To be or not to be (discharged)?A cautionary tale

Mr & Mrs Barter, the owners of Ivy house (a substantial Victorian property) obtained planning permission to divide the existing building into flats and to erect a new building comprising 13 additional flats. The property was marketed for sale as being “of interest to residential and commercial developers” with a gross development value estimated to be in the region of £1.7 million.

They had purchased the property 4 years earlier for just £250,000, so in a relatively short space of time Mr & Mrs Barter were set to make a substantial return on their investment.

The only outstanding issue between them and their windfall was to remove a restrictive covenant ‘not to build an additional building on the property.’

The County Council had the benefit of the covenant, and had informed Mr & Mrs Barter that they would be prepared to negotiate a settlement to remove the covenant. When negotiations between the two parties broke down, Mr & Mrs Barter applied to the Upper Tribunal (Land Chambers) to discharge the restrictive covenants.

The case was loaded in Mr & Mrs Barters’ favour. The County Council owned no land nearby except for the highway, which is not usually a sufficient interest in land to enforce a restrictive covenant. The County Council had agreed to negotiate a settlement to release the covenant, leaving open the question of whether this was even a genuine restrictive covenant as it could not have been for the genuine benefit of nearby land. The Upper Tribunal even noted that restrictive covenant impeded a reasonable use of the property and its removal would not injure County Council.

Surely, there could only be one outcome?

The Upper Tribunal disagreed. Despite the strength of Mr & Mrs Barters’ case, the covenant was held to enforceable between Mr & Mrs Barter and the County Council as the original contracting parties.

What is the moral of this tale? To proceed with caution when dealing with restrictive covenants as the Upper Tribunal exercises its discretion in each case. The County Council were fortunate to be able to enforce this covenant. It was only created in 2013 meaning there was a good chance that the original contracting party was the seller of the property. However, if there had been an intervening transfer, they could not expect the same outcome.

If upon the sale of land, you intend to secure a further payment in the event that the property is developed in the future, an overage arrangement will provide both parties with greater certainty and will avoid the need for costly litigation.