Restrictive covenants are sometimes used in place of overage provisions. But the owners of land burdened by them can apply to have them modified or discharged pursuant to provisions in section 84 of the Law of Property Act 1925.
Restrictive covenants imposed purely to enable a covenantee to extract cash from a covenantor are particularly susceptible to attack. Furthermore, the compensation payable for the modification or discharge of such covenants may be considerably lower than the overage that the covenantee was expecting to receive. Indeed, the tribunal may refuse to award the covenantee any compensation at all.
Father’s Field Developments Ltd v Namulas Pension Trustees Ltd [2021] UKUT 169 (LC) concerned covenants imposed on the sale of a golf course in 2001, which prohibited residential development without the transferor’s consent for a period of 30 years. But there was an exception for residential development and occupation by the transferee, its employees and their respective family members.
The transferee, a family company, began constructing two new houses on the application land for occupation by a member of the family company and her granddaughter. But the company wanted the freedom to sell the houses in the future. So it sought to have the covenants modified or discharged pursuant to section 84(1)(aa) (the covenants impeded some reasonable user and did not secure practical benefits of substantial value or advantage) or section 84(1)(c) (those entitled to the benefit of the restriction would not be injured).
The transferor had not retained any land that benefited from the covenants. Its interest was purely financial, and it was concerned that the discharge or modification of the covenants in relation to the application land would make it more likely that a further application in relation to the proposed development of 53 houses on another part of the golf course would be successful – if and when planning permission was granted. But it was content for the covenants to be discharged in return for compensation in the form of a share of the development value of the application land.
But the tribunal decided to discharge the covenants without awarding the covenantor any compensation in return. It explained that the opportunity to demand a price for consent is not a benefit for the purposes of section 84(1)(aa). The benefits that are protected are amenities – something practically useful or pleasant that attaches to land: Stockport BC v Alwiyah Developments (1986) 52 P & CR 278.
Nor is the loss of the opportunity to demand a price for consent an injury for the purposes of section 84(1)(c): Re Bennett’s and Tamarlin Limited’s Applications (1987) 54 P & CR 378. Furthermore, a negotiated share of development value may only be awarded if it is the best or only way to value a loss of amenity, and there was no such loss here. And the covenants had not affected the price paid in 2001.
The tribunal was not swayed by the relative modernity of the covenants. Much had changed in the past 21 years, and the fact that the applicant was the original covenantor did not weigh the scales in favour of the covenantee because section 84 does not protect financial interests. And finally, the question of whether or not the tribunal would exercise its discretion to modify or discharge the covenants in response to an application relating to a much larger development was a matter for future consideration.
Allyson Colby, property law Consultant
