Restrictive covenants: Modification or discharge of leasehold covenants under Section 84 of the Law of Property Act 1925 to allow for the redevelopment of a development site from warehouses into residential housing

Case name, reference and Bailii link 

Great Jackson Street Estates Ltd v Manchester City Council [2023] UKUT 189 (LC): BAILII link

Summary

In Great Jackson Street Estates Ltd v Manchester City Council [2023] UKUT 189 (LC), an application was made to the Upper Tribunal (“the Tribunal”) to modify leasehold covenants under Section 84 of the Law of Property Act 1925 (“Section 84”).

The covenants prevented the applicant, who had a lease of a development site, from developing the warehouses into 1037 flats.

The Tribunal found that none of the grounds relied upon by the applicant were satisfied, and refused the modification requested. 

Facts

The council is the freehold owner of three development plots on Great Jackson Street. The applicant is the council’s lessee of the site, which is currently used as warehouses. The applicant wished to demolish and replace these into flats (for which it had obtained planning permission, subject to an acceptable section 106 agreement). However, the existence of covenants prevented the redevelopment of the warehouses. 

The first group of covenants prohibited the carrying out works on without consent of the council (although there was no qualified condition that the council’s consent must not be unreasonably withheld). The covenants, amongst other things, prohibited:

1. building over or doing damage to a public sewer, a gas main, and a service duct containing electric cables running under the premises;
2. building over more than two thirds of the premises or within 10ft of the side or rear boundaries, and
3. the use of the buildings, other than as light industrial buildings or wholesale warehouses. 

The second group of covenants imposed restrictions on the development or future use of the premises without the consent of the Council. These covenants, which were qualified in that the council’s consent must not be unreasonably withheld, prohibited the applicant from the following:

1. making additions, alterations, or improvements to the existing warehouses, or erecting any other buildings; and
2. making use of an open area of the premises at any time for the open storage of goods or materials. 

There was a third group of covenants, although these were not directly related to the proposed development. These included the following prohibitions: 

1. use of buildings as a “nuisance damage grievance or annoyance” to it or its tenants, to the owners or occupiers of other property in neighborhood, or of the neighborhood itself;
2. waste material being visible from any public footpath street or road; and
3. posting bills or advertisements on hoardings or on the walls or fences of the premises. 

The applicant sought to modify the covenants to enable it to proceed with its development under Section 84.

Issues

The issues for the Tribunal to consider were (i) whether the covenants could be modified by the Tribunal and (ii) whether they should exercise their discretion to do so. 

In reaching its decision, the Tribunal considered the following submissions made by the applicant: 

1. The restrictions are obsolete under Section 84 ground (a) by reason of changes in character of the property, or the neighbourhood, or other circumstances of the case;
2. The restrictions are obsolete under Section 84 ground (aa) because the proposal of development is a reasonable use of the land, and its completion will cause the landlord no substantial loss or disadvantage; and
3. The council would not be injured by the proposed modification.

First instance (where relevant)

The Upper Tribunal held that none of the grounds relied upon had been satisfied, and refused the applicant’s application. 

In relation to Section 84, ground (a): 

• The restrictions had not been shown to be obsolete as the council had a legitimate strategic interest in retaining control over the use of the land, and ensuring any development was carried out with appropriate safeguards.
• As such, the application on ground (a) failed. 

In relation to Section 84, ground (aa):

• The applicant submitted that the question of whether the proposed use is reasonable must be considered assuming the restrictions do not exist. The Tribunal agreed with this.
• The Tribunal were satisfied that the restrictions did impede the proposed use, by requiring the landlord’s consent to the works and change of use.
• However, the covenants secured a practical advantage to the council, by allowing it to influence the form of the development, and limit the risk of it not being completed in a timely manner.
• As this control gave the council a substantial advantage, the Tribunal concluded that the application on ground (aa) failed.

In relation to Section 84, ground (c):

• Injury would be caused by modification of the restrictions, as the council will lose practical control which it currently enjoys over the redevelopment of the premises.
• As such, the Tribunal concluded that the application based on ground (c) failed. 

The Tribunal then turned to whether, had the applicant succeeded on the jurisdictional matters, it should exercise its discretion to modify the restrictions as requested by the applicant.

The Tribunal relied on the statement given in the Scottish case of Caledonian Associated Properties Ltd v East Kilbride DC (1985) 49 P&CR 410, that “The Tribunal would be slow to interfere where a local authority in maintaining private obligations was genuinely endeavouring to control a particular environment and that must be equally so in a case where the authority in question in maintaining such obligations is seeking to carry out a development which is part of their overall plan and which they have a statutory duty to carry out”. The Tribunal agreed that (i) the Tribunal should be slow to interfere with a local authority which seeks to use its private rights as landlord to promote development to ensure the desired development takes place and (ii) it would be reluctant to use its discretionary power to  disrupt commercial negotiations between the parties.

Comment (if where relevant – particularly if there is a point of note for general practice)

The case shows that the Tribunal will examine such applications closely, but also highlighted the council’s role as a landowner and local planning authority. The council did not object to the development in principle, but wished to retain control. 

The case highlighted some important points in relation to the grounds relied upon: 

• To succeed on ground (a) (the obsolescence ground), it is necessary to show changes to the neighbourhood, and the extent to which those changes make the covenant incapable of being fulfilled;
• The focus on ground (aa), is on the use of the land itself; and
• For ground (c), practical benefit can still be secured for the respondent by upholding the covenant, even if the modification (if allowed) would result in financial advantage to the respondent.

This case summary was originally published to Property Law in September 2023.