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Lawbite: Compensation and Modification of Restrictive Covenants

  • United Kingdom
  • Litigation and dispute management
  • Real estate
  • Real estate litigation - LawBite

04-08-2020

Neil Sheppard v (1) Martin Grant Holdings LTD (2) Roger Turner [2020] UKUT 171 (LC)

The Upper Tribunal (UT) has recently looked at the compensation payable upon modification of a restrictive covenant. 

The applicant had obtained planning permission to demolish the garage on his property and build a two storey house in its place. To proceed he sought modification of restrictions on the title contained in the original 1985 transfer from the developer to the first owner of the property.  The restrictions prevented him from erecting; (1) any structure other an dwelling-house garage and (2) any structure that exceeded 900 millimetres in height.

Negotiations with MGH as the party entitled to the benefit of the covenant as to an appropriate “release fee” were unsuccessful and an application was made to the UT for modification under s.84 of the Law of Property Act 1925 (the “1925 Act”).

At the hearing MGH conceded that the value of its retained land would not be affected by the modification of the restrictions. It was only the holding company for the assets of the original developer of the estate on which the property was based and had a limited interest in the estate by the time of the hearing.  Therefore, ground (c) of section 84(1) of 1925 Act was made out, (i.e. that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction), and it was held that the application was successful on this ground. 

The single issue between the parties then was the amount of compensation that was payable to MGH. As the modification of the restriction would not cause injury to MGH’s land, it was appropriate to assess the compensation under the less frequently used s. 84(1)(ii).  This compensation is based on what is an appropriate sum to ‘make up for’ any effect that the restriction had at the time of purchase in reducing the price received by the original developer. MGH had, in negotiations, sought over £34,000 but by the date of the hearing could only support with evidence a claim for just under £10,000.  The applicant claimed that £4,000 would be satisfactory and the UT agreed.

Key points

  • This case highlights that there may be questions about the exercise of the Tribunal’s discretion to award a sum under this sub-paragraph where the land benefitting from the covenant has also changed hands since it was imposed.
  • Parties should be trying to resolve disputes by ADR where possible. The UT was disappointed that the matter had not been resolved by that means; the parameters of the dispute were very close at the time of the hearing (£4,000 from the applicant and £9,897 from MGH). It’s possible that MGH may face cost consequences which could exceed the difference between the two offers.