Q&A: Considering Covenants And Compensation

Author:Ms Megan Davies
Profession:Charles Russell Speechlys
 
FREE EXCERPT

I am the director of a property development company that recently purchased a detached dwelling house with a large garden on a residential estate, which is subject to a "one house per plot" restrictive covenant. We have obtained planning permission for the demolition of the current dwelling and the erection of two new dwellings in its place. This was strongly opposed by numerous residents who benefit from the covenant and live close to the development site, because they believe it will reduce the value of their properties and spoil their views. Our in-house surveyor considers that the development would have no effect on the value of the surrounding properties, and that we can make an application to the Upper Tribunal (Lands Chamber) to modify the restrictive covenant under section 84(1)(aa) and/or (c) of the Law of Property Act 1925 in order to allow the development to proceed. Could the company succeed in this application without having to pay any compensation?

Answer

Whether or not the company could succeed with its application will depend on the precise circumstances and an order requiring the payment of compensation as a condition of any modification taking effect cannot be ruled out. If some loss or disadvantage would be suffered by any of the beneficiaries, then compensation is likely and together this could mount up. Even if presented with expert evidence suggesting that no loss would be suffered, the tribunal will consider all the circumstances for itself and determine whether any compensation is payable.

Explanation

To succeed in modifying the restrictive covenant, the company will have to persuade the tribunal that either the modification will not injure those entitled to the benefit of the restriction (ground (c)); or that it impedes some reasonable user of land and does not secure any practical benefits of substantial value or advantage to them, and that money would be adequate compensation for the loss or disadvantage (if any) (ground (aa)).

The tribunal has a discretionary power to direct the applicant to pay to any person entitled to the benefit of the restriction such compensation as the tribunal may think it just to award, (i) to make up for any loss or disadvantage suffered by that person in consequence of the discharge or modification; or (ii) to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it (but not both). In this...

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