Jonathan Seitler QC and Miriam Seitler debate moot points in property law – this time, the discharge and modification of restrictive covenants.
Question: Is it easy to overcome a restrictive covenant?
NO: Jonathan Seitler QC, barrister at Wilberforce Chambers, argues that there remain significant hurdles for an applicant under section 84 of the Law of Property Act 1925 to overcome.
1. To satisfy the first ground (section 84(1)(a)) the applicant must show that the restriction ought to be deemed obsolete by reason of changes in the character of the property or the neighbourhood, or other circumstances. The threshold of obsolescence is high and rarely satisfied. For example, in Derreb Ltd v Blackheath Cator Estate Residents Ltd and others [2017] UKUT 209 (LC); [2017] PLSCS 173 it was held that a restrictive covenant requiring an area to be used as a sports ground or to build detached houses was not obsolete despite the fact that the site had not been used as a sports ground since 1999 and the applicant contended there was no prospect of planning permission for a scheme wholly of detached houses. The Upper Tribunal (Lands Chamber) said the nature of the estate had not changed so as to make the restriction to detached houses obsolete.
2. Similarly, the public interest test (section 84(1A)(b)) in the second portal is notoriously difficult to satisfy. The Court of Appeal recently overturned the tribunal’s decision that the public interest test was satisfied in The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and another [2018] EWCA Civ 2679; [2018] PLSCS 209 because the tribunal had given too much weight to the fact that the development in breach of the covenant (13 affordable houses) had the benefit of planning permission. The questions of whether planning permission should be granted and whether upholding a covenant was contrary to the public interest were different. Further, it is not sufficient for the public interest test that the applicant, for example, is a charity seeking to develop land previously used as a care home into flats to release funds for other charitable purposes, as shown by the application of Thomas Pocklington Trust Ltd [2018] UKUT 256 (LC); [2018] PLSCS 145.
3. When relying on the “limited benefit” test under section 84(1A)(a) the burden is on the applicant to show that the covenant does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them. The objectors can rely on any benefit. Even aesthetic considerations, such as the loss of a nice view of pretty trees (Re Hopkins’ Application [2008] PLSCS 208) whether for private individuals (Vince’s Application [2007] 9 WLUK 250) or quasi-public bodies (Zenios and another v Hampstead Garden Suburban Trust [2010] UKUT 260 (LC); [2010] PLSCS 287) can count as practical benefits of substantial value or advantage for which, in many cases, money cannot compensate. The objector can rely on a broad meaning of practical benefit: in Lamble v Buttaci [2018] UKUT 175 (LC) the tribunal accepted that a practical benefit was capable of being secured to a person having the benefit of a covenant by reference to a wider area than that to which the benefit was strictly annexed and that the existence and extent of the benefit would be a question of fact in each case.
4. The applicant can be in difficulties if it is the original covenantor. In Re Rudkin’s Application (1965) 16 P&CR 75, where the applicant was the original covenantor, the tribunal expressed the view that it was “justified in requiring from an original covenantor a somewhat higher proof of justification for the modification sought”. Similarly, it can be a struggle to establish that a covenant only recently imposed, albeit not agreed to by the applicant itself, has now become obsolete or no longer secures a practical benefit for the covenantee. Section 84(1B) directs the tribunal to take into account “the period at which and the context in which the restriction was created or imposed”. In the application by Holden, Re Ash Lodge [2018] UKUT 21 (LC); [2018] PLSCS 13 the tribunal took into account that the covenant had been imposed four years previously when the applicant purchased the property and the applicant could not show there had been changes to the property or the neighbourhood in that short period.
5. Even if the facts necessary to establish the tribunal’s jurisdiction are proven, the applicant is not entitled as of right to an order for the discharge or modification of the restriction or for compensation. The tribunal has a discretion: Driscoll v Church Commissioners for England [1957] 1 QB 330. It will often take into account poor conduct on the applicant developer’s part. Knowing disregard for the covenant and opportunistic conduct can be given weight by the tribunal, both in exercising its general discretion and in applying the public interest test under section 84(1A)(b) as in Alexander Devine.
YES: The case law shows an increasing willingness by the tribunal to discharge or modify, says Miriam Seitler, barrister at Landmark Chambers.
1. The tribunal’s combined power of being able to require the applicant to pay compensation and to add further provisions restricting the user of the building (section 84(1C)) often means that the second portal, ground (aa) is easily satisfied. The imposition of conditions under section 84(1C) can be used to establish that the covenant no longer secures a substantial practical benefit. This was successful in Derreb where the applicant’s agreement to various conditions meant that if the proposed housing development went ahead with those conditions, the objectors would not lose any practical benefit of substantial value or advantage from the restriction.
2. Where planning permission has been granted, it is hard for a covenantee to say that the proposed use is not reasonable for the purposes of section 84(1)(aa); see Shephard and others v Turner and another [2006] EWCA Civ 8; [2006] 2 EGLR 73.
3. The objector can often find it challenging to establish evidentially that the covenant secures a practical benefit to it. The tribunal can look at evidence of the likely outcome for both parties if the covenant is modified or discharged as opposed to it remaining in force. In James Hall & Co (Property) Ltd v Maughan and others [2017] UKUT 240 (LC) the objectors sought to preserve the use of the property as a pub rather than a shop, but failed to establish that the covenant restricting use to a public house secured a practical benefit where the evidence showed it was likely that the pub would be forced to close in the foreseeable future. Similarly, the practical benefits need to be substantial, either individually or cumulatively: O’Byrne’s Application [2018] UKUT 395 (LC); [2018] PLSCS 218.
An objector who relies on a “thin end of the wedge” argument will need to back this up with evidence showing the likelihood that further successful applications would be made if the subject application succeeded or other likely knock-on effects would result. In terms of quantifying a substantial practical benefit, the objectors need to adduce evidence on the expected diminution in value of their property if the covenant were discharged or modified; a diminution in value amounting to a few per cent of the total value of the objector’s property will usually not be regarded as substantial. In Geall [2018] UKUT 154 (LC) a 2.5% diminution in value (amounting to £65,000) was not considered a substantial practical benefit despite being a significant sum.
4. Although the tribunal does not have jurisdiction to modify easements, the knock-on effect of a modified or discharged covenant will often be that a connected easement is interpreted more permissively. A right of way used in connection with the property that is the subject of the application for discharge or modification is given a purposive interpretation so that the right of way can be used in connection with the new use, even if the literal words of the right of way seem not to permit it (Hotchkin v McDonald [2004] EWCA Civ 519; [2004] PLSCS 97). The right of way could serve any use permitted under the restrictive clause as modified by the tribunal, or if the tribunal were to discharge the restriction, the words referring to it in the grant of the right of way would become redundant.
5. Agreement under section 84(1)(b) is not limited to express agreement only. This portal concerns more than just the express agreement of all beneficiaries of the restrictive covenant. It also concerns a situation in which, by their actions, such as by acting contrary to the restriction for many years, those persons can be taken as agreeing to its abandonment: see Marcello Developments Ltd’s Application [2001] 5 WLUK 431.
6. The tribunal will often order a modification rather than a complete discharge, regardless of whether the application includes a modification. A modification can put an end to the “thin end of the wedge” argument and addresses any argument that a discharge would give the applicant carte blanche with unknown consequences. In Holden, for example, the tribunal modified a covenant that restricted business use to permit only the applicant’s current use as a dog grooming parlour.
7. It is by no means impossible for an original covenantor to succeed in an application for discharge or modification, even where the covenant is relatively recent. In Geall the tribunal considered that a 30-year-old covenant was not recent and the application by the original covenantor succeeded. The tribunal has reiterated that the recency of the covenant is not a decisive factor: Barter’s Application [2017] UKUT 451 (LC); [2017] PLSCS 213.
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Last month, Jonathan claimed his first victory, securing 62% of the vote with his argument that, yes, forfeiture can be worthwhile. Miriam now leads 2-1.
