Commercial Update 99 – Dealing With Restrictive Covenants

Following a few enquiries on the subject over the last week, this week’s update deals with the vexing issue of how to challenge/deal with a restrictive covenant.

Examples of restrictive covenants can include, not to erect any structures or buildings on the land, or not to use the land for business purposes.  A common form of restriction can also include not making any further alterations or additions to the property without the consent of the original developer.

Any breach of the terms of the covenant could mean that someone with the benefit of the covenant could apply to the courts to have any threatened breach stopped by an injunction, and/or, they can claim damages. 

Planning permission will not override the covenant and the planning authority will not consider private legal rights between parties when considering granting permission.

Top tips to bear in mind are:

A. If drafting them, please make sure that the wording is clear and precise with clear plans showing which land benefits from the restrictive covenant and which land is burdened by it;

B. Any application to register a restrictive covenant should be made against both the benefitting and burdened land

C. If developing land, deal with any restrictive covenant head on. A good start is usually to use the planning process to flush out any issue that there might be;

D. If the restrictive covenant is “qualified”, such that the thing which is prohibited may be done with “consent” of the relevant beneficiaries, you could seek consent. However, there is no guarantee consent will be provided and it can often be difficult to obtain the consent of all of the beneficiaries. It can also invalidate any insurance you may seek (see point E below);

E. In terms of a challenge to a restrictive covenant, the following are options to consider in order:

a. Check it hasn’t been released – Checking back through a property’s history may uncover if it has been removed previously. If the beneficiary of the covenant can be identified, you can either negotiate a release of the covenant or a variation of the deed containing the covenant as per option c. below;

b. Indemnity Insurance? – It may be possible in certain circumstances to obtain indemnity insurance to protect against the risk of a person with the benefit of a restrictive covenant seeking to enforce it. Usually, the cover is for an indefinite period, at a one-off premium and also covers successors in title and mortgagees of the policy holder.  Usually though, insurers will require that no contact is made with anyone who might have the benefit of the covenant.

c. Please note though that if there is a proposed change of use or planning application, then the insurers will often want you to apply for planning permission, as this will often flush out potential objectors who may have the benefit of a covenant. They will then better understand the level of risk.

d. Get it released/varied – Try to negotiate the release or variation of the restrictive covenant.  This will only be effective if the full extent of the land that benefits from the restrictive covenant can be located and all of the beneficiaries identified. They may require payment to do so;

e. Discharge – On the assumption that both insurance or agreement are not possible and there is a valid enforceable restrictive covenant on your property, an application can be made to the Upper Tribunal (Lands Chamber), formally the Lands Tribunal, for the modification or discharge of a restrictive covenant.  An application to the Upper Tribunal is often a lengthy (the timeframe usually being between 18 and 24 months) and costly process. If no objections are raised, an application can take three months but much longer in a disputed case. The Upper Tribunal has power to order the applicant to pay compensation to the person entitled to the benefit of the covenant.

The most common grounds to rely on are as follows:

  1. The restriction is deemed obsolete as a result of ‘changes in the character of the property or the neighbourhood or other circumstances’. This is usually the case where the wording of a covenant no longer applies to the present circumstances; or
  2. The restriction impedes the reasonable use of the land and the benefit which the other land may receive from the covenant is not substantial; or
  3. By agreement with the beneficiary of the restriction.

Ultimately if you took the case to the Upper Tribunal you would need to obtain an expert written opinion from a chartered surveyor as to whether the proposed changes or development would substantially reduce the value of the objector’s property. If you successfully remove or modify the covenant at the Tribunal, you will usually have to pay compensation plus your own costs. If the objector wins they will receive their costs unless they have acted unreasonably.

f. Court Order – It is possible to apply to the court as opposed to the Tribunal for a declaration that a covenant is not valid or enforceable for perhaps technical reasons.

In conclusion, there are options when looking at restrictive covenants, but an awful lot will depend on the nature of the covenant, the context of the land and what plans you may have.

Regards to all