Bulletins | January 10, 2018

Restricting Development

It’s possible for a landowner to agree to restrict the way in which their land is used (a restrictive covenant), in a manner which lasts for hundreds of years, if it’s done properly. Leicester Square remains an open space today because of words drafted in 1808. Sometimes these restrictions are superseded by changes in the neighbourhood: no-one would burn lime or tan leather in central London now.
Sometimes there’s a bit of a grey area. Covenants of debatable enforceability can often be dealt with by defective title insurance. Perhaps it’s clear that the proposed development will breach a building line shown on an old plan, but there’s no one who can complain. Or the title deeds refer to unspecified terms in a deed which has been lost. In these cases, as long as no contact has been made with anyone who might have the benefit of the covenant, it’s possible to get defective title insurance for a one-off premium.

However when it’s all too clear that the covenant can be enforced, insurance tends not to be available. If negotiation fails, developers have to revise their plans or fall back on an application to the Lands Tribunal. The 1925 Law of Property Act allows for covenants to be modified or discharged in certain circumstances: the covenants are obsolete; impede a reasonable use of the land; or no longer secure any practical benefit. The process includes writing to everyone who might have the benefit of the covenant alerting them to the hearing, effectively bringing their attention to a right they didn’t know they had. No wonder developers treat this as a last resort.

The recent case of Derreb Limited v Blackheath Cator Estate Residents Limited [2017] UKUT 209 (LC) concerned covenants which did impede a reasonable use of the land yet at the same time secured continuing practical benefit. How could the Tribunal resolve this dilemma? Derreb owned a former sports ground which was part of the Cator Estate. The property was subject to a restrictive covenant not to build anything other than detached houses on it. Derreb’s scheme comprised 38 detached houses – but also 25 terraced houses and 67 apartments. And they’d never actually submitted a planning application which was solely detached houses. Even so, it was clearly in the public interest for a derelict site to be brought back into use. The judges went to the Cator Estate and were struck by its tranquillity and pleasing character, which owed much to the quiet roads and substantial areas of detached housing. These features owed much to the restrictive covenant which was a problem for Derreb.

Tactics and money play an important part in litigation. In this case the developer was the only party to call expert witnesses. Derreb’s expert planner maintained that a less intensive scheme would be rejected by the local authority. Furthermore the authority might react by using compulsory purchase powers to acquire the site (thus free from restrictive covenants) and build much more than Derreb proposed. The Tribunal can only make its decision on the evidence presented to it, so these two elements of Derreb’s case went unchallenged.

A case report gives only a tantalising glimpse of the legal drama during the hearing itself. This particular judgment makes it clear that the parties (all of them) modified their respective positions during the course of the hearing. By the time the developer’s barrister stood up to argue that the covenant was obsolete, two of the objectors had already accepted that some modification of the covenant would be sufficient. It seems that the Tribunal played a more active role in the case than one might expect, perhaps because not all of the objectors were represented by solicitors. In a series of questions the judges prompted the individuals with homes near the site to agree that as long as the part of the development which abutted their homes was of detached dwellings, there would be no damage from flats out of sight; and the residents’ company and developer to agree that if the Cator Estate roads were only used by pedestrians, cyclists and mobility vehicles, the character of the Estate would not change. Abolishing the covenants would have meant the residents’ only protection against intensive development was the planning process; but amending the covenants was an elegant solution which balanced the rights of all parties involved. Derreb got the rights for a scheme which was pretty close to the one they had asked for, and the residents kept their tranquil low-rise locality.

One of my clients tells me he makes his money on the sites that other people think are too difficult. This case shows how the law can be part of the way to unlock those difficult sites.