11 octobre 2022

RED Alert - October 2022 – 4 de 5 Publications

Discharge of restrictive covenants: win at all (your) cost


HAE Developments Ltd (the Developer) wished to build a three-storey building containing flats on a parcel of land burdened by restrictive covenants prohibiting the construction of any building other than a single dwelling house. The covenants benefitted a neighbouring property known as The Croft, a large property that though once a single dwelling had been converted into numerous flats and maisonettes. The Developer made a successful application to the Upper Tribunal (Lands Chamber) for the discharge of the covenants, but the Developer was nevertheless ordered to pay its own costs. 

The facts

The Developer's land was situated on land that was previously part of the garden of the neighbouring property known as The Croft (the Property). The Property was sold out of the wider title to The Croft on 6 September 1955 and the owner of The Croft imposed restrictive covenants on it prohibiting the construction of any building on the Property except one dwelling house. At the time, The Croft was one very large property but has since been converted into 11 flats and 22 maisonettes.

The Developer came into ownership of the Property in 2018 and was subsequently granted planning permission to demolish the existing single dwelling on the Property and to construct a building with eight flats, which would, if built, breach the restrictive covenants.

The Developer therefore made an application to the Upper Tribunal (Lands Chamber) (the Tribunal) under section 84 of the Law of Property Act 1925 to have the restrictive covenants discharged. This was objected to by the occupiers of The Croft who benefitted from the covenants (the Objectors).

The Developer sought to have the covenants discharged on the following grounds:

  • The covenants were obsolete
  • The discharge of the covenants would not prejudice the Objectors, and
  • The covenants prevented the reasonable use of the Property.

The decision

Covenants were obsolete

To discharge the covenants under this ground, the Tribunal could consider changes in the character of the Property or neighbourhood or other material circumstances, as well as the development plan and any pattern for the grant or refusal of planning permission in the area, together with the period at which and context in which the restrictions were created or imposed and any other material circumstances.

Having regard to these factors, the Tribunal found that there had been a substantial change in the neighbourhood of the Property since 1955 when the covenants were first imposed. The proposed development of flats was in keeping with the development plan, surroundings and the pattern of planning permissions in the area. The Tribunal also found that the covenants were originally imposed to protect the use and enjoyment of The Croft by the owner in 1955 when it was a single property. The change of the character of The Croft to flats and maisonettes made this original purpose of the covenants superfluous. The Tribunal therefore found that the covenants were obsolete and should be discharged.

Discharging covenants would not prejudice Objectors

To discharge the covenants under this ground, the Tribunal had to be satisfied that the proposed discharge would not prejudice those persons who benefit from the restrictions i.e. the Objectors.

The Objectors made various complaints regarding the extent to which they would be prejudiced if the covenants were discharged and the development effectively allowed to proceed. This included the consequences the development would have for overlooking, loss of light, noise, light pollution, cooking smells, traffic and parking. The Tribunal found that overlooking and loss of light were not prevented by the wording of the covenants (and were otherwise largely irrelevant given The Croft was already overlooked) and the other complaints made were illusory either because the consequences feared simply would not materialise or they already existed as a result of The Croft itself and would not be made worse by the addition of the eight flats proposed at the Property. Issues related to parking and traffic were adequately dealt with in the planning permission and local traffic regulations.

Prevention of reasonable use of the land

To discharge the covenants under this ground, the Tribunal had to be satisfied that the continued existence of the covenants would impede some reasonable use of the land for public or private purposes and that the covenants did not secure any practical benefit of substantial value or advantage to the Objectors.

The Tribunal was not required to consider this ground in any detail given its decision that discharging the covenants would not prejudice the Objectors but did confirm its view that the covenants did prevent a reasonable use of the land for housing and did not secure any practical benefit to the Objectors. 

Costs award

Whilst the Tribunal found in favour of the Developer and ordered the discharge of the covenants, it declined to make a costs award in favour of the Developer. Each party had to bear its own legal costs.  

The Tribunal is permitted to make an award of costs for proceedings related to the discharge of a restrictive covenant. The general rule in litigation is that the loser pays the winner's costs (but note recovery of costs is rarely 100%). This position is slightly different in the Tribunal where the general rule is that each party pays its own costs, regardless of the outcome, unless the Tribunal considers that one party's conduct has been unreasonable.  In the context of proceedings for the discharge of a restrictive covenant, the Tribunal's practice guide states that unsuccessful objectors will not normally be ordered to pay any of the applicant's costs unless they have acted unreasonably.

The reason for this is that the applicant is attempting to remove or at least dimmish the objector's property rights by seeking to have the covenant discharged (or modified as the case may be) and so, as a matter of policy, the Tribunal will not routinely regard an objection and decision to pursue this to a hearing as unreasonable. Objectors should not be dissuaded from seeking to preserve their property rights for fear that they might be required to bear the applicant's costs as well as their own.

In light of the above, the threshold to establish unreasonable conduct on the part of the objector, such that the objector would be ordered to pay the applicant's costs, is very high. The fact that an objector is unsuccessful at a hearing is not in and of itself evidence that the objector's conduct was unreasonable. With this in mind, applicants should assume they will have to bear their own costs in proceedings to discharge a restrictive covenant and factor this cost into their development plans.

Our comments

This case serves as a useful reminder of the application of some of the grounds that may be relied upon in applications for the discharge or modification of restrictive covenants. However, it is also a reminder that the Tribunal will, as a matter of policy, rarely order an objector to pay the applicant's costs even if the applicant is successful in having the relevant covenant modified or discharged.

It is also a useful reminder to buyers of land with potential development value to take legal advice on the nature of any restrictive covenants burdening the land with a view to establishing the enforceability of the covenants and options/prospects for removal as part of pre-contract investigations into property.

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