It is a common misconception that the only bar to developing land is the requirement to obtain planning permission from the local planning authority. However, what many fail to appreciate is the possibility that there may be something nasty lurking in the title deeds to the property that may restrict or indeed prevent the planned development.
It is common to find the title to a property includes what are known as Restrictive Covenants and these can have a devastating effect on potential development.
The impact of restrictive covenants
A restrictive covenant is a promise made by one landowner to another which restricts the use of land in some way. They most commonly arise where a landowner decides to sell plots of land out of his or her estate and wishes to regulate activities carried out on or uses of those plots.
Restrictions imposed by restrictive covenants can effect: -
- The use of land (eg prohibiting commercial uses).
- The extent that building can take place on the land; possibly extending to a total prohibition on building.
- Alterations to existing buildings.
Is the covenant enforceable and if so by whom?
Usually establishing whether a covenant exists is simply a matter of checking the title deeds. Once a covenant has been identified the next question is who if anyone can enforce it? In a straightforward case where a single plot of land has been sold out of an estate and the original parties to the sale remain the current owners, it is simply the case that the owner of the estate can enforce against the owner of the plot.
The position becomes complicated where the owner of the estate goes on to sell all or other parts of the estate or where the original owner of the plot sells on. In these cases it is necessary to check the drafting of the covenant very carefully to see whether the benefit and burden has passed to the new owners.
For instance, it is possible that the estate owner once sold off parts of the estate to a number of different parties and imposed restrictive covenants on all of them. In this case the question needs to be asked whether it is just the original owner of the estate who can enforce the covenant or whether the plot owners can also enforce against each other.
The structure may not always seem fair. Depending on the drafting, one owner may have a covenant which is enforceable by all of his or her neighbours whereas another may have an identical covenant which is enforceable only by a limited number of his or her neighbours.
The interpretation of Restrictive Covenants is a highly technical area and one that is subject to a large amount of litigation. In the recent case of City Inn (Jersey) Ltd v Ten Trinity Square Ltd the land in question was subject to covenants not to make any external alterations or additions to the building, which was to be used exclusively as offices, unless the consent of “the Transferor”, as defined in the title deeds, could be obtained to the changes.
This became of particular relevance as the owner of the property obtained planning permission to demolish the existing office building and to erect a hotel complex.
One of the neighbours brought an action to prevent the proposed development on the basis that their consent was needed under the terms of the covenants. The High Court decided that the construction of the term “the Transferor” meant there was no need for the developer to obtain the consent of the neighbour, as they were not the owner of the neighbouring land at the time the covenants were made.
The High Court reasoned that because in other parts of the title document reference was made to “the Transferor and his successors in title” and that in the section dealing with the consent it referred simply to “the Transferor”, it was only the original owner who could enforce the covenant. In this case the original owners consent had already been obtained and so this was not an issue.
To make things even more complicated the High Court confirmed that had the words “successors in title” not been used elsewhere in the title document the neighbour could have claimed his consent was required due to the operation of the Law of Property Act 1925 which would have implied these words into the document. However, the Court concluded that as these words had been included in other parts of the document they must have been left out for a reason when it came to the part dealing with the consent requirements!
Dealing with Restrictive Covenants
Unfortunately there are no hard or fast solutions to the problems posed by restrictive covenants when it comes to development. There are options that can be explored, depending on the circumstances of the case, such as the possibility of obtaining insurance to cover the risk of covenants being enforced.
In some cases, it is also possible to apply to the court to have covenants altered or dis-applied so as to allow the development to take place. Often, however, it may simply come down to whether a deal can be struck with the person claiming the benefit of the covenants.
The risk of proceeding with a development without first dealing with the issues posed by restrictive covenants is that someone may come out of the woodwork to seek an injunction either preventing the development from proceeding or worse still requiring its demolition and the reinstatement of the land. Damages may also be ordered against the developer.
Conclusion
Property developers should be aware of the very real and dangerous threats restrictive covenants can pose to their development plans. Proper advice should be sought at an early stage and preferably before the development site has been acquired. Failure to do so can prove to be extremely costly.
When it comes to selling land where there is a legitimate need to regulate development of the land, it is important any restrictive covenants are drafted carefully to ensure they are enforceable by all persons intended to be benefited. The City Inn case is a reminder of the ease with which such drafting can be misinterpreted.
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