Property Focus

Modifying restrictive covenants – one house or two?

Restrictive covenants which prevent or restrict the future development of land are very common as are applications to the Upper Tribunal (Lands Chamber) to discharge or modify them.   Most of these applications involve removing old covenants, frequently imposed in Victorian times, which are either obsolete or no longer reflect the current use of the land.  Invariably, applications are made by the successors in title of the original landowner often decades later or even longer, but what happens when an application is made by the original buyer against the original seller?  This situation arose in the recent case of Re O'Byrne's Application [2018] UKUT 395 (LC) which involved an application for the modification of a covenant imposed between the original contracting parties.

The facts

Mr and Mrs O’Byrne (OB) bought Tubney Manor Farm (TMF) from Magdalen College, Oxford (MC) in 2001 for £600,000.  As part of the purchase, MC imposed a covenant over TMF which restricted the use of the property to a single private dwelling.  In addition, as MC owned the access road, they granted a right of way over this road to TMF limited (amongst other things) to the use of TMF as a single property.

In 2017 OB was granted planning permission to convert TMF into two dwellings by redeveloping two barns on the land into one separate property.  Their plan was to sell the farmhouse and move into the new barn conversion.  After negotiations to buy additional land from MC fell through, OB applied to the Upper Tribunal to modify the restrictive covenant under section 84(1) of the Law of Property Act 1925.

In order for their application to succeed under section 84(1) OB had to satisfy the Tribunal that:

• the continued existence of the restriction would impede a reasonable use of the land; or
• the proposed modification would not cause injury to those with the benefit of the restriction.

MC objected on several grounds including:

• it would be injured by the modification of the covenant as its benefits were substantial. MC argued that 45 per cent of its income, about £6.3 million a year, came from its landholdings across Oxfordshire and elsewhere.  If the restriction was lifted it would set an unwelcome precedent and potentially affect MC’s ability to develop neighbouring sites.
• the right of way effectively prevented TMF being used as two properties. MC argued that even if the covenant was modified the development could not go ahead due to the restriction in the right of way.

Decision

The Tribunal allowed the application.  In relation to the right of way the Tribunal found that there was nothing in section 84(1) which stated that a covenant had to be either the sole or main impediment to using the land.  In addition, they followed the ruling in the case of Hotchkin v McDonald [2004] EWCA Civ which meant that any modification to the restrictive covenant would also apply to the right of way (otherwise there would be little point in modifying the covenant).

Looking at the potential loss of benefit, whilst the Tribunal recognised that the covenant was of some benefit to MC, it held that this was not substantial.  As a condition of modifying the restriction, OB had to pay the MC £60,000 as compensation on the basis that OB would have paid 10 per cent more for the property if the restrictive covenant had permitted two dwellings.  The Tribunal also did not agree that the decision to modify the covenant would entitle the neighbouring properties to succeed with a similar claim as each application would be judged on its merits.

Comment

What sets this case apart from other applications, is that it is essentially unpicking the agreed terms of a relatively recent sale and purchase between the original parties.  Although this was only a decision of the Upper Tribunal it is still an unwelcome decision for landowners thinking that the imposition of restrictive covenants will bind land they have recently sold.

The decision to apply the principal in the case of Hotchkin is another worrying aspect; MC had applied restrictions to the use of the right of way over the access road to provide additional protection for the restrictive covenant, however this was also modified (but only to the extent that the covenant was modified).  This must cast doubt on the effectiveness of reinforcing restrictive covenants with a similarly worded easement, yet doing this was entirely sensible and indeed advisable on the part of MC’s lawyers as part of the original transaction. 

It remains to be seen whether following this case, that applying to the Upper Tribunal for the modification of restrictive covenants will be considered as a quicker and cheaper alternative for developers particularly where negotiations with the landowner has fallen through.  However, as this case involved a relatively minor development it is difficult to say whether the Upper Tribunal would have reached the same conclusion if the development was for a large housing estate for example.

Bevan Brittan’s property team has extensive experience in dealing with restrictions and rights over land – whether drafting restrictive covenants for landowners keen to protect their land, negotiating the release of covenants or advising developers wishing to remove or modify covenants blocking their development plans.