Extinguishing a recent restrictive covenant

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Gateley Legal

In the recent decision of Barter (Re Ivy House) [2017] UKUT 451 (LC) the Upper Tribunal had to consider whether to discharge a restrictive covenant that had been imposed on the applicants only four years previously.

Somerset County Council advertised a residential property for sale as likely to be ‘of interest to residential and commercial developers’ and yet imposed on the buyers, Mr and Mrs Barter, a covenant not to construct an additional residential building in the grounds. After the purchase, the Barters obtained planning permission to divide the property into flats and to erect 13 new two-bedroomed flats in the grounds.

The Council offered to release the covenant in return for a share of development value. The Barters offered £5,000 to the Council, which was refused, and the parties did not reach an agreement. As a result, the Barters applied to the Upper Tribunal to discharge the covenant under s84 Law of Property Act 1925.

The Tribunal accepted that the proposed use of land was reasonable as otherwise the planning permission would not have been obtained. Also the covenant did not secure any practical benefit for land in the Council’s ownership; its only benefit was to highway land retained by the Council. The Tribunal viewed the Council’s approach as a money making exercise – which will generally prevent the enforcement of a restrictive covenant where the principal aim is to obtain payment in return for its release.

The Tribunal accepted that the grounds for discharge of the covenant were satisfied. However, due to insufficient evidence of what might be an appropriate sum that would compensate the Council for losing the benefit of the covenant, the Tribunal felt unable to discharge the covenant and dismissed the application.

The Tribunal explained that, in exercising its discretion, it takes into account how recently the covenant has been imposed and the fact that the applicant is the original party who voluntarily entered into the covenant. The more recent the covenant and the more immediate the applicant’s role in the creation of the covenant, the greater the weight the Tribunal will give to them when conducting the balancing exercise.

What can we take away from this?

The respondent does not have to participate in the application at all, as shown in this decision where the Council was absent for the application hearing. It is for the applicant to provide all of the evidence and persuade the Tribunal to exercise its discretion and extinguish the covenant; this includes sufficient evidence on quantifying the compensation for the respondent.

Compensation must be assessed and evidenced clearly to the Tribunal. Under s84(1), compensation is assessed by reference to the ‘diminution of the value of the land with the benefit of the covenant rather than 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).

It is possible to modify or extinguish a restrictive covenant if one of the grounds in s84 is satisfied. The land must genuinely benefit from the restrictive covenant and obtaining planning permission with the necessary conditions is important to support any application to the Tribunal.

However, whilst the Tribunal is required to take into account planning considerations and any grant of planning permission, it is not bound to modify or discharge a covenant merely because of such considerations or grant. As a result, an application to the Tribunal can often be a lengthy, costly and uncertain process. Even where no objections are raised, an application can still take several months – and much longer if the application is disputed.

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