Loosening the restrictions

Sadiq Khan’s call at the end of October for a dramatic rise in construction of non-luxury housing for ordinary families will have caught the attention of many developers. Khan is looking for a new strategy to focus on building more homes in outer London, which will include a presumption in favour of development on small sites in suburban town centres and greater powers from government to force unused sites, including public land, into use for housing. Nimbys may also have recognised that their powers of deterrence will be curtailed. Despite this encouragement, developers will be well aware that planning policy is not their only obstacle and restrictive covenants can be at least as formidable. This article is not intended to revisit or reflect on the land law applicable to the burdens of covenants, complex as it undoubtedly is. Instead, the focus is on the particular type of covenant that is all too familiar and widespread in outer London garden suburbs – namely, the restriction of use to a single private dwelling house. The conventional options to address such covenants, where a developer has or expects planning permission for multi-unit residential schemes, are: (i) indemnity insurance; and (ii) an application to the Upper Tribunal (Lands Chamber) (UT) for modification. (This assumes that consensual release by the party potentially having the benefit of the covenant is not available – or not available on sensible terms.) Considering each in turn, it is worth re-examining their application and what can be expected by way of outcome in the light of current practice and procedure. Indemnity insurance It is increasingly becoming apparent that objections to planning applications can mushroom, with social media enabling a single nimby to galvanise neighbours to make the minimum effort of clicking on a pro forma objection letter so that hundreds or even thousands of responses have to be processed by the planning authorities. Traditionally, potential insurers take note of the volume and vehemence of objections and any mention of reliance on a restrictive covenant signals a rejection or a property being excluded. This approach is becoming unhelpful as these modern types of protests (in volume and content) cease to bear much relationship to any genuine objection and the likelihood of any covenant benefit entitlement actually being pursued. Unfortunately, for now and until insurers recalibrate, there is little option but to shop around with insurers, as their approaches and considerations vary widely. It can definitely help to accompany an application with a positive counsel’s opinion, and time spent supplying counsel with researched detail on the neighbourhood is well worthwhile. Insurers appreciate specialist opinions on remedies, should a covenant be enforceable, including the scope for injunctive relief, if claimed, and the basis and quantum of damages. This can result in the grant, rather than refusal, of a policy – one with a higher premium and higher excess, perhaps, but a policy nonetheless, which is critical to development funders. The more developers are willing to take on restrictive covenants rather than avoid them because they expect defeat, the more collective experience can work to shift these not-fit-for-purpose restrictive covenant obstacles, and the more desperately needed housing development can be built to benefit all. Tribunal modification The rule of thumb for an application to the UT is: the greater the number of potential beneficiaries, the more involved and cumbersome the procedure will be – which translates into time and costs. The criteria that the UT considers are: What is the loss of amenity that a neighbour’s land would suffer in practice? Clearly, the further away the neighbour’s land lies, the lower the impact and, consequently, loss. Has there been a material change in the character of the neighbourhood such that the original covenant is as good as obsolete? Is the proposed use reasonable and monetary compensation appropriate? Is there any benefit for a neighbour’s land in seeking to enforce a covenant? Detailed legal analysis of the actual wording of the restrictive covenant, combined with historical local plans and Land Registry titles, can often signal much-reduced scope of enforceability than may initially appear to be the case. Such due diligence can certainly make the difference between pursuing a development and abandoning it. The government and its housing policies may provide support on planning aspects but it is the bold developer who can tackle ill-worded, obsolete and indiscriminately invoked covenants. While social benefit is the province of politics rather than developer incentives, it will be welcome for society generally to curtail historic covenant practices that have outlived their use and needlessly obstruct meeting current and future housing needs. Tessa Naylor is a partner in the commercial real estate team at Seddons