Restrictive covenant – Discharge – Agreement – Section 84(1)(b) of Law of Property Act 1925 – Negotiations between applicant and district council for release of restrictive covenant to permit housing development on affected land – Parties unable to reach agreement on compensation payable to council for release of restriction – Whether council as person entitled to benefit of restriction agreeing to its discharge within meaning of section 84(1)(b) – Whether disagreement over compensation precluding existence of such agreement – Preliminary issue determined in favour of council
The applicant was the freehold owner of three parcels of land on an industrial estate in Lichfield. In 2007, certain restrictive covenants affecting the land, contained in a conveyance from the district council as the original owner and developer of the estate, were released by deed and the applicant entered into a new covenant for the benefit of certain adjoining land that the council still owned. The new covenant restricted the use of the applicant’s land to uses falling Use Classes B1, B2 or B8 of the Town & Country Planning (Use Classes) Order 1987.
Between 2009 and 2011, the applicant conducted negotiations with the council, on a “without prejudice” basis, for the release of the 2007 covenant to permit the development of its land for housing. Much of the correspondence concerned the amount of compensation payable to the council for the release of the covenant; however, the applicants were unable to agree a figure with the council’s district valuer on that issue. Meanwhile, there were also discussions between the applicant’s planning consultants and the planning officers of the council, in their capacity as local planning authority, concerning the possibility of housing development on the land.
The applicant applied to the leasehold valuation tribunal to have the covenant discharged on the ground in section 84(1)(b) of the Law of Property Act 1925, namely that the persons entitled to the benefit of the restriction had agreed to its discharge. The council objected to the application, disputing the applicant’s contention that they had agreed to the discharge of the covenant. They argued that there was no such agreement owing to the failure to agree the level of compensation. A preliminary issue was tried as to whether there had been agreement between the parties for the purposes of section 84(1)(b).
Held: The preliminary issue was determined in favour of the objector.
The tribunal’s power to discharge or modify a restrictive covenant under section 84(1)(b) was widely drawn. The concept of “agreement” by the persons entitled to the benefit of the covenant was a broad one and was not confined to a formal written agreement embodied in a contract or deed. Agreement was possible by word of mouth or in the absence of any words at all, by bilateral conduct, or unilateral action, or by default. Consent to a discharge or modification did not have to extend to the parties agreeing the amount of compensation or even agreeing simply that it would be paid. The statutory scheme left the question of compensation ultimately in the hands of the tribunal. The essential matter for the purposes of section 84(1)(b) was that those entitled to the benefit of the covenant had clearly demonstrated their consent to the restriction being removed or varied. The test was an objective one. The tribunal had to be “satisfied” that such agreement had been reached and every case would turn on its own particular facts.
Efforts to persuade the benefited parties to agree, even persistent efforts in the course of a lengthy negotiation, might not result in agreement. The tribunal should hesitate before accepting what an applicant said about a particular passage in correspondence between itself and the benefited parties, or about a particular act or failure to act on their part. In the instant case, the parties had conducted their negotiations “without prejudice”. Although they had agreed that the tribunal should consider their correspondence for the purposes of ascertaining whether an agreement within the meaning of section 84(1)(b) had been reached, it was important to remember that statements made in “without prejudice” negotiations might be less guarded and sometimes, perhaps, less precise than those made in open correspondence. It was also important to read the relevant correspondence in its entirety, rather than selected short passages the true meaning of which might not be apparent unless the context was grasped; care should be taken not to isolate a sentence or phrase from its context, or to fix on particular expressions used in “without prejudice” correspondence with the exegetical rigour that might be applied in construing a statute or contract.
The correspondence between the applicant and the council did not show an agreement by the council that the restriction in the 2007 covenant should be removed or relaxed. The negotiations were in the nature of a “without prejudice” discussion of a possible transaction involving the discharge or modification of the covenant, which was only going to happen if the parties could first agree how much consideration was to pass from one to the other. In truth, the parties were negotiating about the amount of money that the applicant would have to pay to the council to enable them to accede to the restriction being undone. That payment, if it were to be agreed, would have to be based on a valuation. The council’s responsibilities, as owners of the benefited land, were different from their duties as local planning authority. Whatever their view as a planning authority might be, as a landowner they would have been prepared to dispense with the restriction only if satisfactory terms, supported by the district valuer, could be settled with the applicant. That was their position in the correspondence. They were never prepared to consent to the discharge or modification of the 2007 covenant regardless of the amount of money they would receive for agreeing to do so, or on the understanding that, if the parties could not agree terms, the appropriate level of compensation would then be decided by the tribunal under section 84. The terms on which the council could consent to release the restriction were never agreed. The parties remained divided on the fundamental issue between them, namely the appropriate valuation basis for an agreement. That impasse had not been overcome and no agreement sufficient to satisfy section 84(1)(b) had ever come into effect.
Although, on an application under section 84, the issue of what “consideration” should be awarded for the discharge or modification of a covenant followed upon a determination that the covenant in question was to be discharged or modified, that did not mean that the parties were bound to negotiate in two distinct stages. The council had not treated the principle of releasing the 2007 covenant as a matter separate from the question of compensation, to be discussed and resolved on its own. Their view had always been that the two questions were, indivisibly, the subject of the negotiations that they were willing to have. At no point had they committed themselves to letting the restriction go.
Jonathan Upton (instructed by Charles Russell LLP) appeared for the applicant; Tom Weekes (instructed by Adcocks Solicitors, of Lichfield) appeared for the objector.
Sally Dobson, barrister
Restrictive covenant – Discharge – Agreement – Section 84(1)(b) of Law of Property Act 1925 – Negotiations between applicant and district council for release of restrictive covenant to permit housing development on affected land – Parties unable to reach agreement on compensation payable to council for release of restriction – Whether council as person entitled to benefit of restriction agreeing to its discharge within meaning of section 84(1)(b) – Whether disagreement over compensation precluding existence of such agreement – Preliminary issue determined in favour of councilThe applicant was the freehold owner of three parcels of land on an industrial estate in Lichfield. In 2007, certain restrictive covenants affecting the land, contained in a conveyance from the district council as the original owner and developer of the estate, were released by deed and the applicant entered into a new covenant for the benefit of certain adjoining land that the council still owned. The new covenant restricted the use of the applicant’s land to uses falling Use Classes B1, B2 or B8 of the Town & Country Planning (Use Classes) Order 1987.Between 2009 and 2011, the applicant conducted negotiations with the council, on a “without prejudice” basis, for the release of the 2007 covenant to permit the development of its land for housing. Much of the correspondence concerned the amount of compensation payable to the council for the release of the covenant; however, the applicants were unable to agree a figure with the council’s district valuer on that issue. Meanwhile, there were also discussions between the applicant’s planning consultants and the planning officers of the council, in their capacity as local planning authority, concerning the possibility of housing development on the land.The applicant applied to the leasehold valuation tribunal to have the covenant discharged on the ground in section 84(1)(b) of the Law of Property Act 1925, namely that the persons entitled to the benefit of the restriction had agreed to its discharge. The council objected to the application, disputing the applicant’s contention that they had agreed to the discharge of the covenant. They argued that there was no such agreement owing to the failure to agree the level of compensation. A preliminary issue was tried as to whether there had been agreement between the parties for the purposes of section 84(1)(b).Held: The preliminary issue was determined in favour of the objector.The tribunal’s power to discharge or modify a restrictive covenant under section 84(1)(b) was widely drawn. The concept of “agreement” by the persons entitled to the benefit of the covenant was a broad one and was not confined to a formal written agreement embodied in a contract or deed. Agreement was possible by word of mouth or in the absence of any words at all, by bilateral conduct, or unilateral action, or by default. Consent to a discharge or modification did not have to extend to the parties agreeing the amount of compensation or even agreeing simply that it would be paid. The statutory scheme left the question of compensation ultimately in the hands of the tribunal. The essential matter for the purposes of section 84(1)(b) was that those entitled to the benefit of the covenant had clearly demonstrated their consent to the restriction being removed or varied. The test was an objective one. The tribunal had to be “satisfied” that such agreement had been reached and every case would turn on its own particular facts.Efforts to persuade the benefited parties to agree, even persistent efforts in the course of a lengthy negotiation, might not result in agreement. The tribunal should hesitate before accepting what an applicant said about a particular passage in correspondence between itself and the benefited parties, or about a particular act or failure to act on their part. In the instant case, the parties had conducted their negotiations “without prejudice”. Although they had agreed that the tribunal should consider their correspondence for the purposes of ascertaining whether an agreement within the meaning of section 84(1)(b) had been reached, it was important to remember that statements made in “without prejudice” negotiations might be less guarded and sometimes, perhaps, less precise than those made in open correspondence. It was also important to read the relevant correspondence in its entirety, rather than selected short passages the true meaning of which might not be apparent unless the context was grasped; care should be taken not to isolate a sentence or phrase from its context, or to fix on particular expressions used in “without prejudice” correspondence with the exegetical rigour that might be applied in construing a statute or contract.The correspondence between the applicant and the council did not show an agreement by the council that the restriction in the 2007 covenant should be removed or relaxed. The negotiations were in the nature of a “without prejudice” discussion of a possible transaction involving the discharge or modification of the covenant, which was only going to happen if the parties could first agree how much consideration was to pass from one to the other. In truth, the parties were negotiating about the amount of money that the applicant would have to pay to the council to enable them to accede to the restriction being undone. That payment, if it were to be agreed, would have to be based on a valuation. The council’s responsibilities, as owners of the benefited land, were different from their duties as local planning authority. Whatever their view as a planning authority might be, as a landowner they would have been prepared to dispense with the restriction only if satisfactory terms, supported by the district valuer, could be settled with the applicant. That was their position in the correspondence. They were never prepared to consent to the discharge or modification of the 2007 covenant regardless of the amount of money they would receive for agreeing to do so, or on the understanding that, if the parties could not agree terms, the appropriate level of compensation would then be decided by the tribunal under section 84. The terms on which the council could consent to release the restriction were never agreed. The parties remained divided on the fundamental issue between them, namely the appropriate valuation basis for an agreement. That impasse had not been overcome and no agreement sufficient to satisfy section 84(1)(b) had ever come into effect.Although, on an application under section 84, the issue of what “consideration” should be awarded for the discharge or modification of a covenant followed upon a determination that the covenant in question was to be discharged or modified, that did not mean that the parties were bound to negotiate in two distinct stages. The council had not treated the principle of releasing the 2007 covenant as a matter separate from the question of compensation, to be discussed and resolved on its own. Their view had always been that the two questions were, indivisibly, the subject of the negotiations that they were willing to have. At no point had they committed themselves to letting the restriction go.Jonathan Upton (instructed by Charles Russell LLP) appeared for the applicant; Tom Weekes (instructed by Adcocks Solicitors, of Lichfield) appeared for the objector.Sally Dobson, barrister