Developers – there’s no such thing as an easy site
Restrictive covenants are a nuisance for developers and landowners. Their existence can be catastrophic in the road to bringing forward a development. Holly Mayne, commercial property expert at Shakespeare Martineau, looks at what developers can to do to stop covenants hampering the development of their land.
Is there any such thing as an “easy” site? Even if you find land with reasonable planning prospects, an absence of gas pipelines, electricity wires, pylons or isn’t contaminated, it is so often the case that the title will be peppered with a number of outdated and potentially defunct covenants.
So what can you do if there is a covenant hampering the development potential of your land?
It is first important to consider whether the covenant is actually enforceable. Broadly speaking, the covenant must:
- benefit land owned by the person wanting to enforce it
- be genuinely restrictive in nature, and not a positive covenant “dressed up” as a restrictive covenant – e.g. “not to allow the southern boundary to fall into disrepair” really means “keep the southern boundary in good repair”
- have been registered correctly and the burden must have been intended to run with the land
Even if it the covenant is technically enforceable, there are options available for developers to explore:
1. Request to remove the covenant from the Land Registry title
There are instances where it is possible to remove the covenant directly from the Land Registry title. This is possible where it is clear that the land benefitting from the covenant and the land burdened by the covenant has at some point been in the same ownership, meaning the covenant will have fallen away.
However, it is important to note that in many instances, too much time has passed, or the land has changed ownership on too many occasions to provide enough evidence to the Land Registry that the covenant has fallen away. This makes this a difficult and often unsuccessful route.
2. Approach the party with the benefit of the covenant and negotiate its removal
If you are able to trace the party who benefit from the covenant, another option is to approach them directly to negotiate its removal.
This does however come with the danger that they may want monetary compensation to release the covenant. There is also the chance that they could refuse to remove it at all. Further, by contacting them you would be highlighting to them that your development would breach the covenant, make indemnity insurance near impossible to obtain. This means that this approach is rarely used in practice, unless the covenant is modern and the land ownerships have changed little or not at all since the covenant was first imposed.
3. Apply to the Land Tribunal to modify or discharge it
There is a procedure under Section 84 Law of Property Act 1925 to make an application to the Land Tribunal to modify or discharge a restrictive covenant. The Tribunal may then decide that the covenant in question is obsolete due to changes in the character of the burdened land, changes in the character of the neighbourhood, or other material circumstances
Whilst this is a potentially time consuming and costly exercise, it is a route that has been widely used. A recent case (Geall, re Vine Cross ) confirmed that the tribunal could modify or discharge a restrictive covenant, even where the original party who entered into the covenant still owned the land, so there is still hope of success even where the land has not changed hands.
4. Put in place an indemnity insurance policy
Unless you can remove the covenant from the Land Registry without involving the party with the benefit of the covenant, e.g. by proving it was not registered correctly or that the benefit and burden of the covenant have legally merged, then the best (and definitely quickest) course of action would be to put in place an indemnity insurance policy.
Depending on the proposed use, nature of the covenant and estimated gross developed value of the land, an indemnity insurance policy can range from a few hundred pounds to tens of thousands of pounds.
Whilst policies are not always available to purchase before planning permission is granted, which leaves the developer open to risk. This can be mitigated by structuring the purchase documentation on a conditional basis but the Developer is still incurring planning costs which could be significant and so if the party with the benefit of the covenant does show up, then the developer is already out of pocket and several months have been wasted.
But it is clear there is no universal cure…
That is not to say that restrictive covenants cannot be used properly where there is a genuine need. Indeed, they can be very useful in such cases where a seller wants to protect the amenity of its retained land. What is most important is that all parties act sensibly when drafting restrictive covenants going forward. In 100 years’ time or even 40, it is likely that the world will have changed so much that the covenants will not be relevant any more, and the future developers and lawyers will still be wrestling with more covenants and even more “untidy” titles.