Guide to the modification or discharge of restrictive covenants under Section 84 LPA 1925

 

The Armoury

1. Off the starting blocks we assume the covenant is enforceable, but it is necessary to check the running of the benefit and burden meticulously.

2. Faced with this problem we can:

  • Try to buy it off
  • Obtain title indemnity
  • Utilise S. 610 of the Housing Act 1985
  • Utilise S. 84 of the Law of Property Act 1925

3. Just some pros and cons of the above:

  • It may be difficult to track down all parties with the benefit and alerting people to the existence of the covenant may blow all chance of obtaining title indemnity. On the other hand obtaining a price or confirmation of a willingness to sell out may assist in the S. 84 application. It maybe a quick route but is not always cheap.
  • Surprisingly cheap and a quick solution to many covenant problems. The downside is that if there is any real risk then cover may not be obtainable. Also the cover offered needs to be read very carefully, especially as it may be less for successors in title and is, after all, only money (where the covenant may stop a building being used in much desired manner).
  • Different in its criteria than S 84 (it is less formalised) and allows for modification of lease provisions and restrictive covenants – see Lawntown Ltd. v Camenzuli [2008] 1 EGLR 73. Certainly worth considering as an alternative to S. 84
  • Not the quickest routenor likely to be the cheapest but can provide a rock solid solution to some difficult situations. Much better approached with surgical precision and focus using specialist advice rather than taking a blunderbuss approach.

S 84 Situations

4. S 84 identities 4 areas where it can be utilised and the prudent are ruthless in only focussing on the real “runners”. In short summary they are:
(a) Covenant is obsolete because:

(i) character of the property or neighbourhood has changed; or

(ii) other circumstances

(aa) Covenant impedes some reasonable user (public or private) or would impede unless modified.

(b) Those with benefit have agreed to discharge or modification

(c) Discharge or modification will not injure persons with benefit.

5. There is a lot to be said as regards each head but unless you are pretty obviously inside one head or another do not advance it on a wing and a prayer. For instance if you are arguing obsolescence it has to be patently obsolete.

6. Since (a), (b) and (c) are fairly obvious – although (c) is something of a supporting situation to some of the other heads – it is proposed to focus on (aa).

Planning

7. The commonplace situation where S 84 is likely to come into play is where planning for development is achievable but implementation is prevented by a covenant. In such situations the cost of a S84 application may be trifling compared with the benefits of avoiding the covenant’s bite.

8. The existence of a planning permission is highly persuasive in an application under (aa), as below.

How (aa) Works

9. Section 84 is slightly convoluted but:

  • The Upper Tribunal (which hears S 84 applications) is directed by S 84(1B) to take account the development plan and patterns as regard the grant or refusal of planning locally.
  • This also feeds into S. 84(1A) which directs that (aa) applies where the Upper Tribunal is satisfied that the covenant impedes a user which is contrary to the public interest. In essence planning permission demonstrates what is commonly in the public interest (although not invariably) – and hence a covenant preventing utilisation of the planning permission draws one readily into (aa) territory.
  • It is easier to persuade a tribunal to modify a covenant to be able to implement the planning permission, rather than discharge the covenant for good and all.
  • Objectors can be compensated financially (see below) for the discharge or modification.

Compensation

10. The key point to appreciate is that objectors are not compensated for the loss of their ability to ransom a developer over a covenant.

11. The sums payable are set out in S84(1) as to which:

  • The actual awards appear very modest indeed from the cases and bear no relationship in many cases to the advantage to the developer from discharge or modification (see 10 above). In the scheme of things they tend to be trifling.
  • The objectors commonly fail to adduce any useful evidence about the extent of the loss or disadvantage they will suffer by discharge or modification.

Costs

12. The main “sting in the tail” for developers is that unless the objectors act unreasonably the applicant developer will usually be ordered to pay the costs of the objectors (as well as their own) as part of the price for achieving a modification or discharge.

13. Consequently and tactically:

  • It is important to consider ways of neutralising objectors e.g. by meeting specific concerns.
  • To manoeuvre them into appearing unreasonable in the face of the tribunal (to increase the chance of their costs being left with them, even better from the applicant’s standpoint, having to pay the applicant’s costs).

Preparing the Application

14. This is the time to seek specialist help on how to “pitch” the application.

15. Part and parcel of this is tracking down persons with the benefit of the covenant where the tribunal will commonly direct advertising and other searches. There is a lot to be said for taking these steps before making the application both because it appears a better organised application to the tribunal but also because you are not so much at the whim of the tribunal as to what it might require (albeit the tribunal may still insist that the exercise is repeated in whole or in part).

The Book

16. There are a couple of specialist works but Preston & Newsom’s Restrictive Covenants Affecting Freehold Land 10th Ed. is just recently out and something of a standard work in front of the tribunal.

Use of Counsel

17. It is an error not to use Counsel from the first in these applications. Although Tribunals appears more informal that the County Court or High Court this is misleading.The Tribunal members who sit on these applications are very specialist and experienced. Some experience at appearing in other forums is just not enough to deal with the complex issues that can arise quite unexpectedly during a hearing. This is an especial danger with unrepresented objectors who may make points which the Tribunal member may pick up and run with, expecting the advocate to deal with in the complex world of restrictive covenants. Further just employing Counsel for the first time for the hearing may mean that some tactical advantage or vital evidence is just missed and by then it is too late to rectify. Heed the voice of experience!

Malcolm Warner
Guildhall Chambers