Modification and discharge

Introduction

A developer or other person seeking to get round a restrictive covenant has four possible options - depending on the circumstances:

  • Go to the High Court for a declaration stating that the restrictive covenant is not enforceable for one reason or another.
  • Accept that the covenant is valid but ask the Upper Tribunal (Lands Chamber) (what used to be known as the Lands Tribunal) for an order discharging or modifying the restrictive covenant.
  • Insurance?? Not very likely once any sort of dispute has arisen.
  • Do a deal with the objectors and potential objectors / mediation.

This page is concerned with applications to the Lands Chamber to modify restrictive covenants under s84 of the Law of Property Act 1925 so as to allow the development to go ahead. Note the use of the word "modify" and the absence of the word "discharge". The Lands Chamber has the power under s84 to discharge or modify restrictive covenants. However, the Tribunal will very rarely discharge a covenant. They will, in an appropriate case, instead modify the covenant so as to allow the development to take place. If that is done the question of compensation also has to be considered.

The article on this page, amongst other things:

  • Sets out the grounds upon which a restrictive covenant can be modified (or discharged)
  • Deals in detail with the most common ground - "reasonable user".
  • Explains how compensation is assessed when the covenant is modified on the user ground.

 

The grounds

There are four grounds that can be relied upon. They can be summarised as follows:

(1) Changes in the character of the property or the neighbourhood or other circumstances mean that the restriction ought be deemed "obsolete" (s84(1)(a)). Reliance on this ground is rarely successful and including it in the application can lead to adverse costs consequences.

(2) The continued existence of the covenant would impede some reasonable user (s84(1)(aa)). This is the most common ground relied upon. It only applies where the Lands Chamber is also satisfied that the restriction:

  • Does not secure any practical benefit of substantial value or advantage to those with the benefit; or
  • Is contrary to the public interest (rarely applies)
  • And in either case, that money will be an adequate compensation (s84(1A)).

Under this head the Lands Chamber also takes into account:

  • The development plan.
  • Any declared or ascertainable pattern for the grant or refusal of planning permissions.
  • The period and context in which the restrictions were imposed.
  • Any other material circumstances (s84(1B)).

This ground is dealt with in more detail under the next heading.

(3) Agreement of relevant persons (s84(1)(b)).

(4) No injury to the persons entitled to the benefit of the restriction (s84(1)(c)).

 

Discretion

It is important to note that the Lands Chamber has a discretion even where the substantive grounds are established. Every case obviously depends upon its own facts. However, many of the cases are reported and one can get a feel for how particular members of the Chamber might decide cases by reading those reports.

 

Reasonable user - most common ground

As stated above, "reasonable user" (s84(1)(aa)) is the most common ground relied upon.

An example

A typical case might be where the developer says that he wants to build an extra house on the site. This is in breach of covenant not to build more than one dwelling on the house but he will argue that erecting a new house amounts to a reasonable user of the land so that the restriction contained in the covenant should be modified so as to allow the development to proceed.

 

Four key questions

A summary of the "reasonable user" ground is stated above. Another way of explaining the ground is as follows: To succeed before the Lands Chamber the developer will need to have all these questions answered with the word in brackets:

  • Is some reasonable user impeded by the restriction? (Yes)
  • Does the restriction secure any practical benefit of substantial value or advantage to those with the benefit? (No).
  • Will money be an adequate compensation? (Yes)
  • Should the Tribunal exercise its discretion in favour of allowing the development to take place. (Yes)

 

Policy behind the provision

This ground was explained by Carnwarth LJ in Shephard v Turner [2006] EWCA Civ 8, at para 58:

    "The general purpose is to facilitate the development and use of land in the public interest, having regard to the development plan and the pattern of permissions in the area. The section seeks to provide a fair balance between the needs of development in the area, public and private, and the protection of private contractual rights. "Reasonable user" in this context seems to me to refer naturally to a long term use of land, rather than the process of transition to such a use. The primary consideration, therefore, is the value of the covenant in providing protection from the effects of the ultimate use, rather than from the short-term disturbance which is inherent in any ordinary construction project. There may, however, be something in the form of the particular covenant, or in the facts of the particular case, which justifies giving special weight to this factor."

 

Setting out precisely what you want

As stated above, the Lands Chamber will (if the application is successful) modify the restriction in the covenant so as to allow the development to proceed. This means that it is invariably necessary to have planning permission granted prior to the application to the Chamber. The Chamber will want to know precisely what it is that the applicant plans to do. It will then modify the covenant accordingly. When making the application it is necessary to inform the Lands Chamber as to what is proposed. The following is a possible suggestion for an amended covenant. The new bits are in italics:

"Not more than one detached or semi-detached house shall be erected on the said land SAVE that further houses may be built upon the said land if the houses are built pursuant to the planning permission granted on appeal by Angus Filch BSc DipTp MRTPI, Planning Inspector, in planning application no 9/0012345 and [substantially??] in accordance with the conditions imposed by the said inspector [or in accordance with any variations subsequently agreed or made by the planning authority or inspector on appeal??]."

The suggested words in brackets are inserted to deal with the possibility that the building may not be built precisely in accordance with the plans that have been approved or the possibility that there may be variations after the Chamber's decision.

 

Planning history of the site and planning permission

Although the planning history of the site and its surrounding area is highly relevant (see s84(1B) and see the citation from Shephard v Turner above), the mere fact that planning permission has been granted for the proposed development is by no means conclusive.

The position was put rather dramatically by Harman J in Bell v Norman Ashton Ltd (1956) 7 P&CR 359. Harman J:

    "[The defendants' surveyor] said that town planning approval had been obtained for houses on this scale of density; modern conditions demand that suburban planning should be on that kind of scale; that is the right density at which suburban people ought to live; and if they do not they are obsolete and they ought to be disregarded as being anti-social persons wanting more room than in a crowded country it is right that they should occupy. I must confess that I was much incensed by this evidence. There does remain in a world full of restrictions and frustration just a little freedom of contract. I do not see why a man should not contract that he shall have half an acre round him and not four neighbours right on him. I do not see why it is anti-social to wish to have a little longer bit of garden or a little wider bit of frontage. To suggest that because these people live on an estate near others where the density is greater their rights ought to be disregarded by the court and swept away is a proposal which I reject with some indignation."

Some may object that these are the mutterings of an eccentric judge made a long time ago. However, they do dramatically highlight the distinction between planning considerations and property law. A person's property rights (ie the benefit of a restrictive covenant) will only be taken away as provided for by law and the mere grant of planning permission is only part of the story.

By way of example, in In the matter of Zaineeb Al-Saeed (24 April 2002, Lands Tribunal, Mr PH Clarke) the applicant relied upon planning permission for in-fill development in a conservation area. However, the Lands Tribunal held that the modification would be "the thin end of the wedge", would ultimately lead to an adverse effect on density levels and would therefore injure persons entitled to the benefit of the covenant.

In Dobbin v Redpath [2007] EWCA Civ 570 the Tribunal member "accepted that the existence of planning permission was very persuasive in determining the reasonableness of the user" but went on to hold that the mere fact that there was a planning permission which accorded with a development plan was not sufficient to override other objections. In particular, he gave weight to the fact that the restriction against further development was part of a building scheme. The CA upheld the decision.

However, in Graham v Easington District Council [2008] EWCA Civ 1503 it was held that the grant of planning permission by a local authority although not determinative was, on the facts of the case, a relevant factor in determining whether or not that authority could object in its capacity as land owner to modification of the covenant. The modification was allowed. Although the CA was clearly not changing the law in any way, it does highlight that a local authority that has granted planning permission may in some cases have more trouble objecting to a modification under s84 than another private land owner.

To summarise: For all practical purposes a person seeking to modify the restriction in the covenant does need to have planning permission for the development before applying to the Lands Chamber. But the mere fact that planning permission has been granted will by no means be conclusive; although will perhaps have even more weight where the land owner is the authority that granted the permission.

 

Practical benefits of substantial value or advantage - some examples

As stated above, one of the questions that needs to be considered is: Does the restriction secure any practical benefit of substantial value or advantage to the those with the benefit? If the answer is "yes" the restriction will not be modified.  Here are some examples. Each case turns on its own facts but they do provide a good idea of how the Tribunal approaches these issues.

Re Vince's application (Lands Tribunal - LP/41/2006; 14 September 2007) was an application under s84 of the 1925 Act to modify restrictive covenants so as to allow a large house to be converted into five terraced dwellings. It was accepted that the proposed user was reasonable. The issue in the case was whether or not the restriction protected "practical benefits of substantial value or advantage". The Lands Tribunal held that it did and so rejected the application. In doing so the Tribunal Member stated that:

    "the proposed development, despite the best efforts of the applicants to minimise its impact by considerate design, would lead to an increased level of occupancy, activity and vehicular movement and to some loss of sunlight and daylight to Pinfold House which would have a significant combined effect upon the objector. I consider that the maintenance of peace and quiet and the access of light, both of which have remained largely unchanged since the restrictions were imposed in 1978, are practical benefits which, when taken together, are of substantial value or advantage to the objector." (para 56).

In Lee, Re Courtenay Gate Lawns Ltd [2012] UKUT 125 (LC) the Lands Chamber refused the tenant’s application to discharge or modify a leasehold covenant (in a long lease) which prohibited him from sub-letting his flat. The Tribunal concluded that the desire to keep a block of flats as mostly owner-occupied can be sufficient to constitute a practical benefit of substantial value.

In Re Theodossiades [2017] UKUT 461 LC the applicant sought to modify restrictive covenants which would prevent her from constructing several apartments in place of a house. The Tribunal found that the covenants secured onlly modest practical benefits to the objectors by preventing increased disturbance caused by additional noise and light from the redevelopment, as well as overlooking. Taking all factors into account, the Tribunal concluded that the practical benefits to the objectors were not of substantial value or advantage. The Tribunal therefore agreed to modify the covenants to permit the development for which the applicant had obtained planning permission.

In terms of compensation (see fuller discussion of this subject below), the Tribunal found that the proposed development would not adversely affect the capital value of the objectors' houses since it retained the tone of a high-quality, prestigious residential area. As to disturbance during construction, only one of the objectors' properties would be adversely affected. That objector was entitled to £8,100, being compensation for a 10% reduction of the rental value of the property throughout the 18-month construction period.

In Miller v Subhani [2020] UKUT 94 (LC) the Tribunal refused the discharge of restrictive covenants under s.84(1)(a), (aa), (b) and (c) of the Law of Property Act 1925. The intended use of a proposed agricultural barn, even if used to hangar aircraft only temporarily, was held to be as an aircraft hangar. The Tribunal held that the restrictive covenants in question were still capable of protecting the safe operation of a nearby airport, that the use of the proposed construction was not reasonable and that by allowing similar developments in the vicinity of the airport the Objector had not impliedly agreed to the discharge of the restrictions.  In relation to Ground (a)(a) - reasonable user - the restriction did secure to the objector practical benefits of substantial value or advantage, enabling him to prevent construction in circumstances where there are reasonably anticipated adverse consequences.

In Martin v Lipton [2020] UKUT 8 (LC) the applicant wished to construct a second house in his garden, situated on an estate of 44 properties in Weybridge. It was the applicant’s intention to reside in the new house once built and to sell the existing house on the plot. the Tribunal felt that there would be limited injury to the objectors caused by the proposed modification to allow the applicant’s development to proceed, in terms of impact on amenity and the value of the objectors’ land and in terms of setting a damaging precedent for future developments on the estate (often referred to as the “thin end of the wedge” argument). The Tribunal therefore ordered that the covenants should be modified under ground (aa) with modest payments of compensation to six of the objectors totaling £15,000. The compensation granted was for disturbance the objectors would suffer from the applicant’s development, not for any loss of value of the objectors’ land.

 

Contrary to the public interest

As stated above it is rare for the Tribunal to need to consider whether or not the restriction is contrary to the public interest (under subsection (1A)). However, it did so in Millgate Developments Limited v Bartholomew Smith [2018] EWCA Civ 2679.

The Court of Appeal allowed the appeal against the Tribunal’s decision that modification of the covenants should be permitted under the second limb of ground (aa), i.e. on the basis that the covenants were operating contrary to the public interest.  It is generally in the public interest that contracts should be honoured and not breached and that property rights should be upheld and protected.  It emphasised that the Tribunal should not usually be inclined to reward parties who deliberately flout their legal obligations.

 

Discretion - wilful breaches - covenant still modified

The Trustees of the Green Masjid and Madrasah

 [2013] UKUT 355 (LC)

Summary

The applicants were entitled to an order modifying a covenant restricting the use of land and allow its use as a mosque. Despite conduct constituting a sustained and wilful breach of the covenant, the Tribunal felt it would be inappropriate to use this as a reason to exercise its discretion to refuse the modification of the covenant.

Facts

The applicants owned a property subject to a restrictive covenant "for the benefit and protection of so much of the adjoining or adjacent land of the Corporation as is capable of being benefited thereby" which prohibited the use of the land other than as a private dwelling-house and/or “for the practice of a medical practitioner dentist solicitor or other professional person".

The property had formerly been used as a doctor’s surgery. The applicants used the property as a mosque and madrasah for some years and were continuing to do so when they applied to modify the restrictive covenant relying, inter alia on the ground in s.84(1)(aa) of the Law of Property Act 1925. This was so as to permit the use of the land as a mosque and madrasah or, alternatively, as a place of worship including associated or ancillary religious education. The Council objected to the application.

The applicants submitted that they had anticipated that the variation of the restrictive covenant would not be an issue given that the Council was also the relevant local planning authority, which had advised that planning permission was not required for the change of use to a mosque, as it fell in the same use class as the previous use.

The evidence in support of the application focused on the importance of the mosque to the local community, the fact that there was no similar facility in the relevant area. The applicants also produced expert evidence to show that the traffic and parking implications from the use of the property as a mosque were imperceptible. In response, the Council called no expert traffic evidence but relied upon complaints made to Councillors and the local MP by local residents - relating to increased traffic, problems with on-street parking on nearby service roads and noise from the property late at night and early in the morning.

Section 84(1) - ground (aa)

This ground applies where the continued existence of the covenant would impede some reasonable user of the land for public or private purposes. In addition the Upper Tribunal must be satisfied that the restriction, in impeding that user, either:

    “(a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or
    (b) is contrary to the public interest;
    and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.”

Decision

The Tribunal modified the covenant on ground (aa).

In assessing the availability of ground (aa), the Tribunal firstly considered whether the proposed user of the property was reasonable, and found in the applicants’ favour.

The Tribunal then went on to hold that there were no practical benefits from the covenant to the Council of substantial value or advantage. The impact of additional traffic from the mosque was minimal and there was insufficient evidence of problems being caused from additional non-street parking. There was also a lack of specific evidence of complaints, in relation to noise. As to the impact on local property values, there had been no evidence that the effect of increased noise, traffic and on-street parking would outweigh any premium that Muslims would pay to live close to the mosque.

Since the Tribunal had concluded that the proposed modification would not adversely affect the value of any adjoining or adjacent property belonging to the Council, it confirmed that there was no loss or damage arising from the modification of the covenant so as to give rise to monetary compensation or the question of whether this would be adequate. The Tribunal noted that establishing ground (aa) did not lead to an automatic entitlement to the modification of the covenant. (Under section 84(1B) of the 1925 Act, the Tribunal is required to take into account "any other material circumstances" when exercising its discretion as to whether a restriction ought to be modified.) The Council invited the Tribunal to exercise its discretion against the applicants due to their conduct in committing a wilful and sustained breach of covenant, whereas the applicants argued that refusing relief would be wholly disproportionate and unduly harsh.

The Tribunal agreed that the applicants' conduct constituted a sustained and wilful breach of the covenant and said that such conduct "is to be deprecated". However, having been satisfied on the facts and on the law that it had jurisdiction to modify the covenant, the Tribunal was loath to exercise its discretion so as to deny the applicants the relief sought. As A. J. Trott FRICS said:

    "Where jurisdiction has been established I consider that the discretion of the Tribunal to refuse the application should only be cautiously exercised. It should not be exercised arbitrarily and, in my opinion, should not be exercised as, effectively, a punishment for the applicants' conduct unless such conduct, in all the circumstances of the case, is shown to be egregious and unconscionable. On balance I do not consider that the applicants' conduct was so brazen as to justify my refusal of their application".

The Tribunal therefore confirmed that the covenant should be modified, subject to conditions. However, bearing in mind the applicants' conduct the Tribunal ordered the applicants to pay 50% of the Council’s costs.

 

Restrictive?

No modification of positive covenants under s84

Blumenthal v The Church Commissioners for England

[2004] EWCA Civ 1688

Summary

The Lands Chamber only has power under s84 of the Law of Property Act 1925to modify or discharge restrictive covenants over freehold land and in some long leases. It cannot discharge or modify a positive covenant. Sometimes the covenant may seem to be positive but when properly construed can be seen to be negative so that the Tribunal does have jurisdiction under s84.

This case

This case was concerned with a 95 year lease granted in 1951. The relevant covenant required that part of the premises be used as a caretakers flat. There had previously been a deed of variation in relation to user of the property. The application to the Lands Tribunal sought further modification so as to permit the part of the basement concerned to be incorporated either into a single basement flat or into a single dwelling on all three floors. The landlords contended that the Tribunal had no jurisdiction because the user covenants were positive in nature.

Held

As properly construed in the context of the lease as a whole the covenant was restrictive. It was not helpful to look at other decisions on similar clauses. Sir William Aldous:

"23. For my part I have not found the authorities cited to be of any real help in deciding whether the covenants in this case are such as to place a restriction on the use of the premises. Each covenant has to be construed in the context of the particular lease and therefore cases in which particular, but dissimilar covenants have been considered are not usually helpful. However they do show that positive obligations enforceable in contract do not come within the jurisdiction of the Lands Tribunal.


24. I turn back to s.84 of the 1925 Act. It confines the Land Tribunal's jurisdiction to covenants which restrict user. Thus it would be natural when deciding this case to consider whether the covenant related to use of the land and then go on to decide whether it was restrictive. There is no dispute about user. In one sense all covenants as to user are restrictive. For example the covenant to paint a house blue is a positive obligation requiring the tenant to paint the house a particular colour and it is also a negative obligation preventing the tenant painting the house any other colour. The fact that positive covenants have a negative effect was recognised by Harman J in [Westminster City Council v Duke of Westminster [1991] 4 All ER 136] ... The authorities show that the Lands Tribunal and the Courts have excluded from the jurisdiction of the Lands Tribunal covenants which are positive even though they also contain a restrictive element. No doubt that is because the Lands Tribunal's jurisdiction is confined to modifying restrictive covenants.

29. Counsel agreed that the Court's task was to construe the lease to ascertain the intention of the parties at the time that it was entered into. The court should look at the substance of the covenants and not confine consideration to the form."

 

Compensation

How is it calculated? Is any reference made to the "negotiation principle"?

Winter v Traditional & Contemporary Contracts Ltd

[2007] EWCA Civ 1088

Introduction

This is an important case on compensation where covenants are modified under s84 of the Law of Property Act 1925. Where a restrictive covenant is breached damages awarded in lieu of an injunction are assessed by reference to the development value of the property built in breach of covenant. The person with the benefit of the covenant is awarded a sum based on the sum that he would have been likely to have obtained in negotiations had they proceeded prior to the breach of the covenant. However, this case makes clear that where the Tribunal is awarding compensation under s84 that approach is not adopted - although some reference to the profit made by the developer can have some relevance.

Facts

The restrictive covenant prevented there being more than one dwelling built on the land. In breach of that covenant the owner of the development site built two houses on the land. At the time the owner did not realise that the Winters had the benefit of the covenant - nor did the Winters. The development therefore took place without any objection from them. When they realised that they had the benefit of the covenant the development was complete. The owners of the site applied for a retrospective modification of the covenant and the only issue was the amount of compensation payable to the Winters.

The Winters case was that the development adversely affected their amenities. In particular they complained about the loss of a tree (in fact on their land) which had to be felled because it would damage the flank wall of the new house; a less attractive view from their drive; increased overlooking of their rear garden; the removal of a privet hedge that concealed the old house; and some risk to their house that resulted from an excavation that had taken place and subsequent backfilling.

Expert evidence

The Winters relied upon an expert witness who said that most people would not consider the modification "seriously detrimental", but would "require some financial payment", and "more importantly" would seek some input on the design and size of the development to reduce its impact. He thought that the likely diminution in value of the Winters' house was "only nominal between £5,000 or £10,000" (the house being worth £375,000). Instead, he proposed a figure based on "a proportionate element of the profits of the development", which he thought would have been obtained in negotiations for release of the restriction, but against the background that the Winters had lost the opportunity to influence the development. He calculated the developer's profit as £290,000 overall, of which half was attributable to the extra house. Following what he called "the Stokes percentage" he thought the Winters' share should be about one third, or £50,000. This would have been reduced to £25,000, if they had been able to negotiate an amendment of the plans for the development "to make it less imposing" (para 24 of the judgment).

Section 84

The application for the modification was on ground 1(aa), ie that the continued existence of the restriction would impede some reasonable user of the land. As explained above, in deciding whether or not to modify a covenant on this ground s84 provides that the Tribunal must come to the conclusion that the covenant "does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them" and that "money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification".

The Tribunal decision

The Tribunal decided that compensation should be assessed by reference to loss of amenity to the Winters rather than by reference to the increased value of the development site.

Having regard to all the facts the Tribunal member concluded that the loss of amenities caused by the development which would now be permitted by a modification of the restriction were limited; and that some would probably have occurred in any event over time even if the development had not taken place. There was a particular issue in relation to the excavation that had exposed the Winters' property and which had to be backfilled. On the facts the Tribunal made an award of £10,000, which was not to be paid if the developer carried out certain remedial works to the area that had been backfilled within a limited period of time. The Winters appealed to the Court of Appeal.

How to assess compensation

On what basis is compensation to be awarded under s84? Is it simply by reference to the impact on the land of the person with the benefit of the covenant? Or should it be by reference to the increase in the value of the development site by reason of the modification; ie is the objector entitled to a sum which might have been agreed in negotiations between the parties - "the negotiated share approach" as it was called in the case?

As has been seen above, the expert evidence indicated that there was no real diminution in the value of the property; and the Tribunal member did not consider that there was any real affect on amenities. However, a share of the profit would lead to a substantial award.

The negotiated share approach is of course used where damages are awarded in lieu of an injunction where there has been a breach of covenant. And one can see the logic in applying a similar approach where one is considering compensation under s84. However, the position is different in the latter case. Carnwarth LJ at para 28:

    "Had we been starting from a blank page, such cases might have provided a useful parallel for damages under section 84. However, rightly or wrongly, that is not how the law has developed. .. authorities binding on us establish that compensation under section 84 is based on the impact of the development on the objectors, not on the loss of the opportunity to extract a share of the development value. Short of intervention by the House of Lords, or the legislature, it is too late to turn the clock back. .. The only issue is the extent to which those cases leave open the possibility that the developer's profit may in some way be relevant to the assessment of that impact, and if so whether the tribunal in the present case erred in not taking that possibility into account."

Note that last sentence. Indeed it does seem that in some cases development value can come into the picture, but only to a limited extent. Having reviewed the various authorities Carnwarth LJ at para 33 said this:

"Certain points can, in our view, be extracted from those cases taken together. First, the basis of compensation under section 84 is the loss caused by diminution in the value or enjoyment of the objector's property, not the loss of his financial bargaining position. There is no "hard and fast rule" as to how that loss is to be assessed, but the negotiated share approach is a permissible tool for the tribunal. Where that approach is taken, the percentage must bear a reasonable relationship to the actual loss suffered by the objector. The 50% percentage used by the tribunal in SJC establishes no precedent, even in respect of the public interest ground (under which it was decided). It is of no relevance to modifications allowed under the limited benefits ground, such as this case. In such cases, if a percentage is to be used, it is likely to be at or around the Wrotham Park (5%) end of the scale."

And see paragraph 35, after reference to more examples in the Lands Tribunal:

    "These cases are of value, not as precedents as such, but as indications of the flexible approach adopted by three very experienced legal members when assessing compensation for neighbours in a residential area. They do not support the suggestion that there is any established practice of awarding a share of development value. But they show that it is a possible approach in circumstances where a simple estimate of the diminution in value of the objectors' properties is unlikely to be a fair reflection of their subjective loss."

The Court of Appeal rejected submissions that they should give clearer guidance than this. If anyone should to it it is the Lands Tribunal. Carnwarth LJ again at para 36:

    "We agree that consistency is desirable, both in its own right, and because it makes it easier for those advising applicants and objectors to give a realistic assessment of their prospects before the tribunal, and thus promote early settlement of disputes. However, it is the job of the tribunal, not this court, to provide further guidance if necessary."

Decision in the case

Although they seemed to have thought the award to be mean the CA considered that there was no error in law and refused to interfere with the Tribunal's decision.

Comment

This case highlights various issues that frequently arise in restrictive covenant cases:

  • The difficulty of knowing who has the benefit of the covenants. Before the Winters turned up on the scene the site owners had in fact negotiated with another party who they thought had the benefit of the covenant and paid it £1600 for a suitable variation.
  • The difference between the amount of damages that can be awarded in lieu of an injunction and the damages awarded under s84: The fact that an injunction is unlikely to be granted does not mean that damages cannot be awarded in lieu (see the page dealing with "Damages in Lieu of an Injunction" However, a claim in the court to enforce a covenant can be suspended whilst an application is made to the Lands Chamber for modification (s84(9)). Thus, a site owner faced with such proceedings is usually best advised to make such an application. As this case demonstrates the amount awarded to the objector is likely to be substantially less.

No injury to land - How much more, if anything, might the original purchaser have paid had the restrictions been removed.

Sheppard v Martin Grant Holdings Limited

[2020] UKUT 171 (LC)

Summary

The Upper Tribunal granted an application to modify restrictive covenants affecting the Applicant’s land, based on s84(1)(c) of the Law of Property Act 1925 (“LPA 1925”). The Applicant was ordered to pay compensation of £4,000 to the party entitled to the objector.

Facts

The Applicant was the freehold owner of 5 Bluebell Road, Lindford (“the Application Land”). The Application Land was subject to restrictive covenants imposed in 1985 for the benefit of the owners of Lindford Estate (“the Restrictions”).

The Restrictions prevented the Applicant from erecting (i) anything other than a dwelling-house garage without the consent of the transferees and (ii) any structure exceeding a height of 900 millimetres.

The Applicant bought the Application Land in 2010 and obtained planning permission in 2017 to demolish a garage and erect an additional house. The Applicant sought to modify the Restrictions under grounds (aa), (b) and (c) of section 84(1) of the LPA 1925. 

MGH, owners of Lindford Estate and beneficiaries of the Restrictions, accepted that the value of its land would not be affected by the proposed modification and so ground 84(1)(c) was made out (i.e. that the proposed modification would not injure the persons entitled to the benefit of the restriction). However, MGH objected to the amount of compensation of £4,000 that the Applicant proposed to pay.  In negotiations, MGH sought £34,632 in compensation but, in accordance with legal advice, only requested £10,000 at the hearing.

Issues

What amount the Applicant should pay to MGH in consideration for modifying the Restrictions.  In particular, the appropriate sum under section 84(1) 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.  (As MGH accepted that modification of the restriction would not cause injury to their land, there was no basis for awarding any sum under section 84(1)(i) (i.e. a sum to make up for any loss suffered by the beneficiary of the covenant).)

Decision

The question for the Tribunal was how much more, if anything, the original purchaser might have paid the original developer in 1985 had the Restrictions been removed.

The Tribunal considered that, had the Restrictions not been in place, the 1985 purchaser would likely have paid a maximum of 5% above the original purchase price of £52,500 (or £2,625). The Tribunal considered whether this sum should be adjusted to allow for inflation. It was noted that, in previous cases, the Tribunal’s approach to making such adjustments has varied. In this instance, the movement of RPI since 1985 suggested a three-fold increase. Alternatively, a review of actual house prices would suggest a six-fold increase.

However, the amount that would represent a “just” award was a matter of judgment here. It was for MGH to provide sufficient evidence to support their proposed compensatory value and they had failed to do so. All things considered; the appropriate amount of compensation was the Applicant’s offer of £4,000.

Comment

  • Examples of the evidence which MGH might have provided (if available) include sales records and/or whether there were any negotiations between the original developer and 1985 purchaser as to the monetary effect of the Restrictions.
  • The case demonstrates that it can only be a modest amount that is awarded in compensation.

For some examples of the awards made in other cases see those referred to in the section above headed: Practical beneifts of substantial value or advantage.

 

Finality

A great advantage of applying to modify or discharge an injunction is finality. Even if there is someone else who has the benefit of the covenant who has been forgotten about the order of the Tribunal will be final. More accurately:

    "s84(5) Any order made under this section shall be binding on all persons, whether ascertained or of full age or capacity or not, then entitled or thereafter capable of becoming entitled to the benefit of any restriction, which is thereby discharged, modified or dealt with, and whether such persons are parties to the proceedings or have been served with notice or not."

 

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