Developers often find that land which they wish to develop is subject to old restrictive covenants which interfere with the proposed development. Normally, the solution is a restrictive covenant indemnity policy.
However this is not always practical - for example the person with the benefit of the covenant may have already put the developer on notice that it intends to enforce the covenant. Obviously a developer can negotiate a release of the covenant for a substantial premium.
However, there is one other alternative. The Lands Tribunal has the power to modify or discharge a covenant. Any person with a legal or beneficial interest in land affected by a restrictive covenant may apply (this includes contracting purchasers, tenants and mortgagees).
The Lands Tribunal's power to either modify or discharge the terms of a restrictive covenant is discretionary and on terms that may or may not involve the payment of compensation. This is so even if the covenant is purely personal (ie it does not bind successors in title to the affected land). However, this is not a general discretion, to have a chance of succeeding an applicant must show that one of the four following grounds exists:
1. The restrictive covenant is obsolete
This involves satisfying the Lands Tribunal that as a result of changes in the character of the land affected by the covenant, or its neighbourhood or any other material circumstances, the restriction should be deemed obsolete. An example could be where a covenant was placed on land to protect the residential character of a locality which has over a period of time in fact become a predominantly commercial area.
2. The continued existence of the restrictive covenant would impede some reasonable use of the land for public or private purposes
Whether a proposed alternative user is "reasonable" is an objective test, and the Tribunal may consider whether planning permission has been obtained in deciding this. There are further qualifications under this ground that (i) the restrictive covenant must either confer no practical benefit of substantial value or must be contrary to the public interest and (ii) any loss suffered by the party with the benefit of the restrictive covenant must be able to be adequately compensated financially. The term "practical benefit" certainly covers such matters as the preservation of privacy or the enjoyment of a view but is not intended to cover the purely financial bargaining power resulting from holding the benefit of a covenant.
3. Agreement of all parties to the modification or discharge of the covenant
This ground applies if it can be shown that all the persons of full age and capacity with the benefit of the restrictive covenant have agreed to its discharge or modification. This agreement can either be expressed or implied; for example, where land which is subject to a restrictive covenant is used for an offending purpose with the parties' acquiescence over a period of time.
4. The discharge or modification of the covenant will not injure the persons entitled to the benefit of it
Relevant factors to be taken into account here might include whether any alternative form of development not controlled by a restriction would be more injurious to the party with the benefit of the covenant and whether a proposed development would be out of character with an existing development. Again, the fact that an objector might lose the right to a contractual payment in respect of its release is irrelevant in deciding whether that party is "injured".
One final point which is often overlooked is that the powers of the Lands Tribunal extend not only to restrictions on freehold land but also restrictions on leasehold land where the term of the leasehold interest is for a term in excess of 40 years and at least 25 years have expired.
For further information please contact Alex Poole-Wilson at alex.poole-wilson@cms-cmck.com or on +44 (0)20 7367 2148.
