Restrictive covenants controlling use of land pose a problem for developers as they can prevent development even when planning permission is granted. In order to facilitate desirable development, the Lands Tribunal has the power, under s84 of the Law of Property Act 1925, to modify or discharge restrictive covenants. In doing so it must strike a balance between the need for development and the rights of the person who benefits from the covenant. A recent case shows the difficulty of deciding how wide the benefits conferred by a restriction actually are.

In Shephard v Turner [2006] the Court of Appeal was asked to review a decision made by the Lands Tribunal under s84. Mr and Mrs Turner owned a house at the end of a close of eight houses constructed in the early 1950s. The houses were of the same type and were linked together by garages and curtain walls to form a largely unbroken façade. The Turners wished to construct a bungalow on part of their garden and they had obtained planning permission to do so. Their problem was that their property was subject to restrictive covenants including the following:

• The Purchaser shall not at any time use the said property for any purpose other than as a private dwelling house.

• The Purchaser shall not do nor permit to be done upon the property anything which shall be or become a nuisance or annoyance to the owners or occupiers of the adjoining premises, nor use the same for any illegal or improper or immoral purpose.

• No caravan on wheels or building or other structure or erection whatsoever permanent or temporary shall at any time be placed built or erected upon any portion of the land coloured light pink and hatched green on the said plan.

The ‘land coloured light pink and hatched green’ was in the area on which the Turners wished to build.

The Turners therefore applied to the Lands Tribunal to have the covenants modified. They relied mainly on ss84(1)(aa). This allows the Tribunal to modify a restriction if it can be shown:

That (in a case falling within subsection (1A) below) the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified so impede such user…

Subsection (1A) reads:

Subsection (1)(aa) above authorises the discharge or modification of the restriction by reference to its impeding some reasonable user of land in any case in which the Lands Tribunal is satisfied that the restriction, in impeding that user, either –

(a) does not secure to a person entitled to the benefit of it any practical benefits or substantial value or advantage to them; [or]

(b) is contrary to the public interest; and

that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer for the discharge or modification.

In essence the Turners argued that the construction of the bungalow was a ‘reasonable user’ of the land which would be impeded unless the covenants were modified. However, in order for the Tribunal to be able to modify the restriction it would have to be satisfied that it did not secure ‘practical benefits of substantial value’ for those entitled to the benefit of the covenant and that money would be an ‘adequate compensation’ for any loss or disadvantage suffered by them as a result of the modification. The Turners’ neighbours objected to the modification.

The Tribunal held that as planning permission had been granted it appeared that the proposed use of the land by the Turners was reasonable. The Tribunal therefore had to consider whether the neighbours would be deprived of any substantial benefit by the modification of the covenants. It held that the neighbours would not be deprived of any substantial benefit that could not be adequately compensated for financially, and so the modification of the covenants was allowed. The Tribunal awarded the neighbours compensation ranging from £200 to £700.

The neighbours appealed to the Court of Appeal. They raised four arguments: (1) that the Tribunal applied the wrong legal test to the ‘thin end of the wedge argument’ that they had raised in the Tribunal;

(2) that having regard to its specific findings as to the effect of the proposals (including the effects in terms of visual impact, loss of privacy and noise), no reasonable Tribunal could have concluded that the overall benefits secured by the covenants were not of substantial value;

(3) the Tribunal erred in law in disregarding the admittedly ‘adverse’ effect of the removal of the existing garage and the construction of a new access way to the new garage, which the Turners proposed to build, on the sole ground that it ‘would not of itself breach the restrictions’; and

(4) the Tribunal failed to evaluate the conflicting evidence as to the extent of disturbance arising from the construction works and reached an unreasonable conclusion. The Court of Appeal looked at each of these arguments in turn. It gave fairly short shrift to the first two but the second two required more detailed consideration and raise interesting points as to the interpretation of restrictive covenants.

The thin end of the wedge

The neighbours said that the Tribunal should have considered whether the grant of the application, by breaking open a carefully maintained and successful scheme of development, would deprive the neighbours of the substantial practical benefit of the assurance of the integrity of the scheme, and whether it could materially alter the context in which future applications will be considered.

The neighbours believed that there would be a ‘ratchet effect’ and that any new proposal would be considered in the context of a modification having already been allowed. For this reason the Tribunal should have looked at the totality of the effect of the existing proposal and any future proposals both in general and in relation to their specific effects. The Court of Appeal said that this was an issue of fact and not of law. The Tribunal had addressed the possibility of further development and held that it was extremely unlikely that further developments would be permitted in the future. This was a matter of factual interpretation based on the professional judgement of the Tribunal and the Court of Appeal did not believe that its conclusion was irrational so as to give rise to any possible challenge.

Overall benefits

The Court of Appeal dismissed this ground very swiftly, again holding that the Tribunal had looked at each of the benefits claimed by the neighbours in turn and had then looked at the overall benefit of the ability to prevent the development. Again, this was an issue of fact, not law, and the Court of Appeal held that the Tribunal had reached valid factual conclusions.

The alteration of the façade

This ground caused the Court of Appeal rather more difficulty. The neighbours had argued before the Tribunal that one of the benefits protected by the covenants was the unbroken façade of the close, which contributed to its special character and attractiveness. This benefit would be lost if the façade was, as proposed by the Turners, breached by the removal of the existing garage. Considering this point, the Tribunal commented that ‘that work, however, would not of itself breach the restrictions’. The neighbours argued that this was legally wrong as the question posed by s84(1A) is to be judged by reference to the nature and effects of the ‘reasonable user’ that is impeded by the restriction. In this case the ‘reasonable user’ was not just the new bungalow but also the garage and the access way. If the restriction had the practical effect of preventing these incidental developments then it was a practical benefit to the neighbours even though it was not directly within the terms of the restrictive covenant.

The Court of Appeal had to consider how, if at all, the removal of the existing garage and the resulting break in the façade was relevant to the Tribunal’s consideration. The Court held that it was clear from the wording of s84 that the enquiry must begin by considering the proposed use as a whole. However, in considering the ‘practicality’ and ‘substantiality’ of the benefit of being able to prevent that use, there must be an element of comparison with what would happen if the modifications were not allowed.

If it could be said that an equally damaging development could be carried out without breaching the restrictions and there was evidence that this was likely to happen then the apparent benefits of impeding the proposed development may not be all that great. In other words, if it was possible to carry out a development involving the breach of the façade without breaching the covenants, then the argument that the prevention of a breach in the façade was a benefit from these covenants would fall away.

The Court of Appeal decided that its approach in this situation should be practical and not theoretical. It was not for the Court to devote large amounts of time to considering possible schemes which would breach the façade without breaching the covenants. Instead it had to consider whether the restriction achieved some practical benefit and, if so, whether it was a benefit of sufficient weight to justify the continuance of the restrictions without modification.

The neighbours argued that looking at the matter from this practical point of view, without the construction of the bungalow, which was prevented by the covenants, there would be no need for the removal of the garage and the construction of the access way, so it was extremely unlikely on a practical level that these works would be carried out. The Court agreed. However, the Court held that once it had been decided that the unbroken façade was a practical benefit secured by the covenants, it was necessary to evaluate the practical benefit by reference to the nature and purpose of these particular restrictions.

The Court held that the purpose of these restrictions was apparent on their face. It was, in summary, to preserve the character and environment of the close, by limiting density, preventing disturbing activity, and restricting building and other clutter in front of the houses. A restriction designed to protect the continuity of the façade was, in the words of Carnwath LJ, ‘notably absent’. The largely unbroken façade of the close was an attractive feature but its protection was not part of the contractual scheme of which the restrictions formed part. At most it was only an incidental and uncovenanted benefit of the achievement of the other contractual objectives.

The Court held that this did not mean that this benefit was irrelevant but it did mean that it should be given less weight when considering its overall ‘substantiality’ for the purposes of ss84(1A). The Court of Appeal felt that the Tribunal had done exactly this by considering the issue but noting that it was not specifically covered by the restrictions and so once again it declined to interfere with the Tribunal’s findings.

Disturbance during construction

This was the other issue with which the Court of Appeal had difficulty. The Tribunal had found that the development would generate ‘some disturbance’. The neighbours argued that the Tribunal had not really engaged with the differences of opinion between the parties’ respective experts as to the amount of disturbance that would be caused by the construction work and had failed to give reasoned conclusions.

The Court of Appeal felt that this issue raised questions of fact and of law. It was first of all necessary to reach a conclusion of fact between the experts and then it was necessary to decide the extent of protection provided by the covenant. On this issue, the court had been presented with conflicting authorities.

The neighbours cited a line of authorities beginning with Re Tarhale’s Application [1990]. In this case a proposal to erect two houses in breach of a restriction limiting development to one house per plot was considered. The Tribunal held that the restriction did secure practical benefits of substantial advantage ‘in preventing the intolerable nuisances, which on the evidence, will occur during the construction period’.

The Turners advanced an alternative line of authority stemming from Re Kershaw’s Application [1976]. This concerned a proposal to erect two bungalows in breach of a restriction to use the land as open space only. The Tribunal had here accepted that the building work would take about a year and had held that the prevention of short-term interference with the enjoyment of the neighbouring houses by the stopping of adjoining building works was not a benefit of substantial value in relation to the long-term enjoyment of the property.

The Court of Appeal noted that there did not seem to be any reference in Tribunal decisions following these cases to there being two different lines of authority and that no attempt had been made to reconcile them. It therefore set out to do so. The Court decided that account must be taken of the policy behind the statute. The general purpose of this was to facilitate the development of land in the public interest, having regard to the development plan and the pattern of permissions in the area. In this context ‘reasonable user’ seemed to refer naturally to a long-term use of land, rather than the process of transition for such a use.

The primary consideration was therefore the value of the covenant in providing protection from the effects of the ultimate use, rather than from the short-term disturbance that is inherent in any ordinary construction project. The Court said it was possible that something in the form of a particular covenant or the facts of a particular case justified giving special weight to this factor. For example, in the case advanced by the neighbours the restrictions had been intended to prevent noise and disturbance by heavy construction traffic and therefore construction work was within the intended ambit of the restriction. This was not, however, the case here. The Court therefore held that construction works carried out with reasonable care would not breach the covenant. Again, therefore, the Court upheld the findings of the Tribunal.

Final thoughts

Although the case does not raise any new principles, it does clarify some old ones. While each case will turn on its particular facts, it seems that the courts will take a practical approach in assessing restrictions and will not allow them to be too widely interpreted to frustrate reasonable development.  © Property Law Journal