What are restrictive covenants and how do they relate to the planning system?

Restrictive covenants on use can be one of the more problematic aspects of a property transaction. Even if the restrictive covenants do not affect one’s development plans for the land, they may be an issue for subsequent buyers or future lenders.

A restrictive covenant is a restriction binding (‘burdening’) one piece of land for the benefit of another piece of land, typically contained in an agreement entered into between two property owners. There are various restrictive covenants encountered in practice, most commonly they cover areas such as:

• Restrictions on use of the land (e.g. no commercial use with only residential housing allowed);
• Restrictions on type of the development allowed on the land (e.g. only a certain number of residential houses of a particular type or appearance); or
• Prohibition of a particular type of trade (e.g. no hairdressers business allowed).

In contrast, the planning permission is a statutory procedure overseen by local authorities to ensure that any property development is carried out in accordance with the local and national planning policies. The restrictive covenants and the planning permission are two separate systems, and it is entirely feasible to be able to obtain a planning permission for a development of land which would be in breach of the restrictive covenants affecting that land. The local authority will not be concerned with any covenants attached to the land. As we can see below, however, in certain circumstances a planning permission can be of significance when trying to resolve a restrictive covenants issue.

Why can restrictive covenants be so problematic?

Amongst a few other requirements, a restrictive covenant must ‘run with’ or ‘attach’ to the land to be enforceable.

One of the most common ways of ‘attaching’ a covenant to the land is annexation which is achieved by using prescribed wording such as expressing that the covenant is for “for the benefit of each and every part of the land” and for the benefit of the original party and “his successors in title and assigns”. If parts of the land have been subsequently sold, the covenants would have attached to every part of the original piece of land allowing for them to be enforced against the future owners of each piece of the divided land.

If the land is registered, the covenants should be protected by notice on the title register of the burdened property. However, the problematic part is that the benefit of the covenant does not normally appear on the benefiting registered title. Occasionally, an entry may appear on the title register of the benefiting land declaring that a covenant is “expressed to be for the benefit” of the land, however, it is not a common occurrence. As such, tracking down the parties who have the benefit of the covenant can be tricky, particularly if the benefitting land was originally part of a larger estate which was subsequently sold in parts.

How can the issue of restrictive covenants affecting the property be addressed?

Whether the covenants are enforceable is a complex issue and often there may not be a definitive answer. If the buyer needs certainty as to whether the covenants can be resolved, they may consider one of the following options:

• approaching the party with the benefit of the restrictive covenant for an express release, which can be done by way of a deed between the two parties. It is important to make sure that the deed releases the covenants effectively and is entered into with all the benefiting parties (to ensure a full release). The difficulty arises if the benefiting parties cannot be easily identified or tracked in which case the express release may only amount to a partial release; or
• Further options involve application to the to the Upper Tribunal (Lands Chamber) for discharge or modification of the restrictive covenants, or application for a court declaration that the covenant in question is no longer enforceable. One of the grounds for discharge of the covenants frequently sought is finding the covenant in question obsolete due to factors such as the property being used in breach of covenant for a number of years or changes to the neighbouring area rendering the covenant purposeless. Both routes, however, involve a long consideration process which can also be expensive.
• obtaining indemnity insurance cover against enforcement. If available, then this could be the preferred option for a potential buyer or tenant, as it often a quicker and cheaper alternative, even though the problem still persists. The policy would cover the owner of the burdened property and often the future owners, against the risk of the party with benefit of the covenant seeking to enforce it.

When considering which course of action to pursue, the first two may jeopardise the possibility of obtaining an indemnity insurance.

What about a planning permission?

As mentioned above applying for modification or discharge of a restrictive covenants can be a lengthy expensive process; however, in the circumstances where an express release or indemnity insurance cover is not possible, an application to the Upper Tribunal (Lands Chamber) may be an option to consider.

When reviewing the case the Upper Tribunal, amongst other factors, is obliged to consider any development plans and planning permissions being granted or refused in the relevant area. Derreb Ltd v Blackheath Cator Estate Residents Ltd and others [2017] UKUT 209 (LC) is one of the reported cases involving covenants which restricted the use of land to a sports ground or detached residential houses. It was understood that in light of the housing shortages, a development of detached houses only would not be granted a planning permission by the local authority. This factor together with a range of other considerations led the Tribunal to amend the restrictive covenants affecting the property with some of the rationale being stated as follows:

“We accept Mr Collins’ analysis of the relevant planning considerations so far as concerns the question of whether there is any real prospect that a planning permission might be granted for development of the Huntsman by the building of solely detached houses. […] We find that there is no prospect of planning permission being granted for the development of the Huntsman for solely detached houses – i.e. a development strictly as contemplated by the restrictive covenant.”

Securing a planning permission may also be of assistance during the process of obtaining indemnity insurance cover. Insurers often require an applicant to obtain planning permission before providing cover and closely look at any objections raised by the local authority.

In conclusion, as set out above a planning permission and restrictive covenants are part of two separate systems. When planning for a development of land one needs to obtain an appropriate planning permission but also investigate whether there are any covenants that could hinder the plans. However, there is a degree of overlap where securing a planning permission may be of assistance in modifying or discharging the covenant affecting the property or could assist in obtaining indemnity insurance cover to protect one from the risk of restrictive covenant enforcement.

If you need any advice, please do not hesitate to contact a member of the Commercial Real Estate team.