Investors regularly review property development opportunities, but many are burdened by restrictive covenants preventing or hindering development. Property litigation specialist, James Holton, considers the best strategy and identifies 10 key tips when purchasing land subject to a restrictive covenant.
What are Restrictive Covenants?
A restrictive covenant is an agreement in a deed that one party will restrict its use of its own land for the benefit of another party’s land. Examples of restrictive covenants include limiting the use of land to residential purposes only or restricting the number and type of buildings which can be constructed.
The Law
Section 84 of the Landlord and Tenant Act 1925 allows an owner of property subject to a restrictive covenant to make an application to the Upper Tribunal (Lands Chamber) for its modification or discharge. The owner will need to satisfy the Tribunal as follows:
1. That the covenant is obsolete.
2. That the covenant impedes the reasonable development of the land.
3. That the covenant’s modification or discharge will not injure the objectors.
Checklist
With the right strategy prepared in advance, a developer can unlock land for development and realise its value. Developers and objectors should therefore consider the following:
- Identify who has the benefit of the covenant.
- Identify the land which is burdened by the covenant.
- Obtain early advice on whether the covenant is enforceable.
- Consider how the land may be developed and whether the covenant will affect this.
- Investigate the locality and identify whether similar land has been developed.
- If the covenant is enforceable, then obtain advice on the prospects of success in an application to the Upper Tribunal for its modification or discharge.
- When acquiring development sites, developers should undertake careful due diligence and prepare a strategy for how they will unlock the land for development. This may include obtaining planning permission before making an application to the Tribunal.
- Consider whether an agreement can be reached with the beneficiary of a covenant for its express release.
- Where it is not possible to ascertain who has the benefit the covenant, or where or a funder or lender will not proceed if there is a risk that a restrictive covenant will be enforced, then consider whether insurance may be available.
- Where the land is close to a party wall, then developers will also need to establish whether they need to serve notice pursuant to the Party Wall etc. Act 1996 before undertaking any works.
DTM Legal LLP
Our specialist property litigation team support clients and their professional advisors in the resolution of restrictive covenant and party wall disputes. We appreciate the need for effective, objective-led action to protect your property interests which can include both litigation and alternative dispute resolution.
James Holton is named as a “rising star” in the Legal 500 and is a property litigation specialist. For further details on how to resolve a restrictive covenant dispute, please contact James at james.holton@dtmlegal.com or telephone 01244 354800.
