In this month’s potted guide, Jonathan Seitler QC guides practitioners through the basics of the law relating to section 84 of the Law of Property Act 1925 – the ability to modify or discharge restrictive covenants
Section 84 checklist
- What is a restrictive covenant?
- How does section 84 work?
- What needs to be proven to go through the four section 84 portals? (a) The covenant is obsolete
- What needs to be proven to go through the four section 84 portals? (aa) The covenant impedes a reasonable user of the land, does not secure practical benefits of substantial value or is against the public interest and money is adequate compensation
- What needs to be proven to go through the four section 84 portals? (b) Agreement
- What needs to be proven to go through the four section 84 portals? (c) No injury will be caused
- How is a person who has the benefit of a restrictive covenant compensated for its modification or discharge?
- What in practice are the key factors militating towards or against discharge or modification?
- Can section 84 be used not just to discharge or modify a restrictive covenant but also to ascertain if it bites at all?
What is a restrictive covenant?
A restrictive covenant is a covenant by one party (“the covenantor”) to another (“the covenantee”) to restrict user of the covenantor’s land for the benefit of the covenantee. Following Langevad and another v Chiswick Quay Freeholds Ltd [1999] 1 EGLR 61, it is no longer tenable to draw a distinction between covenants against the user of land and covenants against development of land or buildings on it. All such types of covenant are restrictive.
Restrictive covenants cause problems because a successor to the original covenantee can enforce against the covenantor or its successor. If the covenant was taken for the advantage of land which it benefits, a restrictive covenant will be enforceable against a successor of the original covenantor if it (1) is not a personal covenant; (2) is for the advantage of clearly defined retained land at the time of the covenant; and (3) has been annexed to the land of the potential claimant or assigned to that claimant. Annexation occurs either expressly, impliedly or by virtue of section 78 of the Law of Property Act 1925 (“LPA 1925”).
How does section 84 work?
Section 84(1) of the LPA 1925 provides four “portals” through which a party who owns freehold land (or a lease of over 40 years with at least 25 years expired) which is subject to a restrictive covenant can seek to modify or discharge it by making an application to the Upper Tribunal (Lands Chamber) (“the UT”). These portals are:
(a) That by reason of changes in the character of the property or the neighbourhood or other circumstances of the case, the restriction ought to be deemed obsolete.
(aa) When (in a case falling within subsection (1A)) the restrictive covenant’s continued existence would impede some reasonable user of the land for public or private purposes, or would unless modified so impede such user. Subsection (1A) arises when: the restriction, in impeding the reasonable user of the land, either does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them, or is contrary to the public interest; and money is an adequate compensation for the loss or disadvantage which any person will suffer from the discharge or modification. In addition, it is provided that in determining whether a case falls within (1A) and whether a restriction ought to be discharged or modified, the position as to planning must be taken into account as well as the period at which, and context in which, the restriction was created or imposed and any other material circumstances.
(b) That the persons of full age and capacity for the time being (or from time to time) entitled to the benefit of the restriction, have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified.
(c) That the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction.
What needs to be proven to go through the four section 84 portals? (a) The covenant is obsolete.
The key evidence for this portal is evidence of changes in the character of the property or the neighbourhood or other possible material changes since the date when the restrictive covenant was imposed, which makes it obsolete.
This would include general social changes, such as the decline of stigma associated with a particular use, and changes related to the particular land in question, such as: if the use on the covenantee’s land which the restriction was meant to protect has ceased; or the covenantor’s land has been used in breach of the restriction for a period of time; or the locale around it has become more built up (Re Bradley Clare Estates Ltd’s Application (1987) 55 P&CR 126). Because portal (a) is all about change, a covenant can fail to be modified at one point, though become subject to modification or discharge later, as the neighbourhood evolves. It’s all in the timing.
The key question will be as to the continued relevance of the restrictive covenant having regard to its original purpose. Can it still maintain that original purpose? If not, the restriction is liable to be modified or discharged (Re Hextall’s Application (1998) 79 P&CR 382).
What needs to be proven to go through the four section 84 portals? (aa) The covenant impedes a reasonable user of the land, does not secure practical benefits of substantial value or is against the public interest and money is adequate compensation
The approach under this head was comprehensively set out in Re Bass Ltd’s Application (1973) 228 EG 927. In practice, the main arguments revolve around the phrase “practical benefit of substantial value or advantage” because, where planning permission has been granted, it is hard for a covenantor to say that the proposed use is not reasonable (Shephard and others v Turner and another [2006] EWCA Civ 8; [2006] 2 EGLR 73).
Even aesthetic considerations, such as the loss of a nice view (Re Hopkins’ application [2008] PLSCS 208) whether for private individuals (Re Vince’s Application LP/41/2006), or quasi-public bodies (Zenios and another v Hampstead Garden Suburban Trust [2010] UKUT 260 (LC); [2010] PLSCS 287) can count as practical benefits of substantial value or advantage for which, in many cases, money cannot compensate.
What needs to be proven to go through the four section 84 portals? (b) Agreement
This portal concerns more than just the express agreement of all beneficiaries of the restrictive covenant. It also concerns a situation in which, by their actions, such as by acting contrary to the restriction for many years, those persons can be taken as agreeing to its abandonment (Re Marcello Developments Ltd’s Application LP/18/1999).
What needs to be proven to go through the four section 84 portals? (c) No injury will be caused
The focus in this portal is on the actual benefit to the property owned by the covenantee (or its successor) of the continued existence, to all those entitled to it, of the restriction.
In Ridley v Taylor (1965) 193 EG 1121 this was described as “a long-stop against vexatious objections”, though the key aspect of the portal is that losing out on a money payment is not considered an “injury”. Where, therefore, the benefit to the covenantor or its successor is merely the ability to extract a payment, that will not be an injury entitling the covenantee or its successor to resist discharge or modification under this head.
How is a person who has the benefit of a restrictive covenant compensated for its modification or discharge?
An order discharging or modifying a restriction may direct the applicant to pay to any person entitled to the benefit of the restriction such sum by way of consideration as is just to award under one, but not both, of the following heads:
(i) A sum to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification. This allows the compensation to be fixed by reference to the diminution of the value of the land, though not necessarily the loss of opportunity to extract a share of the development value of the applicant’s land (Stockport Metropolitan Borough Council v Alwiyah Developments [1986] 52 P&CR 278). There is no hard and fast rule (Winter and another v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088; [2008] 1 EGLR 80).
(ii) A sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.
What in practice are the key factors militating towards or against discharge or modification?
Even where the UT is satisfied as to one or more of the four sets of circumstances, the words “have power” in section 84 indicate that it has a general overriding discretion as to whether and as to how to exercise the jurisdiction (Re George Wimpey Bristol Ltd and another’s application [2011] UKUT 91 (LC); [2011] PLSCS 146). So ignominious or discreditable conduct on the part of an applicant can form the basis of a refusal to modify or discharge even if the portals are cleared.
In practice, the grant of planning permission (or an expert being able to say that the grant of planning permission is likely) is an important prerequisite to modification.
Further, although it is not an express part of section 84, the case law suggests that the UT and the Lands Tribunal before it is often reluctant to discharge or modify a covenant at the behest of the original covenantor. In Re Rudkin’s Application (1963) 16 P&CR 75, where the applicant was the original covenantor, the tribunal expressed the view that it was “justified in requiring from an original covenantor a somewhat higher proof of justification for the modification sought”.
Can section 84 be used not just to discharge or modify a restrictive covenant but also to ascertain if it bites at all?
Yes, under section 84(2). This also allows an interested party to seek a declaration as to the meaning of a restrictive covenant, as well as any question as to whether it can be claimed by one party or another (Royal Mail Estates Ltd v Pridebank Ltd and others [2015] EWHC 1540 (Ch)).
Leading authorities
Re Bass Ltd’s Application (1973) 228 EG 927
Re Bradley Clare Estates Ltd’s Application (1987) 55 P&CR 126
Re Hopkins’ application [2008] PLSCS 208
Shephard and others v Turner and another [2006] EWCA Civ 8; [2006] 2 EGLR 73
Winter and another v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088; [2008] 1 EGLR 80
Zenios and another v Hampstead Garden Suburban Trust [2010] UKUT 260 (LC); [2010] PLSCS 287
Seitler’s leading practitioners
Roger Cohen, Berwin Leighton Paisner
Jason Hunter, Russell-Cooke Solicitors
Chris Marsden, Lester Aldridge LLP
Stephen Morris, Mundays
Danny Revitt, Irwin Mitchell
Belinda Solomon, Brecher
Useful resources
Andrew Francis, Restrictive Covenants and Freehold Land: A Practitioners Guide (Jordan Publishing)
Preston and Newsom, Restrictive Covenants Affecting Freehold Land (Sweet & Maxwell)
Ernest Scamell, Land Covenants (Bloomsbury Professional)
