The danger of building first and asking questions later

The site

You've found an ideal development site, and you kick off the acquisition process. As part of that process you discover that part of the land you're intending to buy is subject to a restrictive covenant prohibiting building. You factor that in but decide to go ahead with the purchase.

The development plan

You put together your development plans. Ideally you'd like to build on the restricted land. You see that the land that has the benefit of the restrictive covenant is owned by a charitable trust (the "Trust").

Testing the water…

You could approach the Trust now and see if they're prepared to give you a release for a fee… or you could keep quiet and test the water by applying for planning and seeing if any objections are raised.

Modification

In any event, a legal friend has told you that there is a process you can follow to try and have restrictive covenants modified or removed.

Your friend explained that under S.84 of the Law of Property Act 1925, you can apply to a tribunal to have restrictive covenants modified or released. If you can show both that the restrictive covenant is preventing a reasonable use of the land and that it's contrary to the public interest to enforce it, a tribunal can remove or vary the covenant, though compensation is payable. Anecdotally you've heard that recently the courts have seemed much more lenient about allowing modifications and letting people effectively buy their way out of covenants.

The risky strategy…

Commercial risk is something that you have to live with in a market where it's hard to make a profit. So you formulate your plan. You'll go for planning and if that doesn’t flush out any objections you'll press ahead with your building plans reasoning that, if there are any problems at a later stage, you can always pay off the neighbour or apply to the tribunal for modification. If you've managed to build by that stage surely the idea of ripping down a perfectly good building won't be in the public interest!

Objection!

You apply for and get planning permission. No objections are received. So far, so good…

When you're in the process of laying your foundations, a complaint is received. The Trust hadn't been aware of the restrictive covenant, but they are now. You could stop building and try and resolve it, but that would lead to serious interruption and cost. You appreciate the commercial risk, but you decide to plough on – you don't think that the Trust have the stomach to take the risk of injuncting you and you think that, once the building has been finished, people will have to see reason.

You finish the job and, because the Trust are still complaining, you apply to have the restrictive covenant modified. You accept that you'll have to pay some compensation, but surely you won't be required to tear down the building, will you?

Tear it down!

Yes! The facts of this case are similar to the recent case of The Alexander Devine Children's Cancer Trust v Millgate Developments, where the court refused to modify a restrictive covenant so the developer may well be required to remove the building. This marks a change of approach from the courts who, until this case, had seemed to be taking a more liberal approach.

Morals

The top five morals that can be drawn from this case for developers are:

1. Think twice before proceeding in breach of a restrictive covenant. Cases will always turn on their particular facts, but, for example, if you have a very old (e.g. pre-1925) restrictive covenant where you can't identify the benefitting land then it may be appropriate to be bullish. If you're dealing with very clear and recently imposed covenants more caution is needed.
2. Don’t think that pushing ahead with a development so that you have a completed building will pressurise the court into allowing you to keep the building and pay compensation. In fact the court has now clearly said that it is likely to look more favourably on applications based on "public interest" criteria if the application is made at an early (pre-development) stage so that a proper assessment of public interest can be conducted.
3. The grant of a planning permission does not mean that a development is in the public interest.
4. The fact that no objections have been received to the planning application does not prevent people with the benefit of restrictive covenants from bringing a claim at a later stage.
5. Conduct is relevant – if a developer behaves in a "high handed and opportunistic manner" rather than seeking consents at any early stage the tribunal will be less likely to take the view that a restriction is contrary to the public interest.