Restrictive Covenants and the Reasonable Use of Land – Guideline Ruling

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Privately agreed restrictions on the use of property sometimes do not sit easily with the wider public interest in making the most of land as a scarce resource. The latter interest prevailed in a case, recently reviewed by David Watson, concerning residential development of part of a golf course.

On purchasing the course from a pension trust for £1.2 million in 2001, a family company signed up to restrictive covenants that were to last for 30 years. The covenants forbade, amongst other things, any form of residential development of the land without the vendor’s written consent.

Residential occupation of any part of the land, save by the course’s proprietors, persons employed on the course or their respective families, was also banned. The company was barred from selling any part of the land without taking steps to ensure that purchasers would continue to be bound by the covenants.

The company had subsequently built a ground keeper’s cottage on part of the course and two more houses were under construction. Those developments did not breach the covenants in that the houses were either unoccupied or lived in by a golf course employee. The company, however, wished to be at liberty to occupy and deal with the houses as it chose, free from the covenants. It applied to the First-tier Tribunal (FTT) for the covenants to be discharged insofar as they affected the part of the course where the development had taken place.

Ruling on the matter, the FTT noted that the vendor retained no land that could benefit from the covenants and made no bones about the fact that its interest in maintaining them in force was purely financial. It was content for the covenants to be discharged provided it received compensation in the form of a share of the land’s development value.

Granting the order sought by the company under Section 84 of the Law of Property Act 1925, the FTT found that the covenants impeded reasonable use of the land and secured no practical benefit of substantial value or advantage to the vendor. The loss of an opportunity to demand a price for consenting to development did not amount to an injury for the purposes of the Act.

The vendor pointed out that the company had only 10 more years to wait before the covenants would expire. The FTT found, however, that the short-term nature of the covenants, and the fact they had been agreed to by the company itself, rather than a predecessor in title, did not prevent them from being discharged. Arguments that the development was the thin end of the wedge, easing the way for further houses to be built on the course, also fell on fallow ground.

In ruling that the vendor was entitled to no compensation for the loss of its rights under the covenants, the FTT noted that the correct way for a vendor to obtain a negotiated share of development value is to impose an overage covenant. The developed land formed only a small part of the course and the imposition of the covenants had no effect on the price paid by the company in 2001.

If you need advice on any issues regarding restrictive covenants, we can help.

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