Restrictive Covenants On Real Estate

restrictive covenantsFollowing the decision of the Supreme Court in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45, where the Supreme Court had to rule on an application to modify or extinguish a restrictive covenant under Section 84 of the Law of Property Act 1925, we have been reviewing the subject of restrictive covenants on real estate.

What are restrictive covenants on land?

Restrictive covenants are often imposed on land sold. For example:

  • By someone selling land adjacent to their house, to limit what can be done on the land sold.
  • By developers who want to maintain the quality of their development while they dispose of other units on the development.
  • By someone selling agricultural land, in order to secure a payment if planning permission is granted in the future to develop it.

But restrictive covenants are tricky. They are contracts between the parties to them and so can be enforced between the original parties. Even then the wording of the covenant must be looked at very carefully. There have been many cases about just what does a restrictive covenant restrict. For example:

  • A covenant that any building on land should be only used as a private dwelling house does not limit the number of such dwellings.
  • A covenant saying ‘no more than one dwelling’ does not limit the size of appearance of the dwelling or how it is maintained.

But passing the benefit and burden to successors is not so easy.

For a restrictive covenant to bind a future owner of the land, it must be clear it is intended to do so. It must be registered at the Land Registry and the party seeking to enforce it must own land that was intended to be benefitted and is capable of being benefitted by the covenant. Many cases arise where, for any of these reasons, there is a covenant registered but incapable of being enforced.

Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd

This case reminds us that a landowner burdened with a covenant may be able to have a restrictive covenant modified or released. But this is only in the circumstances listed in Section 84 Law of Property Act 1925. This case highlights that the Court has a discretion whether or not to modify or release the covenant.

In the case, a developer had obtained planning permission for a development and had gone ahead with it without seeking a resolution with the party with the benefit of the covenant. The Supreme Court decided that although the developer may have had the right under Section 84 to request the modification or release, its high-handed approach resulted in the Court refusing the request. Those with the benefit of restrictive covenants have rights too! And even where a Court agrees to modify or release a covenant, it can order compensation be paid.

The case also reminds us that the law relating to covenants is quite separate from Town & Country Planning legislation. Just because a Planning Permission is granted does not mean a development is allowed to breach a restrictive covenant.

Taking legal action against breaches of restrictive covenants

A landowner who will suffer as a result of a breach of a restrictive covenant should consider taking action promptly. The Courts can grant Injunctions to prevent breach but this is at the discretion of the Court. A Court is unlikely to grant an injunction where the restrictive covenant has sat back and waited. He or she has a right to damages to compensation for the loss suffered but this might not be as much as hoped for if there has been delay.

Overage payments

Since restrictive covenants can be tricky to enforce and can be modified or released, a seller who wishes to preserve the ability to receive a further payment in the event of Planning Permission subsequently being granted to develop the land, should consider imposing ‘overage’.

Here the buyer gives a positive covenant to make the overage payment in such event and covenants not to sell the land without obtaining for the overage-owner a covenant by the subsequent buyer to pay such ‘overage’. This is protected by a Restriction on the Land Registry Title to the land, so that no subsequent owner can register ownership to the land without a certificate that this has been done.

So, what should someone do if they are buying property where there is a restrictive covenant on the title deeds and the enforcement of which would cause them a problem?

  1. Check the wording of the covenant. Will it actually restrict what the buyer desires to do? If so:
    – Check if the burden of the covenant has been properly attached to the property being purchased;
    – Check to see if it has been properly registered at the Land Registry; and
    – Seek to determine if anyone owns property which has the benefit of the covenant which is capable of being benefitted – but, if there may be, be careful – do not approach any neighbours until you have considered if an Indemnity Insurance policy may be available.
  2. An Indemnity Insurance policy might be obtained, if, for example, there have been no objections to a planning consent for the proposed use of the property. It may provide some financial cover in the event of someone taking action to enforce the covenant. But Indemnity Insurers do not usually give such cover if a neighbour has already indicated they may enforce their rights. However, it should be remembered that an Indemnity Policy, if available, may provide some financial cover, but it does not prevent a neighbour with the benefit of a covenant taking legal action, possibly including a request for an Injunction.
  3. Consider whether it may be possible to apply to the Court under Section 84 to have the covenant modified or withdrawn. But if so, be prepared to negotiate reasonably a release with the person who has the benefit of the covenant. The Court is unlikely to grant such a modification or release if the applicant has not acted reasonably.

How can Nelsons help?

If you have any questions about restrictive covenants on real estate or any related queries, please contact either Martin Jinks (Partner, Solicitor & Notary Public) or Sarah Burns (Associate & Solicitor) in our expert Commercial Property team on 0800 024 1976 or via our online form.

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