covenant with a company that it understood to have the right to enforce the restriction. Unknown to the respondent, the appellants, as owners of the adjoining property, also had the right to enforce the covenant. That fact did not become apparent to the respondent or to the appellants until the works were nearing completion. The respondent thereupon applied for modification of the covenant. The appellants objected.
It was accepted that it would be unrealistic to require the demolition of the houses. The appellants did not oppose the modification of the covenant under section 84(1)(aa) and 84(1A) of the Law of Property Act 1925, but instead sought compensation under section 84(1A)(i) in respect of the loss or disadvantage that they would suffer. They sought a payment representing a proportion of the profits of the development, based upon what would have been obtained in negotiations for the release of the restriction. Their expert calculated that the developer’s overall profit would be £290,000, half of which was attributable to the extra house, and indicated that the appellants’ share should be around one-third, or £50,000. The Lands Tribunal did not follow that approach. It found that any loss of amenity was not attributable to the modification of the covenant and that the works had not resulted in any reduction in the value of the appellants’ house. It confined its award to £10,000 in respect of problems with inadequate backfilling of excavations related to the development, to be reduced to nil if the respondent undertook to perform works to resolve the problems. The appellants appealed.
Held: The appeal was dismissed.
Although the negotiated share approach was well recognised in civil proceedings for breach of restrictive covenants, that did not provide a useful parallel for an award of compensation for modification under section 84: Wrotham Park Estate Co Ltd v Parkside Homes Ltd (1973) 229 EG 617 and Stokes v City Council of Cambridge (1961) 180 EG 839 distinguished. Section 84 awards had to be based upon the effect of the development on the objectors, not on the loss of the opportunity to extract a share of the development value: SJC Construction Co Ltd v Sutton London Borough Council [1975] 1 EGLR 105; (1975) 234 EG 363 and Stockport Metropolitan Borough Council v Alwiyah Developments (1986) 52 P&CR 278 considered. The basis of compensation was the loss caused by diminution in the value or enjoyment of the objector’s property, not the loss of its financial bargaining position. That said, there was no hard and fast rule as to how that loss was to be assessed. Although previous Lands Tribunal decisions did not support any established practice of awarding a share of development value, they did show that it was a possible approach in circumstances where a simple estimate of the diminution in value of the objectors’ properties was unlikely to be a fair reflection of their subjective loss.
Where the negotiated share approach was followed, the percentage had to bear a reasonable relationship to the actual loss suffered by the objector. The 50% percentage awarded in SJC Construction, where modification was allowed on the public interest ground in section 84(1A)(b), established no precedent in respect of such cases. It was not relevant to modifications under section 84(1A)(a), where the ground for modification was that the restriction secured no substantial value or advantage to the persons entitled to its benefit. In such cases, if a percentage were to be used, it would probably be around the Wrotham Park (5%) end of the scale. Objectors should not expect a windfall Stokes percentage of 50% of the released development value. The tribunal’s decision in the instant case disclosed no error of law.
Laura Collignon (instructed by Royds) appeared for the appellants; Richard Colbey (instructed by the respondent) appeared for the respondent.
Sally Dobson, barrister
