Restrictive covenant – Modification – Change of use – Clause in lease of Grade I listed building restricting use to offices – Claimant applying to modify single user covenant to allow use as private members’ club – Whether restriction being obsolete – Whether practical benefit of substantial value or advantage secured – Whether injury would be caused by modification – Application granted
The claimant was the long leaseholder of a Grade I listed building at 45 Berkeley Square, London and its ancillary mews property to the rear (the premises). The premises occupied a central position on the west side of Berkeley Square which was a prestigious address, situated at the heart of Mayfair, one of London’s most affluent areas, and bounded by Oxford Street to the north, Piccadilly to the south, Regent Street to the east and Park Lane to the west. The defendant owned the freehold of the premises property. It was one of a number of buildings in the defendant’s wider freehold estate which included the properties either side of the claimant’s premises.
The claimant applied for the modification of a single user covenant in the lease which restricted use of the premises to that of an office, with a small element of residential use, relying on section 84(1)(a), (aa) and (c) of the Law of Property Act 1925. The claimant said that the premises were no longer suitable as offices and the restriction of use was now obsolete. Despite the substantial expenditure incurred in 2007 and 2008 in modernising the premises, the claimant argued that they were now considerably behind the times, and it would struggle to use the premises as offices or let them on the open market. The claimant wished to implement a planning consent which it had obtained in order to convert the premises into a private members’ club with three restaurants, eight bars and a private dining room together with ancillary accommodation.
The application was opposed by the defendant which sought to resist the application by emphasising the importance of its estate management.
Held: The claim was allowed.
(1) (1) In determining an application to modify a restriction, the tribunal had to evaluate the evidence against the statutory criteria set out in section 84 of the 1925 Act and decide whether the applicant had established proper grounds for modification of the covenant. The claimant’s leasehold interest met the conditions of eligibility set out in section 84(12). The nature of an objector’s interest was always a relevant consideration in a section 84(1) application, which turned on its own facts and on the impact which the proposed modification or discharge would have on the enjoyment by others of their own property. Each case was factually highly sensitive and careful attention had to be paid to the particular circumstances of the case, regard being had to the length and nature of the landlord’s reversion. The principal focus had to be on the statutory grounds, and whether the applicant had satisfied the tribunal, on the balance of probabilities, that one or more grounds for modification had been made out: Shaviram Normandy Ltd v Basingstoke & Deane Borough Council [2019] UKUT 256 (LC); [2019] PLSCS 184 followed.
(2) Section 84(1)(a) required the tribunal to find that the restriction “ought to be deemed obsolete” by reason of material changes in the character of the property or the neighbourhood or other material circumstances. It was for the tribunal to decide, on the evidence, what changes or circumstances it considered material. In the present case, the tribunal was not persuaded that there had been material changes in the character of the property, limited as they would be by the Grade I listed status. The claimant had not presented any strong evidence of material changes in the neighbourhood rendering the restriction obsolete. The claimant’s case on obsolescence was principally based upon “other material circumstances”, specifically changes in the demand for office properties in the locality. The premises were currently used as offices and were capable of being upgraded, albeit at some cost. Although the demand for office properties of that size and kind was limited, it was not non-existent and it would be wrong to deem the restriction obsolete: Re Truman, Hanbury, Buxton & Co Ltd’s Application [1956] 1 QB 261 considered.
(3) Section 84(1)(aa) sought to provide a fair balance between the needs of development in the area, public and private, and the protection of private contractual rights. “Reasonable user” in that context referred naturally to a long-term use of land, rather than the process of transition to such a use. The primary consideration was the value of the covenant in providing protection from the effects of the ultimate use, rather than the short-term disturbance inherent in any ordinary construction project. The tribunal had to proceed with caution. To discharge or modify restrictions over land inevitably engaged the property rights of the applicant and the respondents, and due cognisance had to be paid to article 1 of the First Protocol to the ECHR when considering whether the statutory jurisdiction should be exercised. In the present case, the proposed use of the premises as a private members’ club was a reasonable user of the land, albeit for private rather than public purposes, taking into account the prevalence of private members’ clubs in the area. The premises also had the benefit of planning permission which, although not determinative, was a material matter to take into account. It was not necessary for the use being proposed to be the only reasonable use: Re Bass Ltd’s Application (1973) 26 P&CR 156 and Shephard v Turner [2006] 2 P & CR 28 followed.
(4) A restriction to the effect that the premises might only be used as offices would, unless and until it was discharged or modified, impede use of the premises as a private members’ club. The question was whether impeding the user secured practical benefits to the defendant of substantial value or advantage. The practical benefit test flowed from the observance of the restriction, not its existence. On the evidence, the principal way in which the defendant could exercise any degree of control over its assets was through the covenants in the leases. However, looking at the matter in the round and adopting a pragmatic approach, none of the defendant’s objections had sufficient merit to demonstrate that the practical benefit of impeding the proposed user was of substantial advantage. Accordingly, the application under ground (aa) succeeded in principle, subject to the tribunal’s discretion. It followed that the application under ground (c) also succeeded, as there was no injury to the defendant caused by the modification of the restriction: Re Diggens’ Application (No.2) [2001] 2 EGLR 163 and Re James Hall & Co’s Application [2017] UKUT 0240 (LC) considered.
(5) Accordingly, an order would be made for modification of the restriction pursuant to grounds 84(1)(aa) and (c) of the 1925 Act, subject to additional provisions being inserted into the lease, pursuant to the tribunal’s power in section 84(1C). It was appropriate to exercise that power to protect the defendant’s position.
Philip Rainey QC (instructed by Mishcon de Reya) appeared for the claimant; Gary Cowen (instructed by Eversheds, of Sutherland) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Berkeley Square Investments Ltd v Berkeley Square Holdings Ltd
