As construction work and house building begins to recommence across the country, many developers will be taking the opportunity to investigate potential new development sites and prospects.
One of the overlooked issues that can become a major stumbling block to new development sites is that of restrictive covenants, which places constraints on the use a piece of land can be put to. These can transform an otherwise prime site into something rather more difficult.
Devil in the detail
A restrictive covenant is a binding obligation, for the benefit of adjoining land, not to use land for a particular use or purpose.
The range of restrictive covenants a developer might find themselves hampered by is as broad as the number of uses to which a site could be put, although common examples include the following:
If due diligence has been carried out on a site, then the presence of any restrictive covenants is usually apparent from the registered title or pre-registration documentation.
If a developer attempts to implement a planning permission in breach of a restrictive covenant, then the beneficiary of the covenant may be in a position to stop the development (by way of injunction) or proceed with a claim for damages.
Recent case law, such as George Wimpey Bristol Ltd v Gloucester Housing Association Ltd  and The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and others , has shown that the Courts will take a dim view of developers who simply ignore restrictive covenants.
With this in mind, what action can be taken when faced with a restrictive covenant?
Keep calm and start negotiating
In general, there are three approaches that can be taken.
One option is to consider negotiating with the person enjoying the benefit of the covenant, trying to persuade them to release the covenant. Typically, this will require a financial incentive to be paid.
Another approach involves insuring against the risk of breaching a restrictive covenant. This does not remove the risk of the beneficiary of the covenant obtaining injunctive relief or damages, but will help alleviate some of the worse financial impacts. Insurance will typically not be available if communication has been made with the beneficiary of the restrictive covenant, which is an important factor to bear in mind when considering approaching the person with the benefit of the covenant.
Finally, a developer might apply to the Upper Chamber of the Lands Tribunal under Section 84 of the Law of Property Act 1925, in an attempt to have the covenant withdrawn or modified. This could prove to be successful under the following grounds:
In determining whether the development of the land is reasonable or not, the Tribunal will often consider any planning consent the development has already received, as this is a helpful indication that the use of the site is indeed reasonable. The conduct and behaviour of the applicant will also be taken into account.
Proceed with caution
Sometimes developers decide to simply press on with development, even after discovering the presence of the restrictive covenant.
This cavalier approach comes with risk, as clearly evidenced in the recent case of The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and others  EWCA Civ 2679.
In this case, the developers (Millgate) obtained planning permission to build twenty three new residential dwellings.
Nine houses and four bungalows were built and ready to be occupied, but all of this had taken place despite the fact that a restrictive covenant on the land restricted its use to nothing more than parking vehicles.
Millgate had been aware of this covenant when they obtained planning permission, but had proceeded commencement of work anyway. They submitted a claim to the Upper Tribunal to have the covenant modified in the meantime (as detailed above).
Millgate had also contracted to sell the properties to a social housing provider, a sale which would only happen if the application to the Upper Tribunal was successful.
In the first instance, the Upper Tribunal found in favour of Millgate, recognising the public interest in having more available social housing took precedence over other factors. The Court of Appeal however overturned the ruling, indicating that Millgate could have avoided the onerous impact of the covenant if they had acted more reasonably from the outset.
The Court of Appeal found that Millgate had not taken the time to test the public interest of their development, or to attempt to negotiate a release of the restrictive covenant.
It also found that if they had located the residential units within a part of the site not covered by the covenant, they could have completed the development without breaching the covenant.
The case demonstrates that the best thing to do when discovering a restrictive covenant is to act quickly and seek professional advice to resolve the issue. Ploughing on regardless carries a huge risk of wasting time, money and resources on a development which could ultimately be prevented from proceeding.
If you are considering developing a site and would like to discuss your options with an experienced team of commercial property professionals, please speak to Jonathan Rowley, an Associate Solicitor here at Ansons on 01543 466660 or email firstname.lastname@example.org
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