Is a restrictive covenant the end of your development dreams?
Restrictive covenants are usually historical, legally binding obligations which can prevent land from being developed. They are often the cause of developers’ despair!
Below are some ways around them and how to avoid their effect.
Is the restrictive covenant enforceable?
If any of the following apply then the covenant will not be effective:
- The wording is ambiguous
- It provides a personal benefit to the person who made the covenant in the first place
- It seeks to secure a money payment
- It does not benefit the land
Can an agreement be obtained for the release of the obligations imposed?
In theory the simplest option to get around a covenant is to ask the person or company benefiting from the restriction (the beneficiary) to release the land from the burden of the restrictive covenant. However this approach is rarely used in practice because the beneficiary may take the opportunity to request a significant payment or may refuse to cooperate. Perhaps an option to only be used if you know the beneficiary well!
Can insurance be obtained?
The most common way to deal with restrictive covenants is to insure against the risk of the restrictive covenant being enforced. An insurance company will require the payment of a one off premium. This premium is likely to be substantially reduced if the beneficiary cannot be identified and the restrictive covenant is historic.
However, and as is discussed below, developers need to be aware that the premium will be higher if you do not have planning permission for the proposed development.
Apply for planning permission before you buy the land
A recommended way to find out early on whether the beneficiary will rely on the covenant and to object to your proposed development is to apply for planning permission to develop land before you acquire it. This may impact upon your decision to purchase. Another benefit for you would be that should the beneficiary fail to object then chances of you of getting insurance cover will increase.
Get a tribunal’s decision
If you consider that the restrictive covenant is not enforceable for one of the reasons set out above then you can apply to the Lands Chamber of the Upper Tribunal for the waiver, discharge or modification of the restrictive covenant. Also, if the character of the burdened land has changed so as to make the covenant obsolete then such an application would be sensible. However, it would not be advisable to make such an application if you consider that it is possible that the restrictive covenant will be enforceable as such applications can be time consuming and expensive. Also, if your application is unsuccessful then you would not be able to obtain restrictive covenant insurance.
The existence of a restrictive covenant is not always fatal to your ability to develop land. There is a lot that you need to consider and much that can be done.
If you want to find out more about restrictive covenants and the best approach you should be taking to avoid their obligations or have any other commercial property queries please do not hesitate to contact our new partner and head of one of our commercial property teams, Artan Llabjani (email@example.com)
Alternatively, you can also contact one of our other solicitors in the Commercial Property team here.