A recent case involved the breach of a covenant that land could only be used as a single dwelling house. The claimants had not realised that they had the benefit of the covenant until the structure of the new buildings had been completed; likewise, the developer did not know about it until the claimants then raised the issue. Accordingly, it was too late for an injunction, and the issue then arose as to what the damages should be (given that everyone accepted that there had been a breach). To protect his position, the developer had applied to the Lands Tribunal for respective modification of the covenant so as to allow the development to proceed (this application was made under s84 LPA 1925). The claimants could not reasonably object to the application, but they wanted damages (which they put at one-third of the developers profits – that amount being based on the amount the developer would have had to pay them to secure the release of the covenant before works commenced if there had been ‘hypothetical negotiations’). But, the Lands Tribunal disagreed; in its view, damages under s84 are based merely on the actual loss suffered (ie the diminution of the value of the claimant’s own property), and not the gain made by the developer. In this case, there were other forms of development that could have been legitimately undertaken that would have similarly interfered with the claimant’s enjoyment of his land (eg if the developer had merely extended the existing house, rather than built two separate houses). On that basis, damages were assessed at only £10,000, and the decision was then confirmed by the CA on appeal.

The end result is that compensation under s84 is based on loss caused by the reduction in value or enjoyment of one’s property, and not on the loss of profit (or on the loss of bargaining position in the hypothetical negotiations). Winter v Traditional & Contemporary Contracts [2007] EWCA Civ 1088. © Practical Lawyer