What are the options, pitfalls and penalties?
Even the most promising development can be knocked off course if the land is subject to a restrictive covenant. Restrictions of this sort can prevent land being built on or being used for specific purposes for many years, even if the development has planning permission. There are practical ways to work around restrictive covenants if you know about them, so it is a good idea to get advice from your solicitor as early as possible.
Restrictive covenants can cause big problems for developers, causing bad feeling and costing money. There may have been good reasons for a restriction when it was imposed but it will still bind the land even if circumstances have changed, sometimes more than a hundred years later.
What are restrictive covenants?
Restrictive covenants are agreements between landowners preventing a specified use or activity on one piece of land, for the benefit of another. They are typically imposed when someone sells off part of a larger site and wants to make sure that the part sold will not be used in a way that interferes with their enjoyment of the part they are retaining.
Examples of typical restrictive covenants include:
- not building on certain parts of a site;
- not building more than a specified number of dwellings on a site;
- not building above a specified height; or
- not using the land for specific trades or businesses, or in a way that may cause a nuisance to the owners of the land with the benefit of the covenant.
A restrictive covenant may say that development requires the consent of the landowner with the benefit of the covenant. As time passes, it often becomes difficult to identify who currently has that benefit, especially where land has been subdivided and sold on.
What are the penalties for breaching a restrictive covenant?
It can be tempting to ignore a restrictive covenant and carry on with the development, especially where the covenant was imposed many years ago, but this is very risky. A developer could be subject to a court injunction requiring the work to stop or may even be ordered to demolish a completed building. The courts can choose to impose damages, instead of stopping the development, but are likely to impose harsher remedies on developers who have deliberately ignored a restriction without trying to negotiate a release or using the proper statutory process (see below).
What can you do about a restrictive covenant?
The covenant may no longer be enforceable. The benefit of covenants imposed before 1926 must be legally ‘annexed’ to land by specific wording in sale documents and if this was not done correctly, there may be no one who can enforce the covenant. Bath Rugby Club have recently won a legal battle to prove that a restrictive covenant which could have prevented them upgrading their stadium is no longer enforceable. In that case, the land intended to have the benefit of the covenant could not be clearly identified, so the Court of Appeal decided that the covenant could not be enforced. The rules on this are complex and depend on when the covenant was entered into, how it was worded, and whether it has been correctly registered, so good legal advice is essential.
If your solicitor concludes that the covenant is enforceable, there are three options for dealing with it.
- Applying to court – there is a statutory process for getting a covenant altered or removed if the court is satisfied that it is obsolete or it prevents a reasonable use of the land, or that the person with the benefit has agreed or will not be adversely affected. This really depends on the specific situation and your solicitor will advise you about how likely you are to succeed. Your conduct could make a difference here. In 2020, the Supreme Court refused to modify a restrictive covenant affecting a development next to a children’s hospice, expressing disapproval of the way the developer had behaved in continuing to build, despite being aware of the covenant.
- Negotiation – if you know who has the benefit of the covenant, you may be able to negotiate with them to release it, usually in return for a payment. If the covenant was imposed when part of the adjacent land was sold off, that land may be bound by a matching covenant, in which case you may be able to agree a mutual release.
- Insurance – depending on the age and wording of the covenant, you can usually get indemnity insurance to cover any costs and losses incurred if you develop the land in breach of the covenant and it is enforced against you. The premium will depend on the insurer’s assessment of how likely it is that someone will try to enforce the covenant. Bear in mind that insurers will usually refuse to insure if you have already approached the person with the benefit of the covenant so, even if negotiation looks like the obvious first step, you must discuss with your solicitor in advance whether insurance could be a better solution.
How we can help
If you inadvertently build in breach of a restrictive covenant, or if you buy land without knowing that it is subject to restrictions, it could cost you money and may even stop your development plans completely. Getting good legal advice at the outset will help you assess the risk and decide on the best tactical approach to make sure you do not lose a profitable development opportunity.
For further information, please contact James Steward in the Commercial Property Team on 01832 273506 or email [email protected].
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