Restrictive Covenants versus Development Rights…
Does the existence of a restrictive covenant in Deeds mean that I can’t develop my land?
Well the short answer is ‘it depends!’ The starting point is always to properly consider the exact terms of the restrictive covenant, in addition it is also important to remember that the simple fact that a restrictive covenant exists does not necessarily mean that it is enforceable by the beneficiary.
When is a restrictive covenant not enforceable?
A restrictive covenant will, if it is clear and reasonable, generally be enforceable between the original contracting parties as a matter of contract.
However, where the covenantee has assigned the benefit of the covenant to a third party then there are several pre-conditions that must be met for the covenant to be enforceable, namely:
1. The covenant benefits land owned by the person seeking to enforce it
The covenant must “touch and concern” or relate to the land owned by the person seeking to enforce the covenant. It must affect the land and not merely be of personal benefit to the original contracting party. A covenant is deemed to touch and concern land where all the following apply:
- The covenant benefits only the owner for the time being of the land and if separated from the land ceases to be of benefit.
- The covenant affects the nature; quality; mode of user; or value of the land;
- The covenant is not expressed to be personal
- The covenant must actually benefit or preserve the value of the land. The courts assume that a covenant can benefit particular land for which the covenant was imposed unless it can be proved otherwise
2. The person seeking to enforce the covenant must have a legal interest in the benefiting land
The person seeking to enforce the covenant must either be the legal owner or a person with some lesser interest that is recognised in equity such as a person who has contracted to buy the freehold, a beneficiary under a will or a trustee in bankruptcy.
3. The benefit of the covenant has passed to the person seeking to enforce it
The benefit can pass in one of three ways (i) Annexation; (ii) Assignment or (iii) Scheme of development
So, you have checked the Deeds and they contain a valid, reasonable and enforceable restrictive covenant in respect of which there is a party who is entitled to enforce the covenant. Now what? At this stage you do not know whether they oppose any development, what are your options:
If the owner (person benefiting from the restrictive covenant) is identifiable then it is open to you to try to negotiate a release or modification of the restrictive covenants.
A further alternative which is important to consider is indemnity insurance. You should consider this option before you make any approach to the party who benefits from the covenants as you will be unlikely to get indemnity cover if notice has been given of a possible future breach.
If indemnity insurance is not available or where the cost of it is too great, you could consider whether it is worth considering making an application to the Upper Tribunal (Lands Chamber) for the restrictive covenant to be discharged or modified. You may be able to argue that the restrictive covenant is unreasonable or obsolete, many shy away from making such an application given the uncertainty of the outcome and costs involved.
If you’re a landowner or developer and would like to discuss your options, please contact Darryn Harris or Daniel Crate in our Dispute Resolution team.