Restrictive covenants: when the tribunal is reluctant to exercise discretion

When exercising its discretion to modify or discharge restrictive covenants under section 84 of the Law of Property Act 1925 the tribunal will be reluctant to interfere where a local authority seeks to use its private rights as landlord to promote its strategic development plan. In Great Jackson Street Estates Ltd v Manchester City Council [2023] UKUT 189 (LC) the Upper Tribunal (Lands Chamber) has considered the modification of restrictive covenants preventing residential development in Manchester. The applicant held a lease from the respondent of two redundant warehouses which it wanted to demolish and replace with two 56-storey residential tower blocks. The lease contained covenants preventing the redevelopment without the respondent’s consent. The respondent was willing to consent to the redevelopment on terms which had been agreed with developers of other plots in the area but they were unacceptable to the applicant. The applicant sought modification of the covenants on the following grounds: (a) That the restrictions were obsolete. The applicant needed to show so complete a change in the character of the neighbourhood that there was no longer any value left in the covenants. The tribunal accepted that use of the site for warehousing was obsolete but the purpose of the restrictions was to enable the respondent to influence the use of land on the fringe of the city centre and to secure orderly and appropriate development in an area where it had a legitimate strategic interest. Such a purpose remained capable of fulfilment. (b)That the proposed use was a reasonable use of the land and its completion would cause the respondent no substantial loss or disadvantage. Both parties wanted the development to take place and it accorded with the development plan so was a reasonable use of land. The restrictions impeded the proposed use and secured to the respondent, as landlord, a practical benefit in preventing the applicant from carrying out the development without agreeing provisions to ensure that it was completed and within a reasonable time. Such control was a substantial advantage even though the respondent’s reversion would be considerably more valuable if the covenants were modified. (c) That the objector would not be injured by the proposed modification. The respondent would be injured by the loss of the practical control it currently had over the redevelopment of the site. Had the applicant established one of the statutory grounds the tribunal would have been reluctant to use its discretionary power to modify the restrictions as this would interfere with the respondent’s promotion of its strategic development plan and disrupt continuing negotiations between the parties. Louise Clark is a property law consultant and mediator