The Upper Tribunal demonstrates a pragmatic approach to business and community interests, writes Ellodie Gibbons.
In 2012 Paul Holden purchased a detached house in a small village in Lincolnshire. It had a detached double garage, which Holden had converted into a dog grooming parlour. Planning permission had been granted, including permission for an advertising sign. However, there was an obstacle to the use of the garage as a dog grooming parlour, namely restrictive covenants in the transfer to Holden, which precluded, among other things, the carrying on of any trade or business on the property.
No doubt to the relief of the dog owners of Lincolnshire, the Upper Tribunal has modified the covenants affecting the house so as to enable Holden to carry on trading: Re Holden’s Application [2018] UKUT 21 (LC); [2018] PLSCS 13. However, the case is just one of a seemingly increasing number of applications being made under section 84(1) of the Law of Property Act 1925 to discharge restrictive covenants.
The most common cases seem to be those in which the applicant seeks the discharge of a restriction to enable the development of residential property. Where there are those who can demonstrate that they gain some benefit from the restriction, the tribunal is generally slow to deprive them of it. However, when it comes to potential restrictions on business, the tribunal perhaps feels able to take a less stringent approach, even, as in Holden’s case, where he had himself willingly entered into the restrictions not more than five years previously.
Change of business
In James Hall and Co (Property) Ltd v Maughan [2016] UKUT 513 (LC) the Aclet pub had been put up for sale as it was no longer profitable. The applicant had entered into a contract to purchase it, with the intention of converting it into a convenience store. However, the sale was conditional on the release of a restrictive covenant, which prohibited use of the property for any purpose other than carrying on the business of hotelier and licensed victualler, and specifically prohibited its use as a shop.
While section 84 of the 1925 Act allows the Upper Tribunal to discharge or modify any restrictive covenant, in order to do so it must be satisfied that one or more of the grounds specified in the section are satisfied. The above two applications were made on slightly different grounds.
Holden applied under section 84(1)(a) and (c) and, therefore, had to demonstrate that there had been material changes in the character of the land or neighbourhood, or that there had been some other change in material circumstances so that the restrictions could be deemed obsolete (ground (a)) or that the proposed discharge or modification would not injure the persons entitled to the benefit of the restriction (ground (c)).
While James Hall applied under ground (c) too, it also applied under ground (aa), which authorises the discharge or modification of a restriction that impedes some reasonable user of land. It is confined to circumstances where the restriction does not secure any practical benefits of substantial value or advantage or is contrary to the public interest and, in both cases, that money will be an adequate compensation for the loss or disadvantage suffered.
Main purpose
Holden had entered into the restrictions relatively recently, and other than him operating his business, there had been little significant change in the character of the land. The main purpose of the restrictions when considered together was to prevent what was a purely residential estate from becoming a mixed-use area and, even if the transfer had been older, that purpose could still be achieved.
With the exception of the dog grooming parlour, it was not apparent to a visitor to the estate that there was any other commercial use. Consequently, the tribunal found that the restrictions could not be considered obsolete and the application under ground (a) failed. However, the tribunal also found that the modification of the covenants would not injure the persons entitled to the benefit of the restriction, as the sort of moderate-intensity business use conducted by Holden did not represent a threat to the scheme of protection afforded by the covenants.
While there were no objections to Holden’s dog grooming, there were a number of objectors to the change in use of the Aclet. They claimed the pub was the centre of their community and an attractive feature of it and believed that, in time, another pub operator would be willing to purchase it. These concerns were found to be heartfelt and entirely genuine and, accordingly, the application as based on ground (c) failed.
In considering ground (aa), the tribunal concluded that the proposed use of the application land as a convenience store was reasonable. However, as to any benefits secured for the objectors, the evidence demonstrated that it was more likely than not that the pub would be forced to close in the foreseeable future. This could be done without occasioning any breach of the restrictive covenant. The continuation of the pub was the objectors’ principal aim and the benefit on which they relied. The additional restriction against a shop did not secure that benefit to them.
A sensible approach
In both cases, the tribunal refused to discharge the relevant covenants, as they were concerned about leaving local residents open to any manner of business use. However, the tribunal was prepared to modify the covenants so as to permit the proposed uses. As such, the cases exemplify a very pragmatic approach to the operation of section 84: using it to enable business to thrive, while at the same time protecting the interests of local residents.
Ellodie Gibbons is a barrister at Tanfield Chambers
