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This article first appeared in Property Law Journal
Two recent decisions of the Upper Tribunal offer interesting illustrations of its approach towards applications for the discharge or modification of restrictive covenants. In The Trustees of the Green Masjid and Madrasah  UKUT 0355 (LC), the applicants sought to persuade the Tribunal to allow modification of the covenant despite their sustained and wilful breaches of the restriction.
In Re Tate  UKUT 0289 (LC), the Tribunal considered whether a neighbour was entitled to rely upon the “practical benefit” arising from the covenant of demanding a monetary payment in return for allowing the proposed development of the applicants’ site to proceed.
Section 84(1)(aa) of the Law of Property Act 1925 allows the discharge or modification of a restriction where it impedes a reasonable user of the land.
Under section 84(1A), discharge or modification is permitted where the Upper Tribunal is satisfied that:
In this first case, the applicants owned the freehold interest in a property which had previously been owned by Birmingham City Council.
Following the sale of the land by the Council (and a Deed of Variation made in May 2000), the land was subject to a restrictive covenant "for the benefit and protection of so much of the adjoining or adjacent land of the Corporation as is capable of being benefited thereby" which prohibited the use of the land other than as a private dwelling-house and/ or "for the practice of a medical practitioner dentist solicitor or other professional person".
The property was marketed for sale in 2008. The freeholder at that time wrote to the Council in November 2008 to inform it that the proposed purchaser wished to use the property as a mosque and Community Centre and asking whether the Council would vary the restrictive user covenant accordingly.
The council refused. The property was sold to a company in April 2009, which held it for the Green Masjid and Madrasah Charity.
In June 2009, the company wrote to the Council to inform it that it proposed to let the property "for educational purposes". The Council replied in August 2009 to say that it did not consider the property suitable for this purpose due to the likely volume of traffic that would be generated and the limited on-street parking available.
Despite this response, the applicants proceeded to use the property as a mosque and madrasah from 2009 and were continuing to do so in October 2011 when they applied under section 84 of the Law of Property Act 1925 to modify the restrictive covenant so as to permit the use of the land as a mosque and madrasah or, alternatively, as a place of worship including associated or ancillary religious education. (This followed the transfer of the property from the company to the trustees of the charity.)
The applicants submitted that they had anticipated that the variation of the restrictive covenant would not be an issue given that the Council was also the relevant local planning authority, which had advised that planning permission was not required for the change of use to a mosque.
The evidence in support of the application focussed on the importance of the mosque to the local community, the fact that there was no similar facility in the relevant area and the lack of complaints to the trustees about any problems resulting from the use of the property.
The applicants also produced expert evidence to show that the traffic and parking implications from the use of the property as a mosque were imperceptible.
In response, the Council called no expert traffic evidence but relied upon complaints made to Councillors and the local MP by local residents - relating to increased traffic, problems with on-street parking on nearby service roads and noise from the property late at night and early in the morning.
Having assessed the Council-owned properties to be regarded as “adjoining” and “adjacent” (using the guidance in Re Ecclesiastical Commissioners for England's Conveyance  Ch 430), the Tribunal considered whether the applicants had established ground (aa) in order to secure the modification of the covenant.
The Tribunal firstly considered whether the proposed user of the property was reasonable and found in the applicants’ favour. It rejected the Council's argument that the unreasonableness of the user was evidenced by the "considerable local opposition" to the mosque, stating that an unpopular proposed use may still be a reasonable one.
The Tribunal then moved on to consider whether the restriction secured practical benefits to the Council.
It concluded that this was the case in respect of at least some of its adjoining and adjacent properties, noting the benefits of preventing the lawful parking of additional cars on the street and avoiding the intensification of traffic movements and noise from people leaving the mosque.
The Tribunal then reviewed whether the practical benefits were of substantial value or advantage. The Tribunal accepted the evidence of the applicants’ expert that the impact of additional traffic from the mosque was minimal and therefore felt that the covenant did not secure a substantial practical benefit to the Council in terms of preventing increased traffic.
Similarly, the Tribunal decided that there was insufficient evidence of problems being caused from additional non-street parking and therefore concluded that the restriction did not secure to the Council a practical benefit of substantial advantage regarding the prevention of on-street parking.
On the issue of noise, the Tribunal felt there was a lack of specific evidence of complaints from the occupiers of the relevant adjoining or adjacent properties, so it concluded that the covenant did not secure any practical benefits of substantial advantage to the Council in this regard.
As to the impact on local property values, the Tribunal noted that it had seen no evidence that the negative effect (if any) of increased noise, traffic and on-street parking would outweigh any premium that Muslims would pay to live close to the mosque.
Since the Tribunal had concluded that the proposed modification would not adversely affect the value of any adjoining or adjacent property belonging to the Council, it confirmed that there was no loss or damage arising from the modification of the covenant so as to give rise to monetary compensation or the question of whether this would be adequate.
Having concluded that the applicants had satisfied ground (aa), the Tribunal noted that this did not lead to an automatic entitlement to the modification of the covenant; under section 84(1B) of the 1925 Act; the Tribunal is required to take into account "any other material circumstances" when exercising its discretion as to whether a restriction ought to be modified.
The Council invited the Tribunal to exercise its discretion against the applicants due to their conduct in committing a wilful and sustained breach of the covenant.
The applicants argued that refusing relief would be wholly disproportionate and unduly harsh, although they admitted that they knew of the Council’s previous refusals to modify the covenant to allow the proposed use.
Despite being in breach of covenant and eventually aware of the need to apply for the modification of the covenant, the applicants had also implemented a planning permission granted for a side extension to the mosque, which the Tribunal regarded as exacerbating the breach of covenant.
The Tribunal agreed that the applicants' conduct constituted a sustained and wilful breach of the covenant and that such conduct "is to be deprecated". However, having been satisfied on the facts and on the law that it had jurisdiction to modify the covenant, the Tribunal was loath to exercise its discretion so as to deny the applicants the relief sought. It commented that:
"Where jurisdiction has been established I consider that the discretion of the Tribunal to refuse the application should only be cautiously exercised. It should not be exercised arbitrarily and, in my opinion, should not be exercised as, effectively, a punishment for the applicants' conduct unless such conduct, in all the circumstances of the case, is shown to be egregious and unconscionable. On balance I do not consider that the applicants' conduct was so brazen as to justify my refusal of their application".
The Tribunal noted that it had taken into account two factors as mitigating the applicants' conduct:
The Tribunal therefore confirmed that the covenant should be modified, subject to the inclusion of conditions that:
On the question of costs, the Tribunal took account of the applicants' conduct as being a sustained and wilful breach of the covenant and therefore regarded their conduct as unreasonable. Taking account of the mitigating factors referred to above, it ordered the applicants to pay 50% of the Council’s costs, to be assessed on the standard basis unless agreed.
In this case, the applicants had purchased farm buildings and land subject to a restrictive covenant imposed by a 1980 conveyance which prohibited the use of the property other than for agricultural use or as a riding school and livery stable.
Prior to purchasing the property, the applicants wrote to the objector (which owned neighbouring Green Belt land and enjoyed the benefit of the covenant) to say that they were considering buying the farm and asking whether the objector would consider releasing the covenant.
The objector replied to say that it would be prepared to remove the restrictive covenant in return for a payment of £100,000. (The objector was part of a large house-building group in the area, which hoped to take advantage of the reasonable likelihood that it would be permitted to undertake a residential development on some of its land near to the applicants some time from 2015.)
The applicants subsequently acquired the property and obtained planning permission to create four dwellings on it. Accordingly, they sought the discharge/modification of the restrictive covenant.
In answer to the case based on ground (aa), the objector neighbour sought to demonstrate that it enjoyed practical benefits of substantial value or advantage from the restriction.
The first benefit was expressed as a concern that the objector’s ongoing negotiations with the local planning authority might be adversely affected if one of the proposed houses to be erected on the applicants’ property were to be purchased by an individual who objected strongly to the principle of development on Green Belt land.
The Tribunal rejected this as a practical benefit of substantial value or advantage; it was felt that any person who had a strong objection to residential development in the Green Belt would make enquiries as to the local planning authority's attitude to such development in the vicinity of the property and then turn his attentions elsewhere, to other sites near the Green Belt which were likely to remain undisturbed by residential development.
The objector also suggested that four additional houses on the applicants’ site would lead to an increase in the section 106 obligations which the objector would be required to accept in due course in order to secure residential planning permission on its land.
The Tribunal was not persuaded that this was a practical benefit of substantial value or advantage, noting that the four dwellings on the application site would represent only 3% of the number of units proposed for the objector’s site.
In the view of the Tribunal, the only practical benefit of the restrictive covenant to the objector was that it enabled it to demand a monetary payment in order for allowing a profitable development of the applicants’ property to go ahead.
The Tribunal held that this was not the type of benefit contemplated by s.84(1)(aa) and that the applicants had therefore established ground s.84(1)(aa), allowing the Tribunal to exercise its discretion to modify/discharge the restrictive covenant.
The Tribunal found that there was a “positive case” in favour of exercising its discretion for the applicants by finding that the restriction should be discharged, since the objector had not given it any “sufficient reason” not to do so.
With regard to the compensation to be awarded, the Tribunal felt that since the restriction was held to be of no practical benefit to the objector, the question of compensation under s.84(1)(i) (ie for loss/disadvantage suffered as a result of the discharge) did not arise.
As to compensation under subsection (ii) (ie for any reduction in the value of the land when it was sold as a result of the imposition of the covenant), the objector was unable to provide evidence to demonstrate the effect which the restriction had had in reducing the consideration it had received for the applicants’ property when it sold it to the applicants’ predecessor-in-title.
The Tribunal accepted the applicants’ expert witness’ submission that any price reduction to reflect the restriction would have been in the region of £1,000 which, adjusted to reflect changes in the RPI in the intervening period was equivalent to approximately £3,000 in today's money.
A formal order discharging the restriction was made on the condition that a payment of £3,000 was to be made by the applicants to the objector.
Owners of properties burdened by a restrictive covenant may take some heart from the practical approach taken by the Upper Tribunal in both of these cases.
However, as ever, the decisions turn on their specific facts. Certainly, the applicants in Re Tate adopted a far more sensible route for seeking modification than the Trustees of the mosque, who risked having their efforts unravelled.
The costs penalty imposed on the Trustees is clearly an attempt by the Tribunal to dissuade parties from putting their plans into effect before applying to seek the modification/discharge of a covenant, although some might argue that it does not go far enough to discourage such activity.
This article was written by Emma Humphreys.
For more information please contact Emma on +44 (0)20 7203 5326 or firstname.lastname@example.org