Developers and landowners often find that development sites are subject to covenants which prohibit certain actions, such as use for a specific purpose, or the construction of or alteration to a building. These covenants are known as restrictive covenants and can have a significant impact on a proposed development. Having identified such a restrictive covenant, it is very important to undertake a full analysis of it to establish whether the restriction properly affects the land, is still enforceable and who (if anyone) has the benefit of it.
In this article, we will consider these points and some possible solutions.
Formalities
A restrictive covenant must be negative in nature. A positive covenant which requires somebody to take action or pay money is not restrictive and cannot bind successors in title. This is an important point, as positive covenants are often drafted in the negative (for example, a covenant not to allow a property to fall into disrepair, whilst framed in the negative, actually imposes a positive obligation). Having checked that the restrictive covenant is truly negative, it is then necessary to establish whether it is properly drafted.
Most importantly, a restrictive covenant must touch and concern the land of the person with the benefit of it. This means that the covenant benefits only the owner for the time being of the land, has an impact on the nature or value of the land and is not expressed to be personal. A restriction which complies with these formalities is likely to be enforceable, unless the covenant is so widely drafted that it is uncertain or ambiguous.
Restrictive covenants are often created by a developer or landowner, when selling off parts of a larger property in order to have control over the use of the land sold off or to control the value of its sale. For the covenants to continue, the benefiting land and the burdened land must remain in separate ownership. It is possible that, on a future acquisition, a purchaser could acquire two parcels of land – one of which has the benefit of a restrictive covenant over the other. When the parcels of land move into the same ownership, the restrictive covenants will be extinguished due to the unity of ownership.
Beneficiaries
The next question to consider is who has the benefit of the restrictive covenant and can enforce it. The original parties to the covenant can enforce the covenant as a matter of contract, but on many occasions the benefit will pass to successors in title. The most common method of passing the benefit is to ensure that it attaches to the land either by setting this out expressly in the drafting or by relying on statute.
It is important to ensure that the drafting is clear and that the land to which the benefit is annexed is clearly identified. For statutory annexation to occur, the land intended to benefit must be clearly identifiable from a plan, description or other reference in the agreement. All restrictive covenants which comply with the formalities set out above and created since 1926 are deemed to include successors in title (i.e. owners and occupiers of the land). If the drafting is unclear, however, it is possible that the covenant could be construed to be personal and, as such, unenforceable by successors in title.
Release or Modification
If a proposed development or certain elements of it appear to be prohibited by a restrictive covenant, there are a number of options open to a potential developer. These can, however, be expensive and time-consuming, so if at all possible they should be dealt with before the land is acquired, preferably as a condition to the sale and purchase agreement and at the expense of the seller.
The most common procedures for dealing with a restriction are as follows:
- Express release:
- it may be possible to reach an agreement with the beneficiary, which could involve the payment of a premium (depending on the value of the restriction) for the release of the covenant; and
- this is only an option if the land which benefits from the restrictive covenant can be clearly identified. That land may no longer be in single ownership and so all of the potential beneficiaries would need to be identified and should be made a party to the release.
- Application to the Lands Tribunal to discharge or modify the restrictive covenant:
- if it can be shown that any of the statutory grounds (for example, if the covenant is obsolete, or it offers no practical advantage to the beneficiaries) are met, then it may be possible to get an order to either discharge or modify the restriction; and
- such an application can be time-consuming, however, and if an objector succeeds it is likely that the applicant will be responsible for their costs.
- Application to court for a declaration that the covenant is no longer effective.
- Restrictive covenant indemnity insurance:
- this is usually only available where the beneficiaries cannot be identified (e.g. for a historic covenant);
- if insurance is obtained, it must be remembered that the policy often provides cover for the loss if a beneficiary brings a claim: it does not stop such a claim and does not ensure that you will be able to develop the property; and
- it is also important to note that insurance will not be available if the developer has entered into discussions with any potential beneficiary or commenced proceedings at the Lands Tribunal or court.
Conclusion
As ever, it is important to identify issues with a potential development plot as early as possible. In a number of recent cases, developers have spent time and money designing a scheme and putting a planning permission in place before realising that a restriction would prevent them from proceeding. There are ways to resolve such matters, but they should be fully investigated by the solicitors and other professional advisers, and preferably resolved before the land is acquired and the development process begun.
