A positive planning decision for a proposed development can support an application to discharge or modify restrictive covenants. It will not, however, be decisive. The applicant still needs to satisfy one of the grounds set out in section 84 of the Law of Property Act 1925.
In Great Jackson Street Estate Ltd v Manchester City Council , the developer’s application to modify certain restrictive covenants contained in its lease was refused, even though the local planning authority had resolved to grant planning permission for the proposed development of a site in Manchester. The tribunal refused the application on all the grounds relied on, meaning that the development cannot proceed as proposed.
The developer had (and still has) a lease of two warehouses that it wanted to demolish and replace with two 56-storey tower blocks.
Its landlord was (and still is) Manchester City Council. The Council was also the local planning authority and had, in this capacity, resolved to grant planning permission.
The lease contained restrictive covenants that prevented redevelopment without the landlord’s consent. The landlord was prepared to give consent, but only on terms the developer considered unacceptable.
The developer applied to the tribunal to modify the restrictive covenants in its lease, to enable the redevelopment to be carried out without the landlord’s consent.
Application to the tribunal
The developer applied to modify the covenants on three grounds:
- The restrictions were obsolete.
- The covenants impeded some reasonable use of land (ie the proposed redevelopment), and did not confer a practical benefit to the landlord.
- The modification would not injure the Council.
The tribunal refused the developer’s application, deciding that:
- The restrictions were not obsolete. The covenants allowed the Council to control the use of the site, including ensuring that development commenced in a timely fashion and was not left unfinished. This purpose could still be fulfilled.
- Although the proposed redevelopment was a reasonable use of the land, and the restrictions impeded that proposed use, the restrictions didsecure a practical benefit of substantial advantage to the Council by allowing it control over the site. The restrictions allowed it to influence the form of the development and mitigate the risk that the site might not be developed in a timely way.
- Modifying the covenants would cause injury, because the Council would lose the practical control that it currently enjoyed over the redevelopment of the site.
The case provides a helpful reminder that, although such applications often involve restrictive covenants over freehold land, the tribunal also has the power to discharge or modify restrictions contained in leases granted for a term of 40 years or more where 25 years of that term has expired.
It is also interesting because the Council acted in two separate roles. The fact it had, as the local planning authority, resolved to grant planning permission did not mean that it could not, as a landlord, still use its private rights under the lease to control how any redevelopment was carried out.
Having failed to modify the covenants through the tribunal, the developer will only be able to proceed with the redevelopment if it can negotiate a commercial agreement with the Council.