Restrictive Covenants: How restrictive are they?

Any landowner can apply to the Upper Tribunal (UT) to have the covenants that restrict the use of land discharged or modified if they believe that they have ceased to serve a useful purpose and are of no real benefit to local people. A recent case showed that sometimes it is very difficult to object to the release of these covenants. In this case the UT opened the way for the conversion of a hotel and pub into a convenience store


Restrictive Covenants: How restrictive are they?The pub’s title deeds contained a restrictive covenant, dated 1966, which stated that the site could only be used as a hotel or licensed victualler. However, its brewery owners took the view that it was unviable as a business and had agreed to sell it to a developer who wished to turn it into a shop.

Completion of the sale was dependent on the covenant either being discharged or modified and the developer applied to the UT with that objective in mind.

When the application was advertised over 200 objections were received from local residents. Many objected on the basis that the pub had a loyal clientele and was an essential community hub, particularly for elderly and frail locals. However all but 4 were struck out as only they had filed evidence to support their contention that they were entitled to the benefit of the covenant.

This is a key point; it is not enough to show that the covenant merely exists. If you seek to rely on it, you must show that your land is entitled to the benefit of the covenant. This is the hard part as the Land Registry does not commonly record what land benefits from covenants only what land is burdened by them. Often only by painstakingly researching old title deeds and transfers can the benefitting land be found.   

In this case the developer argued to the pub's high overheads and very modest profits. Despite the pub having had eight different landlords in recent years, none of them had managed to make it an economic success. The objections were largely based on nostalgic recollections of the pub in its heyday. The developer argued that if the conversion proposals were blocked, the likelihood was that it would be closed and boarded up – benefitting no one.

In modifying the covenant to enable the pub’s transformation into a shop, the UT found on the evidence that the restriction on the use of the land did not secure any practical benefits for the 4 eligible objectors.

On a practical note, it is possible to insure against the risk of a landowner coming forward and attempting to rely on a restrictive covenant. However almost all policies are conditional on the insured not doing anything further to disclose the existence of the restrictive covenant or indeed the existence of the insurance policy. Many insurers can offer very competitive policies once planning permission has been granted, as this should have flushed out many potential objectors.

Case Notes: James Hall and Company (Property) Limited v Maughan (2016) UKUT 513 (LC)

Further Reading:

The Reynolds Report - The Tricky Business of Lease Extensions

Septic Tanks: The importance of residential conveyancing enquiries

Beware of the Restrictive Covenants in your Employment Contract!

 

 

 
Buying or Selling a House in Reading?
If you are in the process of buying or selling your home or have similar Title issues with regards to planning and development, you can discuss it an initial fixed fee consultation for £95 including VAT at our offices in Queens Road, Reading, Berkshire, with Martin Reynolds, who heads up our Commercial/Residential Conveyancing Department.

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