Substantial compensation sought on modification of restrictive covenant

In Richard Gennard v. Leicester City Council [2025] UKUT 00121, on an application for modification of a restrictive covenant, it was agreed that the restriction limiting the use of land to a paddock, garden land or horticultural nursey secured no practical benefits and the modification would cause the objector no injury.  However, the objector sought compensation to make up for the effect of the restriction in reducing the consideration received when it was imposed.  The Tribunal granted the modification without any compensation.

Facts

An application was made to discharge a restriction imposed on land forming part of 49 Main Street, Rotherby in Leicestshire which was one of six houses erected on 5.41 acres of land which was formerly owned by the objectors and known as Rotherby Nurseries (“the nursery land”). In 1999 the objector sold the nursery land at auction in two lots as a development site with outline planning permission for six houses at the front of the site.  A restriction was imposed on the remaining nursery land, behind where the houses were to be built, restricting its use to a paddock, garden land or horticultural nursery. 

The applicant purchased the land in March 2021 and in November 2022 obtained planning permission for the conversion of an existing outbuilding to create a single storey three-bedroom dwelling. The existing outbuilding was burdened by the restriction and an application was made for modification under grounds (aa) or (c) of section 84(1) of the Law of Property Act 1925 to allow the implementation of that permission.

Issues

The objector accepted that the grounds for modification were satisfied but sought compensation of £116,000 under section 84(1)(ii) to make up for the reduction in price achieved for the land in 1999 due to the imposition of the covenant.  Section 84(1)(ii) provides that the Tribunal may think it just to award a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.

Both parties relied on expert valuation evidence. The applicant’s expert assessed the sum due at nil or, at most, £5,000.  The objector’s expert assessed the sum at £50,000.

Decision

The Tribunal looked at the planning history of the nursery land and the planning policies at the time.  It noted that the planning permission with which the land was sold with the benefit of in 1999 contained a condition limiting the number of units on the site as a whole to six in number.  The reason for this condition was said to be to “safeguard visual amenity and the character and appearance of the conservation area”.  In the sales brochure it said: “Prospective purchasers may wish to alter the proposed layout or seek to expand the permission”.  The applicant made his first planning application to convert the outbuilding into a dwelling in 2019 which was refused by the local authority and, then again, on appeal.  Planning permission was eventually granted in 2022.

The Tribunal found that previous Tribunal decisions determining a sum payable under this particular sub-section were of limited relevance to the question in the present case as they were fact specific.  

It was necessary to consider what would have been in the mind of the seller and purchaser at the date of the auction sale and to bear in mind the relevant planning policies at that time.  The relevant planning policy had been adopted relatively recently prior to the sale and none of the exceptions for development outside the village envelope applied to the application land.

The question to be addressed was whether the purchaser at the valuation date would have foreseen any hope in the future of obtaining planning permission for the proposed development sufficient to justify the a higher payment.  That would depend on the likelihood of changes being made in the future to the recently adopted planning policy to allow some limited development outside of the village envelope.  It was not until policy changes adopted some 19 years after the valuation date that there was a real hope of any such development.  The first planning application was dismissed in 2019 and the appeal dismissed in 2020.  Whilst there was a hope of obtaining planning at that time it remained a hope and not a probability.  

The Tribunal found it extremely unlikely that prospective purchasers at the auction would have foreseen any hope of future development outside of the village envelope, sufficient to place additional value on it.  In addition, the sale price achieved for the two lots were much higher than the suggested guide prices so there was no evidence of the restrictions having had any effect on the consideration received.  On that basis no sum was due to the objector under section 84(1)(ii) for modification of the restriction to permit the implementation of the proposed development.

Originally published on Property Law UK.