Don’t fear the restrictive covenant

Simply put, a restrictive covenant is an agreement on a property that prevents the current freehold owner – or in leases or tenancy agreements, the lessee or tenant – from doing something with the property, either completely or without the prior consent of the landlord or a former freehold owner. And these restrictive covenants can work both in the favour of a registered social landlord and against it.

Public sector landlords like them because they can be used for good estate management (for instance, unblocking access ways) and as weapons against antisocial behaviour such as noise or harassment. But the boot is on the other foot when restrictive covenants stop RSLs from being able to develop land bought for the purpose.

A landlord may spend a lot of time and money locating and investigating a site, only to find Nimbys blocking any building with covenants. Such an order may only permit private dwellings; it may prohibit use for business or as a hostel, a refuge or even for general needs social housing.

Nor are neighbours the only problem. The explosion in demand for housing, both private and social, means those who “own” the restrictive covenants can demand a sizeable ransom for release.

Good news
So the recent Court of Appeal case Crest Nicholson v McAllister (1 April 2004) is good news for social housing providers.

Crest wanted to develop a site assembled from the gardens of houses built in the 1930s, but faced covenants from that time, which required approval of plans by the 1930s developer – who was of course untraceable – and limited building to one house per plot.

The first step that any person threatening to enforce a covenant has to take is to prove they are entitled to the benefit of the restrictive covenant. In the absence of such proof, any questions of whether the project site is burdened with covenants; whether the project would be in breach of the precise wording of these covenants; whether there had been a similar development constructed on neighbouring land that was subject to the same covenants … are all irrelevant.

Before the Crest case, it was thought that where the covenants were imposed on land after 1925 the question of whether a neighbouring landowner had a restrictive covenant could be ascertained from the document imposing the covenant – but if that was not clear, external evidence could be brought in to prove the benefit.

Crest changed that. The details must now be clearly identified in the imposing document and no other evidence is permissible. In practice, though, the sale document containing the covenant often fails. It may refer to plans that don’t show the extent of the land covered by the arrangement or the wording of the covenant may be vague.

Nimbys can use restrictive covenants to try to block development, or those who ‘own’ the covenants can demand a sizeable ransom for release

The Court of Appeal also said that where the covenant was to apply to land or any parts of the land “for the time being remaining unsold”, it would not pertain to that “unsold” land (usually plots for houses yet to be built) when it was later sold.

After Crest, it was also decided that where the covenants required approval of plans by a defunct body or by untraceable persons the covenant itself was defunct.

Practical steps
The Court of Appeal’s approach was extremely practical. The requirement that the conveyance itself must identify the land avoids costs and delays of proceedings where evidence would have to be called to try to prove or disprove the benefit to the land.

The point about unsold parts not benefiting means that the line is drawn at the time of the conveyance imposing the covenant. The Court of Appeal suggested that the wording show that the intent was that application should be personal to the seller, not subsequent houseowners on the unsold parts of the site. The court seemed to say that, as approval of plans by the original seller was also more like a personal covenant with the original seller, logically it should expire with the original seller.

Where there are clearly enforceable covenants and the development would be in breach, application can be made to the Land Tribunal for a further covenant to permit the development – the grounds being that it impedes the reasonable use of the land, does not give any practical benefit to the people “owning” the covenant or is contrary to the public interest.

The Crest case will have the most impact on suburban estates built between the 1920s and the 1960s (and possibly also later) where the covenant imposing the conveyance may well be defective in identifying the land, or in its wording, and where the developer company has long been dissolved.

For neighbours who do not want to see more development on their estate it is bad news; but for RSLs trying to find a site for an ex-offenders hostel, it is to be welcomed.