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26 June 2017

Restrictive covenants - discharge under section 84

Stafford Flowers v Linstone Chine Management Company Limited [2017] EWCA Civ 202

Summary

The Upper Tribunal had been entitled to find that the Respondent’s ability to prevent the Appellant’s proposed full time use of his property constituted a practical benefit of substantial value or advantage since the discharge of the covenant would otherwise be “the thin edge of the wedge” leading to a change in the character of the site.

Facts

The Appellant owned a holiday bungalow (“the Property”) forming part of a wider estate of holiday homes.  The Property was held subject to a restrictive covenant prohibiting the use of the Property during certain weeks of the year, reflecting a condition in the original planning permission.

The Appellant occupied the Property throughout the year in breach of the planning condition and in breach of the restrictive covenant.  The Appellant subsequently obtained a Certificate of Existing Lawful Use from the local authority, having occupied the Property continuously since 1998.   He then applied to discharge the restrictive covenant under s.84(1)(a), (aa) and (c) of the Law of Property Act 1925.  During the hearing before the Upper Tribunal, the Respondent accepted that daytime use during the restricted periods was not occupation in breach of the covenant and that the covenant should only restrict occupation from 5pm to 10am during the restricted periods.

As a result of this concession, the Appellant accepted that the application based on s.84(1)(a) (obsolescence) had been overtaken, but he continued his application on the remaining bases, including s.84(1)(aa) LPA 1925, i.e. on the basis that it impeded a reasonable user of land.  Under s84(1A), modification is permitted where the Tribunal is satisfied that: (a) the person who is entitled to the benefit of the restriction does not secure any practical benefits of substantial value or advantage from it; or (b) that the restriction is contrary to the public interest.  For the purposes of section 84(1A), consideration also has to be given as to whether money is adequate compensation for the loss or disadvantage to the beneficiary as a result of the modification of the restriction.

In support of their contention that the restriction did not secure any practical benefits of substantial value or advantage to the Respondent, the Appellant claimed that the character of the estate had changed because returns from holiday lettings were becoming increasingly poor and about ten other units there and on a neighbouring estate were occupied by their owners throughout the year.  The Respondent management company argued that, whilst the discharge of the covenant for just one property would make little overall difference, it was the "thin edge of the wedge” which "would undoubtedly lead to an avalanche of further applications". In that event, there would be little the Respondent could do to prevent the estate potentially becoming a housing estate, losing the peaceful nature of the site and changing its whole character.

First instance

The application to discharge the restrictive covenant was dismissed at first instance.  The Upper Tribunal (Lands Chamber) (“the Tribunal”) concluded that there was no obsolescence to justify an application under s.84(1)(a) since the evidence did not show that there had been any change in the character of the neighbourhood.  The site had remained a peaceful holiday park, the nature of which would alter very much for the worse if it eventually became a standard residential estate with full-time occupation of many more of the units.

In relation to s.84(1)(aa), the Tribunal accepted that residential occupation of a residential property was reasonable user and that the covenant impeded such use. However, the real issue was whether the discharge of the restriction would set a precedent and thus deprive the other bungalow owners of a practical benefit of substantial value or advantage to them.  The Tribunal considered that “whilst there would be unlikely to be an instant effect upon the overall character of the site, the implications of there potentially being a large number of people wanting to follow the applicant’s lead are severe”. 

The Tribunal was satisfied that the Respondent’s ability to prevent the Appellant’s proposed full time use of his property constituted a practical benefit of substantial value or advantage since the discharge of the covenant would be the thin edge of the wedge leading to a change in the character of the site.  It dismissed the application made under s.84(1(aa) and the claim based on s.84(1)( c) was therefore also bound to fail.

The Appellant appealed the decision on the basis that the Tribunal had misunderstood the planning position which could be used to protect the character of the site from the majority of the holiday home owners.  In consequence, it was argued that the Tribunal misdirected itself and its order should be set aside.

Issues

Whether the Tribunal misdirected itself or whether in fact the discharge of the restrictive covenant would be the ‘thin edge of the wedge’ which would lead to a change in the character of the development as a whole.

Decision on appeal

The Court of Appeal rejected the appeal and disagreed that the Tribunal had misdirected itself. The Tribunal had concluded that the existence of the covenant secured a practical benefit of substantial value or advantage for the Respondent, contrary to the requirements of s. 84(1)(aa) and s.84(1A) of the 1925 Act.  The Court saw no reason to interfere with this conclusion since the “thin edge of the wedge” was made up not just of the few bungalow owners in the same position as the Appellant but also of those who would seek to do as he had done and purchasers from those who decided to sell in consequence. The Court found that the Tribunal had analysed the position carefully and there was no basis on which its order could be set aside.


This article was written by Emma Humphreys, for more information please contact Emma on +44 (0)20 7203 5326 or emma.humphreys@crsblaw.com

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