Common development issues: restrictive covenants


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For further information, please contacts Matthew Williams, Partner, Fladgate LLP (mwilliams@fladgate.com)


 

Developers and landowners often find that development sites are subject to covenants which prohibit certain actions, such as a change of use, construction or alteration to a building.

These covenants are known as restrictive covenants and can have a significant impact on the proposed development. It is, therefore, very important to identify such a restriction and to undertake a full analysis of it. Having examined it closely, it should then be clear whether the restriction properly affects the land, is still enforceable, and who (if anyone) has the benefit of it.

In this article, we will consider these points and some possible solutions:

Formalities

A restrictive covenant must be negative in nature. A positive covenant which requires somebody to take action or pay money is not restrictive and cannot bind successors in title.

This is an important point, as positive covenants are often drafted in the negative (e.g. a covenant not to allow a property to fall into disrepair). When the restrictive covenant has been identified, it is then necessary to establish whether it is properly drafted.

Most importantly, a restrictive covenant must touch and concern the land of the person seeking to enforce it. This means that the covenant benefits only the owner for the time being of the land, has an impact on the nature or value of the land, and is not expressed to be personal. A restriction which complies with these formalities is likely to be enforceable, unless the covenant is so widely drafted that it is uncertain or ambiguous.

Beneficiaries

The next point to consider is who has the benefit of the restrictive covenant and can enforce it. The original parties to the covenant can enforce the covenant as a matter of contract, but on many occasions the benefit will pass to successors in title. The most common method of passing the benefit is to ensure that it attaches to the land either by setting this out expressly in the drafting or by relying on statute.

It is important to ensure that the drafting is clear and that the land to which the benefit is annexed is clearly identified. For statutory annexation to occur, the land intended to benefit must be clearly identifiable from a plan, description or other reference in the agreement. All restrictive covenants which comply with the formalities set out above and created since 1926 are deemed to include successors in title (i.e. owners and occupiers of the land). If the drafting is unclear, however, it is possible that the covenant could be construed to be personal and will be unenforceable by successors in title.

Release or modification

If the proposed development cannot proceed whilst the restriction remains in place, there are a number of options open to a potential developer. These can, however, be expensive and time consuming, so if at all possible they should be dealt with before any land is acquired and, preferably, at the expense of the seller.

The most common procedures for dealing with a restriction are as follows:

Express release:

  • it may be possible to reach an agreement with the beneficiary, which could involve the payment of a premium (depending on the value of the restriction); and
  • this is only an option if the land which benefits from the restriction can be clearly identified along with all of the beneficiaries, all of whom should be a party to the deed.

Restrictive covenant indemnity insurance:

  • this is usually only available where the beneficiaries cannot be identified (e.g. for a historic covenant).

Application to the Lands Tribunal to discharge or modify the restriction:

  • if it can be shown that any of the statutory grounds are met, then it may be possible to get an order to either discharge or modify the restriction;
  • such an application can be time consuming, however, and if an objector succeeds it is likely that the applicant will be responsible for their costs.
    Application to the court for a declaration that the covenant is no longer effective.

Conclusion

As ever, it is important to identify issues with a potential development plot as early as possible. In a number of recent cases, developers have spent time and money designing a scheme and putting a planning permission in place before realising that a restriction would prevent them from proceeding. There are ways to resolve such matters, but they should be fully investigated and preferably resolved before the land is acquired and the development process begun.

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