A developer’s application under Section 84 of the Law of Property Act 1925 (“LPA“) to discharge or modify restrictive covenants which would be breached by a proposed development was considered in the recent case of HAE Developments Ltd v The Croft Ealing Ltd and others  UKUT 120 (LC). The judgment raises a number of important points.
HAE Developments Ltd (“Developer“) had the benefit of planning permission to demolish the existing two-storey house at 26A and 26B Park Hill, Ealing, London built in the 1950s (“Property“) and to construct a three-storey building to provide eight flats (“Proposed Development“).
The Property was subject to restrictive covenants imposed in 1955 which would be breached by the Proposed Development. The restrictive covenants benefit the adjoining land known as The Croft, at the time a Victorian residence with a large garden. However, The Croft was subsequently developed in the 1960s into 11 flats and 22 maisonettes within four three-storey blocks.
Some of the restrictive covenants burdening the Property are as follows:
- not to erect any building other than one dwellinghouse with necessary outbuildings, garage, accommodation, and greenhouses (“Covenant 1“);
- not to use the Property other than as a private dwellinghouse (“Covenant 2“); and
- not to do any act or thing on the Property which shall be a nuisance or annoyance to the occupiers of adjacent land (“Covenant 3“)
The Restrictive Covenants would be breached by the Proposed Development and the Developer therefore applied under Section 84 of the LPA to discharge or modify them. The freeholder of The Croft (a company owned by the leaseholders of the flats and maisonettes) and 26 of the 33 leaseholders (“Objectors“) objected to the Developer’s application on various grounds.
Section 84 of the LPA allows the discharge or modification of a restrictive covenant where:
- due to a change in the character of the property or neighbourhood or other material circumstances, the restrictive covenant is obsolete; or
- the restrictive covenant impedes some reasonable use of the land and the restrictive covenant (a) does not secure any practical benefits to the person entitled to the benefit of the restrictive covenant or (b) is contrary to the public interest; or
- the proposed discharge or modification will not injure the persons entitled to the benefit of the restrictive covenant.
In considering any Section 84 application, regard is to be given to the development plan and any declared or ascertainable pattern for the grant or refusal of planning permissions in the area.
If a restrictive covenant is modified or discharged, compensation may be awarded to the person entitled to the benefit of the restrictive covenant for (a) any loss or disadvantage resulting from the discharge or modification of the restrictive covenant or (b) the reduction in the price paid for the land subject to the restrictive covenant due to the imposition of the same.
In this case, it was concluded:
- having regard to the change in the character of The Croft and the pattern of planning permissions on Park Hill, that the neighbourhood has changed considerably since 1955 and the Restrictive Covenants were obsolete;
- the Restrictive Covenants prevented the reasonable use of the Property for much-needed housing while not securing any practical benefit to the Objectors; and
- the Objectors’ assertions of injury were not made out. In particular, the Objectors’ concerns with the Proposed Development were considered to either not be protected by the Restrictive Covenants, or unlikely to happen, or to be unsubstantiated given that the Objectors already suffer the same disadvantages from their own neighbours.
The Developer was successful in that:
- Covenant 1 and Covenant 2 were discharged in their entirety. It was decided that these covenants were obsolete; and
- there was no compensation awarded as there was no loss suffered by the Objectors.
Covenant 3 was not discharged as it was decided by the tribunal that it will not be breached by the disturbance caused by construction.
It remains to be seen whether either party would appeal the decision.
In a Section 84 application, the unsuccessful objectors are not usually ordered to pay the applicant’s costs unless the objectors have acted unreasonably. Making an objection and pursuing it to a hearing is not usually considered unreasonable.
Nevertheless, the Developer applied for costs, arguing that the Objectors’ arguments were unreasonable and they refused to accept settlement offers. This was dismissed as it was decided that the Objectors’ position was reasonable.
Section 84 applications are tricky and careful consideration should be given before resorting to them.
Firstly, their outcome can be difficult to predict and a large number of them are rejected.
Although the Developer was successful on this occasion, the interpretation of Covenant 3 relating to nuisance or annoyance (which was not discharged) is interesting. The Objectors’ argument that Covenant 3 would be breached by overlooking or by the reduction of light to the windows of The Croft was rejected. In addition, following the Court of Appeal’s decision in Shephard v Turner  EWCA Civ 8, the Tribunal held that Covenant 3 could not be read as preventing construction work.
However, it does not appear that the Court of Appeal’s ruling in Davies v Dennis and others  EWCA Civ 1081was considered here. In Davies, it was held that a restrictive covenant prohibiting nuisance and annoyance would be breached by the building works for a house extension and the existence of the extension itself was also capable of being a nuisance.
Unfortunately, it is not clear from the judgment why Shephard was followed and not Davies.
Secondly, Section 84 applications can be costly, not least because of the number of persons likely to oppose an application (including the tenants and mortgagees) and the risk of those opposing an application coming together to fund the proceedings.
Thirdly, while successful applicants need to demonstrate that objectors have acted unreasonably for the objectors to be ordered to pay the applicant’s costs (and the Developer’s argument was rejected here and, as shown, can be a high bar to meet), successful objectors will usually be awarded their costs unless they have acted unreasonably.
Finally, where a development site is subject to restrictive covenants that could be breached by a development, a developer’s first step is usually to seek to obtain indemnity insurance to mitigate against the risks of a third party seeking to prevent the development or claiming damages. It is unclear whether the Developer explored this route at any point. A policy would need to be checked thoroughly before a Section 84 application was made as such an application may well be prevented by the terms of the policy. The judgment for this case states that there were 117 objections to the Developer’s planning application which might indicate that indemnity insurance may not have been available due to the persons having the benefit of the Restrictive Covenants being aware of them.
Despite restrictive covenants not being a planning matter, it is not uncommon for them to be referred to in objections to planning applications. This is usually aimed at making insurance unavailable for the Developer in the future. Insurers may only be prepared to offer cover on a post-grant-of-planning-permission basis and cover is not usually available where a person entitled to the benefit of a restrictive covenant is aware of it and the potential breach.
It is therefore imperative where restrictive covenants could be breached by a development to consider from the outset how the restrictive covenants will be addressed, at what stage of the transaction, and who will be responsible for the costs associated with them. And as always, do not contact any person who may have the benefit of a matter you might be seeking to insure against.
- Careful consideration should be given before making a Section 84 application – proceedings can be costly, there could be numerous objectors, and the outcome can be difficult to predict;
- Costs are usually awarded to successful objectors, but not to successful applicants (unless the objectors have acted unreasonably, which can be a very high bar to meet);
- If a site is subject to restrictive covenants, it should be considered from the outset how and when they will be addressed;
- Do not contact any person who may have the benefit of a matter you might be seeking to insure against.