Unrestricted development

With the modern pressure on the availability of land for new housing, particularly in the London area and the surrounding home counties, it is becoming increasingly common for sites which were once occupied by a single large house and substantial gardens to be replaced by far more intensive multi-occupied development, whether by a number of smaller houses or, more often, by flats or apartment blocks.

Familiarity with this process can lead to developers overlooking the fact that there may be restrictive covenants imposed when the original house was built which, while they remain in place, could stifle the proposed development.

Particularly in the case of older property where such restrictions were put in place many years previously, and where there has been subsequent conversion or rebuilding work in respect of that or other affected properties apparently without objection, it is all too easy to assume that the restrictions are for practical purposes obsolete and can be ignored. However, while it may often be the case that old covenants are unlikely to be of any continuing application, ignoring them could be a risky strategy. There will be circumstances in which restrictions, of whatever age, continue to fulfill a purpose and do protect the interests of other local landowners, who are ready and willing to enforce those restrictions.

Although there is a statutory mechanism under s84 of the Law of Property Act 1925 (LPA 1925) enabling an application for modification or discharge of restrictive covenants '“ and which, if successful, should enable the development to proceed safe from any later objection '“ securing the release of the property from such restrictions can prove to be problematic.

Statutory modification or discharge under s84 LPA 1925

Section 84 of the LPA 1925 allows any person interested in the freehold (or in the leasehold for a term in excess of forty years where at least 25 years has expired) of property affected by a restrictive covenant to apply to the Lands Tribunal for an order discharging or modifying the covenant, subject to establishing one of a number of specified grounds, including:

• changed circumstances rendering the restriction obsolete;
• discharge or modification will not injure those with the benefit of the restriction;
• express or implied agreement to the discharge or modification;
• reasonable use of the property being impeded in circumstances where:

'“ there is no continuing practical benefit from the restriction; or

'“ it is contrary to the public interest, and in either case where the disadvantage arising from the discharge or modification can be adequately compensated by money.

The Housing Act provision

While the s84 mechanism may be fairly well-known (and well-used), developers may be unaware of a further statutory mechanism which could prove to be particularly helpful in overcoming such covenants, where planning permission has been obtained for the conversion of a single dwelling house into two or more separate dwellings.

The little known statutory provision in s610(1)(b) of the Housing Act 1985 (see box) enables a developer who has secured planning permission for the conversion of a single dwelling house into two or more separate dwellings, but who is prevented from carrying out the conversion by reason of a restrictive covenant against use as multiple units, to apply for a court order to vary such covenant to enable the conversion to proceed. The court has a discretion to order variations on terms and conditions that it considers are just.

Lawntown case

How the court's discretion may be exercised and '“ of particular (and topical) interest '“ the extent to which the court may be influenced by current government housing policy in coming to its decision, is illustrated by the recent Court of Appeal decision in Lawntown Ltd v Camenzuli [2007] EWCA Civ 949.

The Lawntown case concerned proposals by a developer to convert one of a pair of semi-detached houses in London into two self-contained flats, to which the owners of the adjoining house objected, on the basis that this would breach restrictive covenants which prohibited the conversion of the house into maisonettes or flats.

Having secured planning permission for the conversion, the developer lodged an application under s610 with the county court for the covenants to be varied to allow the proposed conversion to proceed. In conducting the required balancing exercise between the interests of the competing parties, the judge at first instance weighed up various factors but took the view that he should not have regard to matters already considered by the planning authority. He allowed the application, indicating that the crucial factor tipping the scales in favour of the developer was the acute pressure on housing, particularly in London. That decision was appealed to the Court of Appeal.

Exercise of the court's discretion: balancing competing interests

The Court of Appeal held that in exercising such powers, the court's discretion was broad but not unfettered. It should be exercised with due regard to the statutory purpose, including the underlying policy for the provision of more homes in the light of the housing shortage and changes in patterns of family living.

Section 610 of the 1985 Act did not give rise to a presumption in favour of variation and the court was required to take account of all relevant factors, balancing the competing interests of the objectors and the applicant, and also considering the public interest. In doing so, the court should make its own assessment of the relevant factors and the weight to be attributed to them and this should not preclude a consideration of such matters merely because they had already been considered by the local planning authority in the context of the planning application.

Factors for and against

In the present case, in carrying out this balancing exercise, there were a number of factors (some more significant than others) weighing against making the variation to allow the conversion to proceed, including:

• external appearance and visual amenity;
• higher occupational density and increased noise;
• the impact of varying the covenant on the integrity of the scheme of the covenants;
• the preservation of the character of the neighbourhood;
• setting a precedent '“ the likelihood that this could make it easier for similar subsequent applications for variation.

However, the court held, on balance, that there were more telling factors in favour of allowing the variation:

• that the freeholder wished to convert its own property;
• that the proposed conversion had been carefully considered by and met the requirements for the grant of planning permission;
• the urgent demand for more housing in London; and
• the clear policy expectation that conversion of premises into smaller units is expected to help meet that demand.

Compensating for lost benefit

The power to vary the covenant 'subject to such conditions and upon such terms as the court may think just' was wide enough to enable the court to order financial compensation for loss of the protection afforded by the covenant. However, while the variation of the covenant inevitably resulted in those protected by it losing some benefit, this was clearly the result envisaged by the statutory provision. Given that there was no cogent evidence that neighbouring property values would be negatively affected by allowing the conversion to proceed, the court held that this was not a case where such compensation was appropriate.

Law and policy

In weighing up all of the relevant factors, the Court of Appeal reached the conclusion that the balance came down 'decisively' in favour of allowing the covenant to be varied. While there were other factors taken into account, it is evident that the court particularly took on board the importance and relevance of the policy issues behind the legislation.

The court singled out the urgent demand for more housing in London as a factor to which 'substantial weight' should be attached. In exercising its discretion under s610, it was in the court's view 'legitimate and appropriate. . . to have regard to the public benefit of meeting the need for additional homes through conversion of existing houses into flats'.

In view of the high target figure for new housing set by the government '“ some three million new homes by 2020 '“ and the lack of suitable available land, especially in London and the south-east of England where demand is greatest, we can perhaps expect to see more applications under these statutory provisions, as an increasing number of large properties that lend themselves to conversion for multiple occupation are sold off for redevelopment.