Property Development: Whether restrictive covenants could be modified to permit residential building alterations (Naidu and another v Morton and others – 2022)

The Upper Tribunal considered an application by property owners to discharge or modify restrictive covenants which prevented them altering their property and using it for business purposes.

The background

In Naidu and another v Morton and others [2022], the applicants owned a three-storey townhouse property at the end of a terrace of similar properties. A Transfer of the property dated 6 January 1989 contained restrictions that prevented alteration to the external plan and elevation of the building, and prevented use of the property for business purposes. Restrictions were “for the benefit and protection of all other premises now or formerly vested in the Vendor and comprised in the Development.”.

The applicants wished to construct a three-storey extension to the side of the building to create more living space and a comfortable working environment when working from home. The application to discharge or modify the restrictions was made prior to the application for planning consent and with no additional details. Owners of neighbouring properties objected to the principle of the proposals.

The applicants later made a pre-application enquiry of the local planning authority, supported by elevation and floor plans, which received a supportive response and was then forwarded to the objector neighbours. The objectors prepared a planning statement setting out their concerns.

The applicants stated that restrictions were obsolete, under ground (a) of S.84(1) of the Law of Property Act 1925. The neighbourhood had changed since the Transfer was completed, and the restrictions prevented reasonable use of the property. No loss of substantial value would be suffered by parties with the benefit of the restriction, and any loss could be adequately compensated financially. The original developers could not consent as the company no longer existed, and objections could be dealt with by the planning process.

Objectors argued that the restrictions were not obsolete as they continued to protect the nature of the original development. By modifying or discharging the restriction which objectors felt protected the uniformity and aesthetic value of all properties, a change in the neighbourhood would occur and set a precedent for further development. They did not see a need to modify or discharge the restriction to permit working or running a business from home, but stated that more significant business use may be detrimental to what is a residential neighbourhood, potentially creating parking and other access issues.

The decision

The Upper Tribunal considered whether the restrictive covenant should be modified or discharged, addressing the grounds contained in the LPA 1925 governing instances where modification or discharge may be granted, including:

1. Whether restrictions were obsolete

Ground (a) could not be satisfied; no evidence was presented to show that changes in the character of the property or neighbourhood had been, or were going to be, made or to otherwise demonstrate that the restrictions were obsolete. The applicants failed on this ground.

2. Whether the restrictions prevented a reasonable proposed use

It was found that, generally, the proposed use was considered reasonable. However, the restriction protected the structural integrity of the property and the grounds of a neighbouring property, offering practical benefit and some aesthetic value in allowing for consistency of the properties’ external appearance. It was not felt by the UT that there was a risk in creating a precedent; any other proposed development, as well as that of the applicants, was subject to planning controls and the UT approached each case on its merits.

Some practical benefit of the restriction was found therefore in respect of one objector but not others. The restriction did not offer a substantial advantage, as the planning system’s own controls mitigated impact.

Financial compensation could not be assessed without a planning application having been made, but the UT could deal with any small financial compensation assessment if appropriate to mitigate temporary inconvenience.

3. Whether modification would cause injury to those with the benefit of it

This could not be proven without a planning permission in place.

It was determined that the court did have jurisdiction to modify the restriction on ground (a), being that the proposed use was reasonable and that the restriction impeded that use, offering no substantial value or advantage to those with the benefit of it. The UT then needed to decide whether to exercise its discretion to grant the modification.

The UT did not exercise its discretion in this case; specialist engineering expertise was required to address structural concerns raised, and a conditional modification of the restriction was found not to be appropriate before commencement of the full planning process.

The UT left the matter to the planning process, allowing objections to be satisfied by those means and then later, if required, the applicants could make a new application to the UT for modification of the restriction.

Advice and action for landlords

This decision addresses situations where a restrictive covenant prevents proposed development for which a planning permission has not been granted.

The Upper Tribunal’s approach here was to allow the planning process to take precedence, stating that applicants could make a later application to modify or discharge the restriction if planning permission is granted.

Objections to the development, and structural concerns about the proposed works, are better dealt with through planning in line with national and local policy and within a clearly defined process; the UT can then later use its discretion as to whether it modifies or discharges the restriction to permit the development to go ahead once all objections and other concerns have been satisfied.