Restrictive covenant – Modification – Obsolescence – Leasehold covenants preventing improvement or change of use without landlord’s consent – Sixty-one years of lease remaining – Appellant leaseholder proposing to replace redundant warehouses with residential towers – Appellant’s application to modify covenants dismissed – Appellant appealing – Whether restrictive covenants providing respondent which was also planning authority with practical benefits of substantial value or advantage – Appeal dismissed
The appellant held the lease of two redundant warehouses in a part of Manchester that was being developed with modern, high-density housing. It had no other assets. It wanted to demolish the warehouses and replace them with two 56-storey tower blocks containing 1,037 flats.
The unexpired term of the lease was just under 61 years (which was too short to enable any flats completed to be sold on mortgageable leases). The lease included a series of covenants which prevented the redevelopment of the warehouses without the consent of the respondent landlord, which owned the freehold reversionary interest in the site. The respondent, which was also the relevant planning authority, was willing to consent on conditions unacceptable to appellant.
Therefore, the appellant applied to the modify the covenants under section 84(1) of the Law of Property Act 1925 ground (a) (the restrictions were obsolete); ground (aa) (the proposal was a reasonable use of the land and its completion would cause the landlord no substantial loss or disadvantage); and ground (c) (the respondent would not be injured by the proposed modification.
The Upper Tribunal dismissed the application: [2023] UKUT 189 (LC); [2023] PLSCS 143. The appellant appealed contending, amongst other things, that the UT was wrong in law to hold that the respondent’s power to prevent the development from taking place save under a new lease on terms required by it was a “practical benefit” for the purposes of section 84(1)(aa).
Held: The appeal was dismissed.
(1) The phrase “any practical benefits of substantial value or advantage to them” was so wide that very compelling considerations would be required before a tribunal felt able to limit it. Since Parliament was authorising the tribunal to take away from a person a vested right either in law or in equity, it was not surprising that it was required to consider the adverse effect upon a broad basis: Gilbert v Spoor [1983] Ch 27 and Shephard v Turner [2006] 2 EGLR 73 considered.
Practical benefits” had to be practical rather than afford the covenantee an opportunity to extract monies from the covenantor or his successor for their release and the benefits had to flow from compliance with the covenants rather than from their discharge. Mere control by enforcement of the covenant could not be sufficient to amount to a “practical benefit”: Stockport Metropolitan Borough Council v Alwiyah Developments (1986) 52 P&CR 278 and Edgware Road (2015) Ltd v Church Commissioners for England [2020] PLSCS 61; [2020] L&TR 13 considered.
(2) Here, the UT was entitled to decide that the covenants afforded the respondent practical benefits of substantial advantage to it. Its decision reveals no error of law. It approached the matter by reference to the questions distilled in Re Bass’ Application (1973) 26 P&CR 156 which provided a helpful framework that assisted the UT and the parties to navigate the detailed and interlocking requirements of section 84(1)(aa). However, they were not prescriptive and should not be approached as if they were a rigid checklist which had to be adhered to in every case.
On the evidence, the UT made an evaluative judgment in relation to all the relevant elements in order to determine whether there was jurisdiction to discharge or modify the covenants under section 84(1)(aa). It was “fully satisfied” that the respondent wished to ensure that the site was developed in the manner proposed by the appellant subject to appropriate safeguards to ensure that it was commenced in timely fashion and not left incomplete and that that was a facet of the control over the use of the site which the covenants were intended to afford to the respondent.
(3) The ability to prevent development of the site which formed part of the City Strategic Plan, much of which had already been completed, without appropriate safeguards, was a benefit which flowed from compliance with the covenants in the lease rather than their discharge. Although a new lease might be preferable, in the meantime, the covenants were being used for their intended purpose.
Even if one restricted the respondent’s role to that of landlord, it was legitimate to take account of the fact that it carried out all of its functions as a public body, including its role as freehold landlord of the site. It had to exercise the rights and observe the obligations under the lease in the light of its duties as such. It was legitimate, therefore, to take account of the fact that it should exercise those rights in accordance with its wider public duties, one of which was to ensure the orderly and proper development of the site for the benefit of the city as a whole.
(4) Furthermore, the UT rightly rejected the submission that the respondent was seeking a monetary advantage from discharge of covenants rather than using them for their intended purpose of affording an element of control over the development of the site.
The ability to prevent the development unless appropriate safeguards were put in place, was not merely “control”. In this case, the covenants enabled the respondent to further its overall strategy for the development of the area of which the site formed part. They enabled it to prevent the uncontrolled development of the site and to mitigate the risk that the appellant might not commence the development and continue it in a timely fashion or might leave it unfinished. Such an ability was analogous to the circumstances in the Church Commissioners case in which the restriction was a useful tool in the overall management of the estate.
(5) The “practical benefit” in this case arose from the ability to refuse consent to the development of the site until the respondent’s concerns about the risks relating to the development were mitigated. It was not using the restriction to force the appellant to enter into a new lease. The respondent’s negotiating position in relation to the new lease arose because the lease had only 60 years or so before it expired. In addition, the UT was focussed on the respondent’s ability to prevent the uncontrolled development of the site.
Stephen Jourdan KC and Martin Dray (instructed by Walker Morris LLP) appeared for the appellants; Timothy Morshead KC and Elisabeth Tythcott (instructed by Manchester & Salford Combined Legal Services) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Great Jackson Street Estates Ltd v Manchester City Council
