If an applicant can satisfy one of the grounds in section 84(1) of the Law of Property Act 1925, the tribunal can modify or discharge a covenant restricting the use of land. There are four potential grounds.
The covenant may be obsolete (ground (a)). The covenant may restrict a reasonable use of the land and confer no practical benefits of substantial value or advantage on the persons entitled to the benefit of it. Or it may be contrary to the public interest. In both such cases, it must be possible to compensate those who lose the benefit of the covenant by the payment of money (ground (aa)). The parties with the benefit of the covenant may agree that it can be modified or discharged (ground (b)). Or the applicant may be able to show that no injury will be caused if the covenant is modified or discharged (ground (c)).
If the tribunal decides to modify or discharge a covenant, it may require the applicant to compensate those that benefit from it for any loss suffered as a result. Recent decisions suggest that compensation will be relatively modest. In Re Lynch [2016] UKUT 488 (LC), the tribunal ordered the applicant to pay objectors 2.5% and 1.5% of the market value of their properties (£25,000 and £15,000 respectively). And in Re Rae’s Application [2016] UKUT 0552(LC) the tribunal awarded sums of £5,000 and £2,500, representing less than 2% of the market value of the objectors’ properties.
However, awards are sometimes higher. Hennessey v Kent [2017] UKUT 243 (LC); [2017] PLSCS 179 concerned a covenant that restricted development on land owned by the applicant. The tribunal concluded that, although the restriction secured practical benefits to the objector, the benefits were not of substantial value or advantage, and agreed to modify the restriction on ground (aa), on terms, to enable the applicant to construct two further dwellings in her garden. The tribunal noted the decision in Rae, and in Re Pottier’s Application [1967] RPC 170 (where the award represented a 2.5% drop in the value of the objector’s property) and in Re Perkins’ Application [2012] UKUT 300 (LC) (where the award was £2,000), but stipulated that Mrs Hennessey would have to pay Mr Kent £21,000 for the modification of the covenant, representing a 5% drop in the value of his property.
Although the tribunal did not cite it, the decision would appear to be in line with Re Kerai [2014] UKUT 153 (LC). In that case, the tribunal considered that the value of the objector’s property would be reduced by 5% if a new house were to be constructed on the application land. Whether this represented a substantial amount was, in the tribunal’s judgment, a matter of fact and degree in every case. In Re Kerai, 5% would represent a reduction of £75,000, which was a significant amount. But in the context of a house worth £1,500,000, the tribunal did not consider it to be substantial for the purposes of section 84.
By contrast, in Re Fairclough Homes Ltd’s Application (2004) LP 30 2001 a 10% reduction in value was held substantial. And in Re Stanborough’s Application [2012] UKUT 21 (LC), the tribunal considered that a 10% reduction in value, representing £50,000, represented a benefit of substantial value and rejected the developer’s application.
Allyson Colby is a property law consultant
