The Upper Tribunal (Lands Chamber) (the "Tribunal") has recently provided guidance on modifying restrictive covenants under section 84(1)(aa) of the Law of Property Act 1925 ("LPA 1925") in the case of Re O'Byrne's Application  UKUT 395 (LC).
Modification of restrictive covenants
Under section 84(1)(aa) LPA 1925, an owner of land subject to a restrictive covenant may apply to the Tribunal to discharge or modify that covenant. The Tribunal can only do this if it is satisfied that:
- by reason of changes in the character of the property, neighbourhood or other circumstances, the restriction is obsolete (section 84(1)(a)); or
- the continued existence of the restriction would impede a reasonable use of the land (section 84(1)(aa); or
- the party with the benefit of the restriction has agreed (whether explicitly or implicitly) to the modification (section 84(1)(b)); or
- the proposed modification would not cause injury to those with the benefit of the restriction (section 84(1)(c))
Pursuant to Re Bass' Application  4 WLUK 32, the factors in favour of modifying the covenant must outweigh those against modifying the covenant.
Section 84(1)(aa) LPA 1925
If a party seeks to rely on section 84(1)(aa) to alter a restrictive covenant, section 84(1A) LPA 1925 states the Tribunal must also be satisfied the restriction:
- does not secure the persons benefitting from the restriction any practical or substantial advantage; or
- is contrary to the public interest.
In any event, it must also be shown that money will be adequate compensation for the loss or disadvantage suffered by any modification.
Mr and Mrs O'Byrne purchased the property known as Tubney Manor Farm ("TMF") from Magdalen College, Oxford (the "College") in 2001 for £600,000. TMF consisted of, among other things, a farmhouse and two barns.
When purchasing TMF, the O'Byrnes agreed to a restrictive covenant in the transfer which prohibited TMF being used as more than a single private dwelling. TMF was also granted a right of way over the College's access road to the highway; however this was limited to "permitted uses" which included, among other things, the use of TMF as a single private dwelling. At around the same time, other parcels of land were sold by the College to third parties subject to restrictive covenants of a similar nature.
In late 2015, the O'Byrnes wanted to convert TMF into two dwellings by altering the two barns to a separate dwelling. This would allow the O'Byrnes to sell the farmhouse and relocate to the amalgamated barns as their home. Shortly after being granted planning permission, the O'Byrnes approached the College to purchase an additional parcel of land; this led to negotiations which broke down. The O'Byrnes subsequently applied to modify the restrictive covenant under section 84(1)(aa) to permit TMF to be used for two private dwellings. The College objected.
The College objected on several grounds, however its primary argument was that the adjoining access road also prohibited the use of TMF as two private dwellings. In short, the College argued the presence of a second impediment was fatal to the O'Byrne's application under section 84(1)(aa) LPA 1925. In addition, while it was common ground the proposed development was reasonable, and that the covenants impeded the development, the College also argued the covenant was of substantial practical value to the College.
There were two key issues before the Tribunal:
- Did the limits on the right of way impede the O'Byrne's application to modify the covenants?
- Were the covenants of a substantial practical value to the College?
Right of way
The Tribunal held there was nothing in section 84 LPA 1925 which stated or implied that a covenant had to be the sole, or even main, impediment to use of the land. While the restrictions on the right of way might be a relevant factor in deciding the outcome of the application, they did not prevent the Tribunal considering the application altogether.
In addition, the Tribunal held the case of Hotchkin v. McDonald  EWCA Civ meant that, as a matter of construction, any modification to the restrictive covenant would also apply to the right of way as any other outcome would make no legal or practical sense in the circumstances.
The Tribunal agreed with the College that the covenants provided some practical benefits to the College, but disagreed these were substantial either individually or cumulatively. For example, while the Tribunal agreed there would be additional traffic on the access road it held any disturbance would be minimal.
One key concern raised by the College was that the O'Byrne's application would set a precedent and result in further applications in respect of both TMF and other neighbouring land which would ultimately harm the College's future development plans. The Tribunal held this risk had been overstated as, among other things, the risk of such harm was small and each application would be considered on its merits and in light of any previous modifications granted by the Tribunal.
The Tribunal granted the O'Byrne's application to modify the restrictive covenant. The O'Byrnes were required to pay the College £60,000 as compensation on the basis the O'Byrnes would have paid 10 per cent more for TMF if the restrictive covenant had permitted two dwellings.
While only a decision of the Upper Tribunal, this case is important guidance to both developers and landowners considering applications to modify a covenant on the basis of a change of use. It is worth noting this application dealt with a relatively minor development and therefore caution should be taken before assuming this case will apply to any application under section 84(1)(aa).
Notwithstanding this, for landowners with the benefit of such covenants this decision, and in particular the Tribunal's decision to apply Hotchkin, will be unwelcome news. The College had applied restrictions to a right of way to provide additional protection for the restrictive covenant, however ultimately saw both modified as a result of the O'Byrne's application. As the Tribunal has confirmed it will likely modify any other relevant restrictions, the extent to which these additional measures can reinforce a covenant appear to be limited.
For developers or landowners subject to these covenants, this decision may present an alternative strategy for negotiating a wider modification over other rights or restrictions which will impede a development. If negotiations appear to be stalling, it may be quicker and cheaper to pursue a modification of the restrictive covenant (and any other related restrictions) if it can be shown the impact of that development will be limited. It should be noted, however, that any modification to a related easement is likely to be limited to the extent of any modification of the restrictive covenant.
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