Modifying covenants: the limits of section 84

Blackhorse Investments (Borough) Limited v The London Borough of Southwark (2024) is a rare example of a case using the route available under section 84 of the Law of Property Act 1925 to modify leasehold covenants.  It is also a helpful reminder about the limits of the Tribunal’s powers here.

In particular, the Upper Tribunal concluded that certain parts of the order were beyond its jurisdiction because they did not modify restrictions on the use of land. These included covenants relating to assignment and positive covenants.

Facts

The applicant owned the leasehold of The Black Horse, a pub in Southwark. The respondent Council held the freehold title.

The 99 year lease of The Black Horse was granted in 1966.  It included a covenant which prohibited assignment or subletting of part.  Assignment or subletting of the whole was allowed only with the landlord’s consent. The lease also included covenants to use and keep open the premises as a pub and obtain/renew any relevant licences for the sale of alcohol.

The pub business failed and the premises closed in 2019.  In May 2020, the Council – as local planning authority – granted planning consent for the pub’s demolition and its replacement with a predominantly residential building.  In September 2021, the leasehold owner applied to the Tribunal under section 84 to modify the lease covenants so as to allow it to undertake the proposed development.  Following the Council’s failure to object to the application (see below), it was determined on paper and an order made to modify the covenants as sought by the tenant.  

The Council then applied to aside the order and for an extension of time in which to file an objection.

Decision

The Tribunal refused to set aside the previous order because of the Council’s complaints about certain technical failures (see comment below).  However, it accepted that certain parts of the order went beyond the Tribunal’s jurisdiction under section 84.  

By way of reminder, section 84(1) states:

“The Upper Tribunal shall…have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction…” 
(Emphasis added.)

In Blackhorse, the Tribunal agreed with the Council that:

• the covenant prohibiting assignment of part of the premises was not a clause restricting user (as required in order to engage section 84); 
• the covenant to obtain/renew all licences was a positive obligation and so the Tribunal had no jurisdiction under section 84 to release the tenant from it; 
• whilst the covenant requiring the premises to be used only as a “licensed victualling house” was satisfactorily restrictive of user, the obligation to “keep open” the premises whilst appropriate licences were in place was a positive covenant - even though it might in effect restrict use to a licensed premises (which would be a restrictive covenant).  The Tribunal applied the judgment in Westminster City Council v Duke of Westminster (1991), where Harman J held that “the duty to use remains a positive obligation although a negative implication may flow from it”.  The Tribunal concluded that it only had jurisdiction to modify this clause to the extent it is restrictive, but not further.

The Tribunal refused to set aside the whole order, as some of the covenant modifications were within its jurisdiction, e.g. allowing structural alterations to enable the conversion of the premises to residential use.  However, the modifications which went beyond its jurisdiction were set aside.

Comment

This case is a useful reminder to consider carefully the nature of the covenants – whether freehold or leasehold – which an applicant wishes to modify or discharge.

This case also involved some interesting consideration of issues with service of the application and other technicalities, such as allegedly misleading content within the application.  With service, the application had been sent to the Council’s main administrative offices in October 2021 – when its post was often left unattended as staff were working from home after the pandemic.  The application was therefore not received by the relevant individuals at the Council in time to oppose the application by the relevant deadline.

The Tribunal found on the facts that there were no issues with service so as to engage the grounds for the Tribunal to consider whether it was in the interests of justice to set aside the order.

Originally published on Property Law UK.