How restrictive covenants affect land use

How restrictive covenants affect land use

Contents

A restrictive covenant is a private agreement between land owners where one party will restrict the use of its land in some way for the benefit of another's land. Restrictive covenants, once agreed between the parties, are placed in the title deeds to the property. They bind the land and not the parties personally. In other words, the restrictive covenant 'runs with the land'. This means that the covenant continues even when the original parties to the covenant sell the land on to other people. Restrictive covenants also continue to have effect even though they were made many years ago and appear to be obsolete. They are enforceable by one landowner against another, provided they are restrictive or 'negative' in their effect and effectively allow a form of private planning control.

An example of restrictive covenants on a housing development are deed restrictions that protect property values by preventing any deviation of the appearance of units within the development from a standard. Frequently, restrictive covenants will also control some of the activities that take place within the boundaries of the properties they apply to.

A restrictive covenant can be enforced by the courts if a beneficiary of the covenant objects. The agreement is enforced by granting an injunction forbidding the landowner to break the agreement. The Lands Tribunal has powers under section 86 of the Law of Property Act 1925 or Article 5 of the Property (Northern Ireland) Order 1978 to dissolve or relax covenants that appear to be out of date or unreasonable. To insure against the risk will generally be the option, but cover may not always be available

A person who is affected by a restrictive covenant has two options to protect themselves against any action for breaching it:

  • Obtaining insurance cover, known as 'indemnity insurance', in respect of any attempt to enforce the covenant
  • Seeking a declaration from the Lands Tribunal that the covenant is invalid

It will generally be cheaper and quicker to insure against the risk of action for breach than seeking a declaration from the Lands Tribunal, but cover may not always be available where the beneficiaries of the covenant may have notice of a breach or planned breach.

Refusing a neighbour's building request

Where there is a restrictive covenant not to build on certain land, if the owner of the land wishes to build, they must obtain permission from the person having the benefit of the restrictive covenant.

Ignoring a restrictive covenant

If you choose to ignore a restrictive covenant, you could potentially face a claim in damages for the breach in addition to any injunctions granted. There are two types of damages that can be awarded:

  • Compensatory damages to reflect the diminution in the value of the benefited land by reason of the breach
  • Damages awarded in lieu of an injunction

The court may take into account what the parties would have negotiated for the release of the covenant and whether or not the claimant may have tacitly acquiesced to the breach by failing to prevent breach while having knowledge of it.

Discharge and modification of restrictive covenants

Making an application

Under Section 84 of the Law of Property Act 1925 or Article 5 of the Property (Northern Ireland) Order 1978, a person interested in certain types of land can apply to the Lands Tribunal to have any restriction on that land cancelled or modified.

Even if the applicant succeeds in discharging (the technical term for cancelling) or modifying a covenant, they will not get their costs from any objectors. This is because the applicant is seeking an indulgence from the Tribunal to release them from an otherwise binding obligation. In addition, if the application fails, the successful objector will usually get an award of costs.

The Tribunal may discharge or modify the restriction if it is satisfied that one or more of the requirements for discharge are present. The requirements for discharge are:

  • The restriction ought to be deemed obsolete because of changes in the character of the property or the neighbourhood, or there are other circumstances of the case which the Tribunal may deem material. Alternatively, the continued existence of those circumstances would restrict the reasonable use of the land for public or private purposes without any practical benefit to other persons; or
  • The persons entitled to benefit from the restriction have agreed to the discharge or modification; or
  • The proposed discharge or modification will not affect the persons entitled to the benefit of the restriction:

What must be in the application

An application to discharge or modify a restriction must contain all the information set out in the Lands Tribunal Rules 1996 or the Lands Tribunal Rules (Northern Ireland) 1978 as amended, including an identification of the land which is subject to the restriction, and the land which has or may have the benefit of the restriction. The identity of any person known or believed to have the benefit of the restriction must also be set out in the application. The grounds for discharge or modification must be stated. It is very important to clearly state the reasons why the applicant believes that any ground applies.

Plans which identify both areas of land must be included with the application together with a copy of the document which created the restriction, including a coloured copy of any plan mentioned in that document.

The Tribunal does not have jurisdiction to modify or discharge any covenant that is positive in character. Positive covenants require the person subject to them to do something, usually involving the expenditure of money. Applications should not include such covenants. Any application that includes positive covenants cannot proceed until the applicant has submitted an amended application with the positive covenants removed.

Publication of notices

When the Registrar receives the application, it determines what notices of the application must be given to people who appear to be entitled to the benefit of the restriction. The applicant is directed to give personal notices to anyone who can be identified by name and address, and notice by advertisement in respect of all others. The notices set out the substance of the application and require those who claim to be entitled to the benefit of the restriction and who object to the application to notify the Registrar of their objection.

Notice of objection and admission of objectors

Notice of objection and any claim for compensation must be given in writing to the Registrar within 28 days of the notice of the application. The objector is required to state why he/she claims to be entitled to the benefit of the restriction and why they are objecting. Where entitlement is not clear, a preliminary hearing may be held to decide disputes regarding who is entitled to object to the application.

Unopposed applications

In the case of applications where no objection has been made, or where no one has been admitted or found entitled to oppose the application, the Tribunal may determine the application without a hearing, provided the applicant agrees.

Opposed applications

Where objections have been made and not withdrawn, or where the grounds for the application have not been clearly established, an oral hearing will usually be held in order to decide the application.

Compensation for discharge

The Tribunal may require compensation to be paid to a person who might suffer from the discharge or modification of a restrictive covenant. The sum is either to make up for any loss or disadvantage suffered as a consequence of the discharge or modification, or to make up for any reduced price for the land received when the restriction was imposed. An objector to an application may be entitled to one or the other, not both.

Court declarations

You can apply to the court for a declaration to determine:

  • Whether or not a restriction does, or may in certain circumstances, exist
  • What the nature of a restriction is and if it is enforceable

This can be useful where there is any uncertainty about the covenant itself or whether or not action may be taken as a result of any breach of a restrictive covenant. A negative declaration can be applied for which would remove any need to apply for indemnity insurance.

County court applications (England and Wales)

It is possible, in certain circumstances, to vary the terms of a property's title or a lease through an application to the county court. This route is available where conversion of the property is prevented by a restrictive covenant AND either of the following applies:

  • Changes in the character of the neighbourhood mean that the property cannot readily be let as a single dwelling-house, but could readily be let if converted into two or more dwelling-houses; or
  • Planning permission has been granted under Part III of the Town and Country Planning Act 1990 for the use of the premises as two or more separate dwelling-houses instead of as a single dwelling-house

County court or high court applications (Northern Ireland)

It is possible to apply to the High Court and, in certain circumstances, to the county court in order to establish or enforce a restrictive covenant. The court may do one of the following things:

  • Make an order to modify or extinguish any restrictive covenant, on any ground, on any terms that the Lands Tribunal would have under Article 5
  • Refuse to make an order where the owner's interest is not materially affected by the breach (if any), or where for some other reason it would be unjust to make one
  • Make an order for specific performance of the obligation if the covenant consists of a positive obligation

Scotland - Real burdens

The concept of restrictive covenants does not exist in this sense within the Scottish legal system. The Scottish equivalent is a real burden, which is a type of title condition.

A real burden is an obligation on an owner of land (the owner of the 'burdened property') either to do something or to avoid doing something, for example not to build an extension. It will be enforceable by the owners of 'benefited properties' and the presence of a real burden can sometimes, but not always, be found by an examination of one's title deeds. The law here is very complex and legal advice should be sought when determining whether a real burden exists.

Real burdens come in a variety of types, but are most commonly found in cases of plot subdivision or as 'community real burdens' where a developer has bought a large plot of land, built an estate on it, and then sold off the individual plots. Real burdens can be extinguished in a number of ways, including

  • By agreement
  • By the Lands Tribunal of Scotland
  • By breach – if a) the owners of any benefited properties acquiesce by not objecting, or b) no-one has an interest to enforce the burden, or c) a number of years pass – this is called 'prescription'.

Real burdens can be difficult to enforce. The main problem is that, while they are required to be registered on the title of the property which is burdened, there is no requirement for them to be registered on the title of the property benefiting. This means that a person can hold enforcement rights without realising it, and so will not take the necessary steps if the burdens come to be breached. There is a notification procedure if one wishes to get the agreement of one's neighbours to breach a community real burden. This involves notifying all the owners of properties within a given area of one's intentions.