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Home / News and Insights / Blogs / Real Estate / 257: Can you modify positive covenants in a long commercial lease?

In Blackhorse Investments (Borough) Ltd v London Borough of Southwark [2024] UKUT 33 (LC), the Upper Tribunal (UT) held that it had no power to modify assignment covenants and keep open covenants in a long lease as they were positive in nature, rather than restrictive.

Facts

  • The long leaseholder of the Black Horse pub was granted planning permission to demolish the pub and replace it with a residential building of six storeys including commercial premises and a new pub on the ground floor.
  • There were covenants in the lease that prevented the implementation of this planning permission. The lease contained covenants requiring use of the property as a pub, requiring the tenant to keep the property open between certain hours, and restrictions on assignment of the lease and alterations.
  • The leasehold, Blackhorse Investments, applied to the UT under section 84 of the Law of Property Act 1925 (the ‘Act’) to modify the relevant leasehold covenants to enable the planning permission to be implemented.
  • The UT ordered the modifications without a hearing.
  • Southwark Borough Council, as landlord, challenged the UT’s jurisdiction to order the modifications, claiming that the covenants were positive.

Decision

  • The UT acknowledged that the Act allows the modification or discharge of a restriction affecting land where the restriction concerns the use of the premises or the building itself, ie a restriction which is negative. The Act does not allow the UT to discharge or vary positive covenants.
  • It had no jurisdiction to vary the covenant in the lease restricting assignment, as this is concerned with ownership of land, rather than the activity that is conducted upon or use of the land.
  • The UT also had no jurisdiction to vary the covenants to use best endeavours to renew licences and keep the premises open as a pub, as these were positive obligations rather than restrictions on the use of the land or buildings.
  • It did have jurisdiction to modify the obligation to use the property as a pub only as this was restrictive. Where a covenant included both restrictive and positive obligations, the UT would only modify the restrictive elements.

Why is it important?

The case is interesting as applications to modify restrictions in a long commercial lease are not common. The case provides guidance on what leasehold covenants the UT considers within its power to modify and confirms that these must be negative or restrictive in nature.

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