Restrictive covenants, although designed to protect the character and value of land, can sometimes stand as barriers to land development. Section 84 of the Law of Property Act 1925 provides a legal avenue to modify or discharge these restrictions if certain grounds are met. In this blog post, we will explore the key aspects of Section 84 and draw insights from the recent notable case of Great Jackson St Estates v Manchester City Council [2023] UKUT 189 (LC).
Applying to Modify or Discharge Restrictive Covenants: Section 84 in Action
When faced with restrictive covenants that impede property development or use, landowners and tenants have the option to seek modification or discharge through a Section 84 application to the Upper Tribunal. The success of this application depends on satisfying one or more of the specified grounds within Section 84, summarised as follows:
1. Ground A: The covenant has become obsolete due to changes in the character of the property or the neighbourhood, or due to other circumstances which the Tribunal deem material in making the covenant obsolete.
2. Ground AA: The covenant would impede a reasonable user of the land, or would impede the reasonable user should the covenant remain unmodified. The Tribunal must be satisfied that the restriction, in impeding that user, either:
(a) does not provide any practical benefits of substantial value or advantage to the person entitled to the benefit of the covenant; or
(b) is contrary to public interest.
3. Ground B: those entitled to the benefit of the covenant agree to its’ modification or discharge.
4. Ground C: modification or discharge of the covenant will not injure the benefiting party.
Recent Case Law: Great Jackson St Estates Ltd v Manchester City Council
The recent Upper Tribunal decision in Great Jackson St Estates v Manchester City Council [2023] UKUT 189 (UT) serves as a pertinent illustration of Section 84. It is also a useful reminder to landlords, tenants and developers of the meticulous approach adopted by the Tribunal when examining applications to modify and discharge restrictive covenants.
In this case, the developer tenant acquired leases of two redundant warehouses from the landlord, Manchester City Council. The developer intended to demolish the warehouses and redevelop them in a £300m project with two 56-storey residential tower blocks. However, although planning permission had been obtained, the warehouse lease contained 11 covenants which prevented the redevelopment without the landlord’s consent, specifically, imposing restrictions on the development and future use of the site. The landlord was willing to grant consent to the redevelopment, but on terms which were considered unacceptable by the developer.
The developer therefore made an application under Section 84 to modify the covenants and enable the redevelopment to be carried out without the landlord’s consent.
The developer put forth compelling arguments in support of their application centered around three jurisdictional grounds, each of which were met with careful scrutiny by the Tribunal.
1. Ground A: The developer contended that the covenants had become obsolete due to changes in the character of the neighbourhood. They highlighted that the area had been developed into a new high-quality residential neighbourhood, with numerous residential towers already having been developed in the immediate vicinity of the site.
However, the Tribunal emphasised that the purpose of the covenants was to grant the landlord control over the form of development and its’ timing. Ultimately, the Tribunal determined that the covenants could not be considered obsolete as it gave the landlord a degree of control over the use and redevelopment of the site.
2. Ground AA: The developer argued that the proposed redevelopment was a reasonable use of land and the covenants’ modification would not deprive the landlord of a practical benefit of substantial value or advantage.
While the Tribunal agreed with the developer that the proposed land use was reasonable and the restrictions impeded it, they also found that the covenants secured a substantial non-monetary advantage for the landlord. The covenants enabled the landlord to mitigate the risk of disorderly development by maintaining control over the redevelopment of the site and dictating the terms under which it could be achieved.
3. Ground C: The developer asserted that the landlord would not suffer harm as a result of the proposed covenant modification.
According to the Tribunal’s analysis, medication of the restrictions would cause injury to the landlord as it would lose the control it enjoys over the redevelopment of the site. The Tribunal’s decision was in alignment with its previous determinations on the jurisdictional grounds.
The Tribunal highlighted that even if the grounds under Section 48 were satisfied by the developer, they would still have exercised their overall discretion to refuse the application. They were of the view that the development could be achieved through sensible commercial negotiations between the landlord and developer, both whom are capable of safeguarding their respective interests. Furthermore, the Tribunal exhibited a notable reluctance to intervene in cases where the council holds a dual role as both landlord and planning authority.
Conclusion:
The Tribunal’s decision reinforces the importance of strategic negotiations and careful consideration from all parties involved in Section 84 applications. Property owners and developers contemplating such Section 84 applications should be well-prepared and consult with legal professionals to navigate this intricate legal process effectively and avoid unnecessary costs.
Key Takeaways:
We can draw the following important lessons from this case:
1. Interpretation of Section 84 Grounds: Gain insights into how the Tribunal interprets and applies the jurisdictional grounds when assessing Section 84 applications.
2. Exercise of Discretion: Understand the rigorous criteria the Tribunal adopts when deciding whether to exercise their discretion.
For further information regarding modifying or discharging restrictive covenants or any other commercial property issues, please do not hesitate to contact Miss Navleen Gulati on DDI: 01489 864 167 or E: Navleen.gulati@lawcomm.co.uk or Mr Bill Dhariwal on DDI: 01489 864 117 or E: bill.dhariwal@lawcomm.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
