Ever since the early nineteenth century, compulsory powers have been made available to competent public authorities to assemble land interests needed, or extinguish rights and restrictions preventing, any relevant development programme, be it for the installation of water supply pipes, sewers, drains, gas, electricity, other utilities, roads or railway networks.

Land ownership and interests could not be allowed to stand in the way of essential or publicly desirable infrastructure development, subject – of course, to procedures (noting of objections, public inquiry and appeal processes) for determination of the qualifying need for the development and the extent of the public benefit that would be derived.

Proper compensation must be paid to those whose land is taken or who suffer injurious affection in respect of loss of rights under the Land Clauses Compensation Act 1845, and now under the Compulsory Purchase Act 1965 and related legislation such as the Land Compensation Act 1973.

Compulsory powers for planning purposes

The introduction of the town planning regime, under the Town and Country Planning Acts in the post-war period, further extended the use of compulsory powers for planning purposes to public development schemes. Section 226 TCPA 1990, re-enacting the provision of its predecessor statute, confers the power on a local authority, upon being authorised by the Secretary of State, to acquire land compulsorily suitable for carrying out the activities of development, redevelopment or improvement, or which is required for a purpose which is required for a purpose that it is necessary to achieve in the interests of proper planning in the area in which the land is situated.‘Development’ is defined as including change of use; see s55 TCPA1990.

Public schemes for private development

Planning schemes for development of important areas or sites promoted by local authorities are most often carried out by, and at the expense of, private developers who are selected for the purpose and to whom building leases are granted by the local authority. Compulsory acquisition powers, if required, may be applied by the local authority to bring in outstanding land interests to enable the development scheme to be implemented. Outstanding land interests are usually bought in, in the first instance, by the developer who negotiates with the relevant land owner on a voluntary basis, with resort to the compulsory powers of the local authority only if negotiations fail or are not entertained by the land owner. The compensation payable by the local authority for the acquired land is covered by an indemnity from the developer.

Supplementary powers – s237 TCPA 1990

Additional powers are provided to supplement compulsory acquisition of land ownership. One such section, s237 TCPA 1990, confers power to override easements and other similar rights. It operates in relation to the rights of third parties over the development site, as distinct from the acquisition of land ownerships of the site and to which s226 TCPA 1990 applies. Section 237 facilitates development schemes for the benefit of public planning, whether carried out by local authorities or private developers deriving title under local authorities (see box below).

Section 63 of the 1845 Act and, now, s7 of the 1965 Act relate to compensation in respect of land or an interest in land taken compulsorily or by voluntary agreement in lieu. They take into account also, if applicable, the effect of severance of the land taken leaving a residue of other land of the owner of which the acquired land was part. Section 68 of the 1845 Act and, now, s10 of the 1965 Act operate in relation to injurious affection (ie in respect of loss or diminution of third-party rights) to land not so acquired but caused by the ‘execution of the works’.

Note that in relation to third-party rights, the position of an acquiring body, which has compulsory acquisition powers, is the same whether those powers are actually invoked or whether the land is acquired for the statutory purpose by voluntary agreement.

Assumptions as to the operation of s237

The liberal interpretation

It has been the assumption that s237, in common with all other compulsory acquisition powers, operates in the manner of a legislative ‘steamroller’ over all ownership and third-party interests to enable the authorised development to proceed. In particular, it had been assumed that s237 applies equally to:

(1) the execution of the relevant work of development; and

(2) user of the development after construction whether or not in breach of a restrictive covenant or easement.

It is clearly established that the exercise of compulsory powers in respect of land does not extinguish, as such, a restrictive covenant over it, but if the person enjoying the benefit of the covenant (the ‘dominant owner’) suffers injurious affection resulting from its breach, they are entitled to compensation.

It follows that, if the dominant owner claims and is entitled to statutory compensation for the breach of the restrictive covenant that the carrying out of the development in pursuance of statutory powers has caused, they cannot obtain an injunction restraining the breach, nor damages in lieu. The statutory remedy for injurious affection, if suffered, replaces entitlement to any other remedy for the breach.

The assumption as to user, authorised in breach of a restrictive covenant of the development after construction has been completed, appears to be unassailably logical – why should the legislation authorise the compulsory acquisition of ownership and rights, so as to authorise only the execution of the works of development in pursuance of statutory powers, and stop short of counteracting the preventive effect on user of a restrictive covenant or an easement? The apparent results of the cases on the subject seemed to support the assumption.

One might guess that, on countless occasions, the section has been used, or has been accepted by the parties in voluntary negotiations as capable of operating, on the assumed basis ever since its predecessors were enacted.

The proper interpretation of the section

Alas, the strict wording of the section and other supplementary sections is not literally of such liberal effect. There is a distinction between the concept of ‘execution of work’ and ‘user’ of the completed development. Section 237 authorises breach of a restrictive covenant or of an easement for the former, but does not refer to the latter otherwise than in the context of the execution of works. Thus, if the restrictive covenant prohibits the carrying out of a development for a proposed purpose, it is expressly overridden.

On the strict wording, no express reference is made to user of the development in breach of a restrictive covenant at a stage beyond the execution of the works of development.

The assumption was that s237 would be, or has been, interpreted by the courts in the manner seemingly considered throughout the history of compulsory acquisition legislation as applying to ‘user’ if the land were acquired or appropriated for the statutory purpose.

It had been the belief that the possible availability of compensation for injurious affection, where land taken for a statutory purpose involves the breach of a restrictive covenant, removed its enforceability and would therefore be extinguished to that extent.

The text book analysis

Professor Scamell, in his much respected book Land Covenants (1996 edition), addressed the issue of whether the ‘nonconforming use’ (ie use in breach of a restrictive covenant), as interpreted by the courts, is permitted by the legislation. The terms of the legislation clearly involved a difficulty. After a detailed examination behind the legislative background of all forms of compulsory acquisition and their interpretation by the courts, he concluded the following:

• Breaches of restrictive covenants by user, following completion of construction of a development in pursuance of statutory powers under s237, were counteracted, the dominant owner being entitled to compensation if they suffered injurious affection from the breach. The linkage of breach to compensation was an essential component of the analysis, and could be traced through a line of cases on compulsory powers and the compensation entitlements under the Land Clauses Consolidation Act 1845 where generally that approach had been adopted.

• The presence of the word ‘maintenance’ of the work in s237 had been construed in other such legislation (he argued) as including ‘user’.

• It was implicit that user should not in the circumstances be inhibited or the purpose of the legislation frustrated.

• References to other comparative legislative provisions in the Town and Country Planning Act led to the view that a restrictive interpretation would be inconsistent with the generality of the purpose of the planning legislation.

This analysis was generally the accepted view of the operation of s237 (and its statutory predecessors) with respect to restrictive covenants as to user. However, this interpretation of s237, after detailed consideration and analysis, was not followed by Judge Rich QC in the only case on the subject since 1996. His decision came as a shock to those who noted it, and was greeted with disbelief by many practitioners.

Even now, the decision is not universally known or acknowledged by local authorities, which often express complete surprise when it is brought to their attention.

The importance of Thames Water in the interpretation of s237

The background facts of this case were complex and are not, in full detail, pertinent to the issue of the operation of s237 in relation to user of a development to which the section has applied in respect of the execution of the works. Suffice it to say that the proposed development of land, on which planning permission was granted for the construction of a football stadium and residential use, would be in breach of a restrictive covenant benefiting the claimant that the land must not be used otherwise than for recreational purposes. The decision was on the preliminary issues of the proper interpretation of how the restrictive covenant operated, and the scope of s237.

The decision

The judge held that s237 does not empower a local authority to continue to override a restrictive covenant post-construction, even though, under s237, this was allowed to enable the execution of the works of development. This decision involved a narrow interpretation of the statutory provisions. Execution of works was expressly permitted; user of the development following construction in breach of the restrictive covenant was not covered by the section and therefore not permitted.

A detailed examination of the cases on compulsory acquisition revealed that the assumption that user would be permissible did not go that far. The one decision that had proceeded on that assumption was incorrect, the contention having been accepted by the judge in that case by concession of the injuriously affected party, that is, without argument.

It follows that an injunction will not be ordered nor damages awarded for breach of the restrictive covenant in respect of the execution of works to which s237 does apply; the remedy is compensation for injurious affection if any is suffered by the dominant owner.

In contrast, the breach of a restriction in respect of user is not authorised by s237 and therefore compensation for injurious affection is not obtainable, but injunctive relief is potentially available to the dominant owner (see below).

The analysis

A detailed examination of the differences in various statutory provisions makes clear that previous authorities on different sections of the TCPA involving compulsory purchase powers do not apply to s237, unless the limitations on its wording were to be interpreted ‘liberally’. Judge Rich QC exposed the liberal interpretation, as set out by Professor Scamell, to critical analysis and revealed the following flaws in his reasoning.

• The argument that a restrictive covenant prohibiting use would be overridden because compensation would be available for injurious affection was not accurate nor relevant. Indeed, that linkage had not ever been established in these terms by the relevant cases. The presumed linkage had led to the assumption that restriction on user would be rendered ineffective by the statute. But the non-availability of injunctive relief was not dependent on entitlement to compensation. It derived from the fact that the statutory remedy for injurious affection, if suffered from the exercise of statutory powers, is compensation (see s10 CPA 1965). It therefore replaces, where payable, injunctive relief or damages in lieu.

• Section 237 will operate to override a restrictive covenant that prohibits the execution of the work of development, as distinct from its subsequent use, and compensation will be available if, by so doing, the dominant owner suffers injurious affection. Section 68 of the 1845 Act and s10 of the 1965 Act apply specifically and exclusively to that situation – they are limited to injurious affection caused by the ‘execution of works’ and no reference is made to user. • The reference to the word ‘maintenance’ in another statute, the Waterworks Clauses Act 1845, having been held to include ‘user’ was not accurate. The case in question related to the installation of water supply pipes and their ‘maintenance’ in operation of a statute providing for the installation and the supply of water – the precise purpose of the compulsory powers authorised.

• The rules of statutory interpretation required that differences in wording of various provisions of a statute must be taken account of and treated as intentional. Section 226 TCPA, referring to ‘development’, a defined term in s55, was clearly wider in its terms and included use of development as well as the execution of works. Judge Rich QC held that these differences were intentional. Wider assumptions as to overall planning objections should not override the limitations as to the balances between public interest and private rights in the operation of compulsory powers – they must be interpreted strictly to preserve the required balance. Section 237 was intended to set limits on the exercise of powers where they involve third-party rights.

• A local authority, unable to use s237 because of its limits in respect of third-party rights, was not precluded from applying to the Lands Tribunal under s84 Law of Property Act 1925 for discharge or modification of a restrictive covenant on the grounds that it would impede some reasonable user of land for public or private purposes. Compensation would be available under that regime. Alternatively, the local authority could acquire compulsorily the dominant owner’s land rather than extinguish or modify the restriction, albeit more expensively.

• A possible basis of the distinction is that the dominant owner is not entitled to receive notice of the development nor to object to the scheme for compulsory purchase. They are entitled only to compensation for injurious affection if it is actually suffered by the exercise of compulsory powers.

The consequences

The decision in Thames Water is the only decision dealing specifically with the subject of the operation of s237 and its limitations as to user in breach of a restrictive covenant that has examined the issue in minute detail and rejected the arguments that were so forcefully adumbrated by Professor Scamell.

As noted, Judge Rich QC disagreed with an earlier decision of Chadwick J in Brown v Heathlands Mental Health National Service Trust [1996] that accepted that s237 also applied to user in breach of a restrictive covenant. There had been no argument on the subject, the issue being accepted by concession on the part of the dominant owner.

The arguments of Judge Rich QC are, one comments respectfully, sustainable in detail, but continue to appear contrary to the underlying rationale and general purpose of the planning regime on such matters.

However, no attempt has been made to amend the legislation, nor has there been any subsequent case that further considers whether there is scope for a more liberal interpretation of the provisions of the TCPA. Therefore, the limitations of s237 must, for the time being, be acknowledged and noted.

How are the limitations overcome?

As Judge Rich QC commented, s84 LPA 1925 is available to modify a restrictive covenant, or the dominant land of the covenant can be compulsorily acquired.

However, the procedure under s84 is time consuming and is quite separate from the procedures for compulsory purchase. The acquisition of the dominant land is expensive, having regard to the limited purpose of its acquisition.

The decision in Thames Water is a significant impediment, in principle, to the operation of the compulsory planning regime.

The position in respect of easements

In principle, this decision on the operation of s237 applies also to easements. Moreover, s84 LPA 1925 does not apply to easements. The execution of the work interfering with the easement would be authorised by s237, but subsequent user rights would survive, unless the subject matter of the easement were extinguished by the execution of the works.

Rights of way might well survive if scope were left afterwards for user rights to be exercised even if proper use of the development were impeded. Thames Water did not involve an easement, but its rationale is equally applicable.

The position in practice

As noted, this decision was one of construction only of the restrictive covenants in question and of the limits of s237; it merely declared that the restrictions on user would be infringed by implementation of the proposed development, and that s237 would not override the restrictions on user postconstruction. It does not follow that injunctive relief would be given if the dominant owner were to seek it; damages in lieu would probably be awarded – of course, dependant on the circumstances.

Moreover, if compensation for injurious affection were in the circumstances obtainable in proper exercise of the statutory powers and sought by the dominant owner, injunctive relief or damages in lieu would not be obtainable. So, if either compensation for injurious affection or, where not, damages in lieu of an injunction are obtained, the restriction would no longer, on general principles, be enforceable.

Summary

The result of this decision, if it is not at some time disapproved or overruled, is that it has removed the assumed certainty that s237 overrides all third-party impediments to the construction of a development carried out in pursuance of statutory powers, and its subsequent use in breach of a restrictive covenant or by way of interference with an easement.

In practice, the problems that result are, and will be, overcome by negotiation against the background that, in most circumstances, an injunction, as such, will not be obtainable, and that the dominant owner will be able to obtain compensation or damages.

However, that process may well be time-consuming and expensive, and lacks certainty. Section 237 had been thought effective to cut through the problem. © Property Law Journal