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Restrictive Covenants – can I build a house in the garden?

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12th October 2017

The lure of profit can make the construction of a new house in the back garden a tempting prospect. Surely with the constant cry for new homes, such development should be encouraged? Unfortunately, even if planning permission can be obtained for the construction of a “starter-home” in the grounds, it is not uncommon to find a restrictive covenant registered against the title which prohibits the erection of more than one dwelling-house on the plot. “Nimby” neighbours can be all too keen to rely on such covenants to try and stop the proposed works.

The burden of a restrictive covenant runs with the land provided it is annexed to the land which it was intended to benefit. Successors in title will, therefore, be bound by it. However, the fact that there is a restrictive covenant recorded against the title does not necessarily mean that it will prevent the development.

Is the restrictive covenant enforceable?

The first question is whether what is proposed would be a breach at all. The exact meaning of the covenant has to be construed in the context of the whole conveyance. Subtle differences in the wording of covenants can lead to very different results. For example, in Martin v David Wilson Homes Ltd [2004] EWCA Civ 1029 a covenant “not to use…any buildings to be erected on [the land] or on any part thereof…for any purpose other than as a private dwellinghouse” was found to restrict the use of the individual buildings rather than the number of dwellinghouses on the land. By contrast in Crest Nicholson v McAllister [2004] EWCA Civ 419 a covenant providing that “the premises shall not be used for any purpose other than…a private dwelling house” meant there could only be one house on the plot.

The second question is whether the complaining neighbour actually has the benefit of the covenant. This will be the case only if the covenant is annexed to the neighbour’s land and it has been assigned to him or the land forms part of a building scheme. In the former case, the date on which the covenant was granted will be all important because a vendor can only impose conditions to benefit land which he actually owns at the time of the conveyance.

For example, Judy Snoops owns a large estate and in 1926 she sells off Plot 1 to Harry Hake so that he can build a new house in the grounds. In order to maintain her privacy, Ms Snoops includes a covenant in the conveyance which provides that Mr Hake may not erect more than one house on Plot 1. In 1927, Judy is strapped for cash again and sells off Plot 2 to Charlie Stardust imposing a restrictive covenant in identical terms. Many years later the new owners of Plot 2 plan to build a bungalow in their garden. The new owners of Plot 1 object and wish to rely on the restrictive covenant contained in the 1927 conveyance to Mr Stardust. They cannot do so because by 1927, Judy Snoops did not own Plot 1 and the covenant imposed on Mr Stardust does not benefit land which had already been sold off.

One way round this timing problem is to establish the existence of a building scheme. These arise where the developer sets up a comprehensive scheme of covenants imposing reciprocal obligations between the purchasers of the different plots on the scheme. The characteristics of such a scheme are:

1. it applies to a defined area and the owners in that area derive their title from a common vendor;
2. the common vendor laid out the estate to be sold in lots subject to restrictions which were intended to be imposed on all the lots, and which are consistent with some general scheme of development.
3. the common vendor intended these restrictions to benefit all the lots to be sold; and
4. the original purchasers purchased their lots on the footing that the restriction imposed would benefit all of the other lots in the scheme.

Building schemes are relatively rare and modern developments tend to exclude them. The question of whether a building scheme existed arose in two recent cases where, had there been no scheme, the restrictive covenant relied upon would have been unenforceable because of the timing problem referred to above. In Juan & Others v Allen [2016] EWHC 1502 (Ch) each of the 36 plots on land known as Copperfield was disposed of by the same developer using a common form transfer which included identical covenants restricting the user of each plot to that of a private dwelling house for the occupation of one family. The obligations were said to be for the benefit of all the other owners and the plan attached to the transfer showed the layout of the 36 plots. Master Clark had no hesitation in finding that this was a classic building scheme. There was also a common vendor in the case of Birdlip Ltd v Hunter [2016] EWCA Civ 603 but although the covenants in the two transfers were similar they were not identical. The court examined the conveyances for 20 plots on the alleged scheme and found that the conveyance plans only showed the property conveyed and there was no reference in the parcels clause to any estate of which the land was said to form part. The covenants in the various conveyances did not all benefit the same extent of land and there was no express provision that the covenants were to be mutually enforceable. The Court of Appeal concluded that no building scheme had been established and the restrictive covenant was unenforceable.

Can it be removed or modified?

Even if the covenant is enforceable all may not be lost. The Upper Tribunal has jurisdiction, in appropriate circumstances, to discharge or modify restrictive covenants under s. 84 of the Law of Property Act 1925. Section 84 (1) sets out various grounds on which the order can be made. The most commonly relied on is Ground (aa) which requires the Tribunal to be satisfied that:

(a) the continued existence of the restrictive covenant would impede some reasonable user of the land for public or private purposes; and

(b) impeding that user either:

(i) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or

(ii) is contrary to public interest.

These tests can be referred to as the “limited benefit” and the “public interest” tests. The Tribunal can direct the payment of compensation to the person benefitting from the covenant if it does decide to modify or discharge it.

It is generally assumed that if planning permission has been obtained for the proposed development that the proposed user is reasonable. The most contested issue is usually whether the restrictive covenant secures any practical benefit to the objectors and, if so, whether those benefits are of substantial value. If they are not of substantial value, the issue arises as to whether money be adequate compensation – Bass Ltd’s Application [1973] 26 P & CR 156.

Limited benefit

It was established in the case of Stockport MBC v Alwiyah Developments (1986) 52 P & CR 278 CA that the reference to “practical benefits” does not mean pecuniary benefits which can only be realised by the release or modification of the covenants, for example by extracting a ransom or other payment.

The issue of “limited benefit” arose in the recent case of Dean v Freeborn & Others [2017] UKUT 203 (LC). In that case, the applicants wished to demolish a large indoor swimming pool building attached to their house and replace it with a detached two-storey dwelling. They sought to modify a restrictive covenant which prohibited the erection of a new dwelling. The Upper Tribunal found that the objectors’ land was so far away from the application land that there would be no adverse effect upon any of the objectors’ houses.

Public Interest

It has traditionally been very difficult to obtain a discharge or modification on this ground. The existence of planning permission alone will certainly not be enough. However, a recent case suggests that in these times of a housing shortage, the Upper Tribunal may be more willing to exercise its discretion if the facts support it. In Millgate Developments Ltd, Housing Solutions Ltd v Bartholomew Smith and The Alexander Devine Cancer Children’s Cancer Trust [2016] UKUT 515, the objectors, (who included a children’s hospice) had the benefit of a covenant which prohibited the use of the development site for any building or any purpose other than the parking of vehicles. The applicants sought a discharge of this covenant in relation to the development of 23 affordable housing units which had, in fact, already been built. The President of the Upper Tribunal, Martin Rodger QC, accepted that the covenant did benefit the hospice. However, even though the development had been carried out in flagrant breach of covenant, he found it was in the public interest to discharge the covenant. The developer was ordered to pay compensation of £150,000 (a sum which they had offered) to cover the costs of landscaping so as to restore the hospice’s privacy.

Conclusion

The law of restrictive covenants is strewn with pitfalls. It can be difficult to determine whether the covenant prevents the construction of a new dwelling at all. If it does, careful analysis is required in order to predict whether the Upper Tribunal is likely to exercise its discretion to modify or discharge the restrictive covenant so as to permit the desired development to go ahead.

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