Restrictive covenant – Modification – Compensation – Claimant owning house on 1980s estate – Claimant obtaining planning permission to demolish garage and build second house on plot – Restrictive covenants preventing implementation – Claimant applying to modify restrictions – Amount of compensation payable – Tribunal assessing sum to reflect diminution in price originally paid because of restrictions – Application granted
In 2010, the claimant acquired 5 Bluebell Road, Lindford, a house on a modern estate in Hampshire, built in 1985. The claimant had planning permission to demolish a domestic garage in the curtilage of the property and build an additional house, but restrictive covenants attached to the property prevented its implementation.
In August 2017, the claimant commenced negotiations with the holding company (MGH), in which there were now vested the estate roads and several areas at the boundary of the estate, to release the restrictions. It asked for £600 to process the application, which the claimant paid. Negotiations continued over the next eighteen months, with MGH putting the price of release at £34,632, subsequently reduced to £28,638, but the claimant offering £4,000, having taken professional advice.
The claimant applied to the Upper Tribunal for the restrictions to be modified on grounds (aa), (b) and (c) of section 84(1) of the Law of Property Act 1925 to permit the erection of a second house on the application land in accordance with the planning permission. It did not explain how each of the restrictions prevented that and did not suggest precisely how each restriction should be modified. MGH and a neighbour of the claimant objected to the application which was determined on written representations.
MGH accepted that the value of its land would not be affected if the restrictions were modified, and the tribunal agreed that ground (c) applied. The single issue was the amount of compensation payable under subparagraph (ii) as a condition of modification. That sum was to make up for any effect which the restrictions had, at the time when they were imposed, in reducing the price received by the original developer for the claimant’s property. MGH asked for £9,897, following advice, while the claimant’s figure remained at £4,000.
Held: The application was granted.
(1) Unlike subparagraph (i), which generally concerned the effect of modification or discharge on the objector’s property or amenity, the less frequently used subparagraph (ii) was concerned with the value of the application land at the time the restriction was imposed. The fact that the claimant was a successor in title to the original covenantor was of no relevance because it was the effect of the restrictions on the price that the covenantee originally received which was to be considered. There might be questions about the exercise of the tribunal’s discretion to award a sum under subparagraph (ii) where the land benefiting from the covenant had also changed hands since it was imposed, but in this instance, as the holding company for the assets of the original development company, MGH was sufficiently closely related to the original covenantee that it should be entitled to the benefit of any sum assessed under subparagraph (ii).
(2) The amounted had to be considered by which the original purchase price might have increased had the restrictions which prevented the proposed development not been entered into. This was an application for modification of sufficient of the restrictions to allow the particular planning consent to be implemented.
The transfer document showed an original purchase price of £52,500. That price was paid for the newly built property with its garage, drive and garden with return frontage to the public open space. The question to be addressed was how much more, if anything, the purchaser might have paid had sufficient of the restrictions been removed such to allow the proposed second house on the site, subject to planning permission. But it could not be assumed that planning permission for the extra house would have been in place in 1985. It was the hope of gaining planning permission, and not being prevented from implementing that permission by restrictions, that was the subject of the valuation exercise. The remaining restrictions remained and had to be factored into the calculation.
(3) What had to be assumed to have been in the mind of the 1985 vendor and purchaser was the effect on number 5 of the proposed development: it would lose its garage; it would become semi-detached; its garden would become long and narrow; and its smaller drive would still accommodate two cars but only in tandem. The 1985 purchaser would have been willing to pay a maximum of 5%, or £2,625, on top of the purchase price for the benefit of sufficient modification of the restriction to allow a second house to be built as now proposed, subject to planning permission.
It is necessary to finally consider whether that maximum of £2,625 should be adjusted to allow for the effect of inflation since 1985. The movement of RPI since 1985 suggested something in the order of a three-fold increase. Alternatively, regard to actual house prices suggested a six-fold increase. Both of those multiples suggested that the compensation payable would be closer to or exceed MGH’s figure than that of the claimant, depending on how close to a 5% maximum was the figure which formed the starting point.
However, the amount that would represent a “just” award was a matter of judgment. It was for the objector to provide evidence to support the suggested impact if they could. The tribunal had not seen any such evidence, which was perhaps not surprising given the passage of time, but it meant that there was no firm evidential basis for assessing the appropriate sum. The claimant had valued on an incomplete basis, in only seeking to arrive at a residual value for that part of the land which would be developed. MGH had also derived a benefit from the restrictions since 1985. Taking all those factors into account, the appropriate amount of compensation that the claimant should pay to MGH was its longstanding offer of £4,000.
Eileen O’Grady, barrister
Click here to read a transcript of Sheppard v Martin Grant Holdings Ltd and another
