Restrictive covenants are a mechanism which can be used to, amongst other things, prevent and control future development on land. The identification of restrictive covenants is an important part of title due diligence before any property is acquired. In this Top Tip we will look at what steps a developer should take when covenants are identified where the consent of a third party is required to the proposed development.
The first step is to identify all land which has the benefit of the covenant and following on from that, the potential beneficiaries. In some cases, the benefitting land will be readily identifiable but with historic covenants it can be more difficult to ascertain. In cases where the benefitting land cannot be identified, then title indemnity insurance should be worth considering. It is always important to remember that in cases where title indemnity insurance may be required, no third parties should be contacted before the availability of insurance has been investigated as such approaches could lead to a request for insurance being refused.
If the benefitting land, and the beneficiaries, have been identified then it should be considered whether or not the restrictive covenant is still enforceable. The enforceability of covenants is outside the scope of this tip but it is always wise to obtain advice as to the enforceability of covenants as part of the due diligence procedure.
Where it is ascertained that the restrictive covenant is still enforceable, then the wording of the covenant needs to be considered so that application for consent is made in accordance with the terms of the covenant. Does the beneficiary have to act reasonably in considering whether or not they provide consent (a qualified consent) or is it in the beneficiaries sole discretion? Where it is in the beneficiary’s sole discretion then a developer will need to carefully consider the effect of the covenant on their design and the impact upon delivering the development. Where the consent is qualified, the 2022 case of Davies-Gilbert -v- Goacher [2022] EWHC 969 provides that any decision that the beneficiary comes to should be reasonable in the context of the Wednesbury Reasonableness being that the beneficiary acts in good faith and should not act arbitrarily or capriciously. If a developer considers that in refusing consent a beneficiary has not acted in accordance with this, then the developer may apply to Court for a declaration that the consent has been unreasonably withheld. Where consent is required, if contracts are to be exchanged before the consent is obtained, completion could be conditional upon consent in a form acceptable to the developer, being granted.
Where consent is not given, in certain circumstances an application can be made to the Lands Tribunal to have a restrictive covenant modified or released. Alternatively, a direct approach could be made to all known beneficiaries for a release of the covenant, which will often attract a premium. Advice should always be sought before either of these courses of action are taken for a number of reasons, such as the impact on the availability of title indemnity insurance or the breach of terms of any existing title indemnity insurance policy. Consideration should also be given as to whether or not the transaction should be conditional upon this.
The good news is that even where there are restrictive covenants which require consent and on first glance look as though they may prevent development, there are a number of steps which can be taken to look at resolving this and reducing the risk to the developer.
