Many practitioners will be familiar with section 84 of the Law of Property Act 1925 as a means of seeking the release or modification of restrictive covenants affecting freehold land. However, the section is often overlooked when considering restrictive covenants in leases, leading tenants to go cap-in-hand to their landlord seeking variations at significant cost.
By virtue of section 84(12), section 84(1) applies to restrictions affecting leasehold land where the lease is for a term of more than 40 years and 25 years of the term has expired. However, in Ridley v Taylor [1965] 1 WLR 611, Harman LJ said at 617 and 618:
“It seems to me that it should be more difficult to persuade the court to exercise its discretion in leasehold than in freehold cases. In the latter the court is relaxing in favour of the freeholder’s own land restrictions entered into for the benefit of persons owning other land. In the former the land in question is the property of the covenantee who is prima facie entitled to preserve the character of his reversion.”
As with freehold covenants, in order to obtain the discharge or modification of a leasehold covenant, it is necessary to establish one or more of the grounds in section 84:
(a) obsolescence;
(aa) impedes some reasonable user without securing practical benefits or is contrary to public interest and money is adequate compensation;
(b) agreement; and/or
(c) lack of injury.
Even if one or more of the grounds are established, the tribunal still retains a discretion as to whether to make an order.
Judicial context
In both Driscoll v Church Commissioners for England [1957] 1 QB 330 and Ridley there were organised estates and leasehold covenants restricting houses to single occupation, despite a lack of demand for them. As such, the tenants of the houses wanted to subdivide them. One tenant argued that the restriction was obsolete and the other that the landlord would not be injured. Both tenants failed. In Driscoll it was found that, while the restriction was indeed obsolete, it still served a useful purpose in enabling the lessors to control the use to which the houses were put, and that control was an amenity to neighbouring lessees.
However, the Court of Appeal made it clear that it was upholding the covenant because the evidence showed that the control was being exercised reasonably.
Similarly, Memvale Securities’ Application [1975] 1 EGLR 210 concerned a house on the Howard de Walden Estate, which the tenant wanted to use as an office. Its application for a change of use failed, as the covenant was found to serve a useful purpose in enabling the landlord to control the use of its houses, keep the area as one predominantly used for residential and medical purposes and keep out occupants that it may consider undesirable. That control was considered valuable not only to the landlord, but also its other tenants.
In all these cases there was an organised estate which it was found benefited from the relevant covenant. Consequently, while control was being exercised reasonably, there was good reason for the tribunal to hold that it served a useful purpose.
Compensation
Ridley concerned a licence under seal that varied the user provisions in a lease to allow the tenant to use the premises as five flats, pending the grant of planning permission to allow the house to be used as three maisonettes. That licence provided that the tenant was to pay the landlord, the Grosvenor Estate, extra sums by way of rent depending on whether and how the house was subdivided. Modifying the user provisions was held to injure the landlord because “[the freeholder] had been able to exact not a mere fine based on nuisance value for his licence, but a negotiated extra rent, for a limited period, of more than double the ground rent.”
The distinction between a “mere fine” or “ransom” and “a negotiated extra rent” is a subtle one. For example, in Re EMI Social Centres Ltd’s Application (1980) 39 P&CR 421, Sheffield Corporation claimed £3,000 to make up for any loss or disadvantage suffered by it as a result of an order made by the Lands Tribunal for the modification of a restrictive covenant, so as to permit the sale of alcohol in a bingo and social club. In allowing the modification of the covenant, the tribunal held that the only loss which the corporation had suffered was its power to extract from the applicants a sum of money in consideration for agreeing to vary the restriction, which derived, not from the modification permitted by the tribunal, but from the exercise by that tribunal of its statutory power.
In other words, in Ridley, if the house had been used as five flats pursuant to the licence, the Grosvenor Estate would have received an extra £200pa by virtue of the terms of the licence, whereas if the house had been used as five flats as a result of an order by the tribunal, the Grosvenor Estate would have received nothing.
On the other hand, if Sheffield Corporation permitted the sale of alcohol, it was not contractually entitled to receive a sum of money: it had a bargaining power, which could be used to extract money in return for permission. However, that bargaining power was lost by the existence of the power to release or modify a restriction under section 84.
The situation in Ridley is unlikely to be a common one, with the result that a modification under section 84 may not be so costly for a tenant or as lucrative for a landlord as might otherwise be thought.
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Ellodie Gibbons is barrister at Tanfield Chambers
