Using restrictive covenants to secure payments – caution advised
The Upper Tribunal (Lands Chamber) has the discretion to discharge or modify restrictive covenants on specified grounds. The case of Barter Re Ivy House offers an interesting insight into the treatment by the Tribunal of recently imposed covenants.
Mr and Mrs Barter purchased Ivy House from Somerset County Council in 2013 at which time the Council imposed a covenant not to construct an additional residential building in the grounds of the property in order to ensure that the Council would share in the development value should it be developed. The Barters obtained planning permission to construct such a building and, after the Council confirmed that it would be prepared to negotiate the release of the covenant, the Barters offered them £5,000 to do so which was not accepted.
In January 2017, the Barters applied to the Upper Tribunal for the discharge of the covenant on the grounds that “its continued existence would impede some reasonable use of the land” and that “the proposed discharge will not injure the person who benefits from the covenant, subject to that person possibly receiving compensation for the discharge”. The Upper Tribunal held that both grounds were satisfied but declined to exercise its discretion to make an order to discharge the covenant citing the following reasons:
1. In justifying a refusal to discharge a covenant the Tribunal can take into account the proximity of an applicant’s connection to the person who gave the covenant initially and the shortness of time since imposing the covenant. The shortness of time was not a decisive factor.
2. The Barters had not put forward sufficient evidence as to what ought to be an appropriate sum to compensate the Council for losing the benefit of the covenant and the Barters’ offer was improbably low.
The Tribunal noted that the Council had no nearby land (which could benefit from the covenant) other than highway and that it may be the case that highway might not be capable of obtaining a practical benefit from the covenant (which is necessary to obtain a genuine benefit from the covenant thus making it enforceable). It also noted, quite rightly, that the covenant was still very much enforceable as between the Council and the Barters as original contracting parties.
The Barter case is a useful reminder that using covenants to protect development value is not as effective as other methods and that courts will not generally enforce restrictive covenants where the principal intention behind their creation was to obtain a payment in return for releasing the covenant.