Sale of land – Restrictive covenant – Modification or Discharge – Original covenantor applying to discharge restrictive covenant of recent origin – Local authority covenantee not consenting but choosing not to participate – Whether tribunal having discretion to modify or discharge covenant – Whether tribunal entitled to take account of shortness of time between imposition of restrictive covenant and application for discharge – Application dismissed
In 2013 the applicants purchased a substantial Victorian property known as Ivy House, at 23 Friarn Street in Bridgwater, set in grounds of about half an acre, from the council for £249,950. The property was marketed for sale as likely to “be of interest to residential and commercial developers”. The applicants purchased it with the intention of obtaining planning permission for residential development. Nevertheless, the transfer included a covenant in favour of the council, for the benefit of adjoining highway land, by which the applicants agreed not to build any additional building for use as residential accommodation.
After completing their purchase, the applicants applied for and obtained planning permission to divide the property into flats and to erect a new building containing 13 two bedroom flats in the grounds. In 2015, having become aware of the planning consent, the council offered to negotiate the release of the covenant in return for a share of the resulting development value, but the parties subsequently failed to reach agreement on an appropriate payment. Therefore, in 2017, less than four years after the transfer, the applicants applied for the covenant to be modified or discharged under section 84(1) of the Law of Property Act 1925. The applicants relied on section 84(1)(aa) (the restriction impeded reasonable use of land) and section 84(1A) (did not secure to those entitled to its benefit any practical benefits of substantial value) and section 84(1)(c) (no injury would be caused if the covenant was modified or discharged).
Assuming the grounds of application were made out, the issue to which the application gave rise was whether the tribunal should exercise its discretion to discharge a covenant so recently entered into by the applicants themselves as a term of their acquisition of the property. The council did not respond to the application but made it clear that they did not consent to it.
Held: The application was dismissed.
(1) It was accepted that the proposed use of the land was reasonable and that the covenant impeded that proposed use for the construction of the new block of 13 two bedroom flats. While the well-known formulation of the questions which arose under ground (aa) by the Lands Tribunal in Re: Bass Limited’s Application (1973) 26 P&CR 156 posed the relevant question as whether impeding the proposed user secured practical benefits to the objectors, the language of section 84(1A)(a) itself was different and focused on the impact on all “persons entitled to the benefit” of the restriction, whether or not they had objected to the application.
(2) The benefit envisaged had be practical as opposed to pecuniary, i.e. the practical benefit which was afforded by the observation of the covenant. The subsection exempted from discharge or modification those covenants whose preservation would secure a practical benefit. Bargaining power was only a benefit when it resulted in the receipt of the price upon the covenant being discharged. Such a benefit could not be of the kind contemplated by the subsection for it resulted from the discharge and not the continuance of the covenant. In the present case, the evidence showed that the benefit which the council had hoped to secure by the imposition of the covenant was a purely financial one. On that basis, in impeding the construction of an additional building in the grounds of the property, the covenant did not secure a “practical benefit” to the council in the sense in which that expression was used in section 84(1A)(a). The loss of a bargaining position was not an injury capable of being taken into consideration. It followed that the council would suffer no relevant injury by the discharge of the application and the tribunal therefore had a discretion under both grounds (aa) and (c) to discharge the covenant: Stockport Metropolitan Borough Council v Alwiyah Developments (1986) 52 P&CR 278 and Re: Bennett’s and Tamarlin Ltd’s Applications (1987) 54 P & CR 378 applied.
(3) Section 84(1B) required both the period at which and context in which the restriction was created to be taken into account. When exercising its discretion the tribunal had always regarded the fact that a restriction was of recent origin, and that the applicant was the original covenantor who voluntarily assumed the restriction, as contextual factors entitled to weight. The policy behind ground (aa), on which the applicants principally relied was to provide a fair balance between the needs of development in the area, public and private, and the protection of private contractual rights. The more recent the private contractual rights were, and the more immediate the applicants’ role in their creation, the greater the weight the tribunal would give to them when undertaking that balancing exercise. There was no general principle that the shortness of the time between the imposition of a restrictive covenant and an application for its modification was a decisive factor against granting the application. However, the shortness of the time and the closeness of the applicants’ connection to the original covenantor were factors which could be taken into account as justifying a refusal of an application. Accordingly, the tribunal was entitled to take into account that the applicants were the original covenanting parties and had entered into the covenant voluntarily less than four years previously: Shepherd v Turner [2006] EWCA Civ 8 and Jones v Rhys-Jones [1975] 1 EGLR 118 considered.
(4) There was no reason to suppose that the council insisted on the inclusion of the covenant with any other motive than to ensure that any increase in value of the property was shared. Had there been sufficient material which the tribunal could have used to make an assessment of the value of the covenant in 2013, it would have been inclined to do so and to discharge the restriction on the basis of a payment of an appropriate sum in compensation. In the absence of such evidence, in view of the very recent origin of the covenant and the applicants’ status as original covenantors, the respect due to the parties’ contract outweighed other factors. As the council were willing to negotiate a contractual release, it would be left to the parties to negotiate an appropriate sum between themselves.
Duncan Kynoch (of counsel) appeared for the applicant.
Eileen O’Grady, barrister
