Top Ten Tips – Dealing with Restrictive Covenants

The recent case of Livett & Anor v Hennings & Anor [2022] has emphasised the potential issues in enforcing restrictive covenants and considerations in the event that land subject to covenant(s) is going to be developed. In this case the Upper Tribunal ruled that a number of individuals who were objecting to an application to modify or extinguish a restrictive covenant (not to build more than one dwelling per plot and not to cause a nuisance) could not show that they were entitled to the benefit of it (and, as such, had no entitlement to oppose). A timely reminder of the issues. We therefore set out our top ten tips for ensuring enforceability of a restrictive covenant, or how to seek to argue it is not, below:

    To ensure that a covenant is enforceable

1. Make sure that the drafting is clear and precise. In order for a restrictive covenant to bind the land (so that they remain enforceable when the property is sold) it must be restrictive in nature i.e., not allow something to be done, it must benefit other land, and the benefit must have been intended to run with that benefitting land. The covenant cannot merely be a covenant of personal benefit to the original party.
   
   
2. It should be clear which land benefits from the restrictive covenant and which land is burdened by it. We suggest using plans (even where the covenant is drafted on the basis that it benefits e.g., the “retained land”) as title numbers may change over time. The plans need to show all the benefitting and burdened land.
   
   
3. When registering the restrictive covenant, the application must be made against both the benefitting and burdened land. You should also make sure it is registered against the correct land (we have seen many instances where restrictive covenants are registered against e.g., the whole of a title when it should only be part of it)
   

   When developing land which is subject to a restrictive covenant

4. Do not ignore restrictive covenants. They are put in place for a reason and beneficiaries will often seek to enforce them. A good way to flush out whether there is going to be an issue with a restrictive covenant is via the planning process.
   
   
5. Where it may first appear that a restrictive covenant does not affect your development (e.g. a covenant that restricts the operation of a pub, inn, tavern and any other business that sells or supplies alcohol from the property), double check! Even if the intention is that the development is residential there might be commercial units intended to be constructed which could potentially be sterilised by the covenant.
   
   
6. Scrutinise the terms carefully. The covenant may have expired (if time limited) or at some point the benefitting and burdening land could have come into common ownership. As such the covenant may no longer be enforceable.
   
   
7. If it looks like a restrictive covenant is enforceable and is going to be breached by development, seek to obtain a restrictive covenant title indemnity insurance policy to cover any loss from a claim from a beneficiary. You should insure the full gross development value of the property affected.
   
   
8. Consider an application to the lands chamber of the upper tribunal (under s84 of the Law of Property 1925) to seek to modify or extinguish the restrictive covenant. As the developer sought to do in Livett. You must satisfy one of the following grounds:
   
   a) The covenant is obsolete because either the character of the property or the neighbourhood has changed or there is another circumstance with the tribunal may deem material in making it obsolete.
   
   b) The covenant impedes a reasonable user of the land (or would do if it remains unmodified).
   
   c) Those with the benefit of the covenant have agreed to discharge or modify it.
   
   d) Discharge or modification of the covenant would not injure the beneficiaries of it.
   
   
9. If the restrictive covenant is “qualified”, such that the thing which is prohibited may be done with “consent” of the relevant beneficiaries, you could seek consent. However, there is no guarantee consent will be provided and it can often be difficult to obtain the consent of all of the beneficiaries. We advise caution in this approach as contact with the beneficiaries may make insurance difficult to obtain.
   
   
10. If insurance isn’t available, a beneficiary may agree to release the land from the burden of the restrictive covenant. Beneficiaries request significant sums of money for such a release. But it could be the only option to allow development to proceed.