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29 July 2020

198: Refusal to modify restriction prevented pod hotel development due to estate management policy

An application for modification of a restrictive covenant to allow conversion of offices to a pod hotel was refused because the estate owner could show that the covenant was of practical benefit to its estate management policy.

Facts

In Edgware Road (2015) Limited v Church Commissioners for England, the Upper Tribunal refused to modify a restrictive covenant where the estate owner showed the covenant was of practical benefit to its policy for managing its estate in West London.

Edgware had a long leasehold interest in multi-floored retail and office premises in part of the Hyde Park Estate known as the Water Gardens. The freehold was owned by the Church Commissioners for England.

The Water Gardens long lease contained a restrictive covenant prohibiting use of any part of the property for residential or sleeping purposes, and also required the first and second floors to be used as offices.

Edgware had obtained planning permission to change the first and second floors, and part of the basement, to a ‘pod-type’ 117 room hotel. On application, the Church Commissioners refused to modify the restrictive covenants in the long lease to allow this change of use as a hotel.

Edgware applied to the Upper Tribunal for the restrictions to be discharged or modified under two grounds of section 84(1) of the Law of Property Act 1925. Those grounds can be summarised as follows:

  • to discharge or modify pursuant to ground (aa), the Upper Tribunal must be satisfied that the restrictive covenant impedes some reasonable use of the land and that:
    • the restriction does not secure any practical benefit of substantial value or advantage or is contrary to public interest; and
    • money would be adequate compensation to anyone suffering loss or disadvantage from the discharge or modification of the restriction.
  • to discharge or modify pursuant to ground (c), no injury must be caused by the discharge or modification of the restriction.

Decision

Edgware’s application was refused on both grounds.

The Upper Tribunal accepted that modifying the restrictive covenant would threaten the Church Commissioners’ control of the estate and its management rules. The Church Commissioners’ had included the same restrictive user covenants in all new leases for the estate, and also in similar freehold covenants in estate management schemes binding on newly-enfranchised freehold properties.

The Church Commissioners’ ability to prevent a hotel being developed on the premises was a ‘practical benefit of substantial value to the property’. There was no way of measuring the financial impact of the modification of the covenant, which showed that the disadvantage to the Church Commissioners could not be adequately compensated by money.

The Church Commissioners and owners of large estates will welcome the practical benefit of this decision as it could apply to many estates. However, the judgement was (as always) specific to the facts of this case and may not prevent development in other circumstances. Developers will continue to apply for removal or modification of restrictions where it is seen to prevent a reasonable change of use of valuable land.

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