Finding a restrictive covenant which appears to prevent or limit building on a potential development site is a common situation. The usual solution is to take out indemnity insurance without even investigating whether the covenant is enforceable. This is often the most cost effective way to deal with the problem, particularly if the covenant is old and nobody knows who has the benefit.
However what happens if an objector claims the benefit of the covenant? Insurance is unlikely to be available and negotiating a release can be expensive and unpredictable.
A recent case in the Upper Tribunal (Lands Chamber) is a good reminder that it might well be worth considering applying to the Tribunal for a modification of the covenant rather than walking away from the site or paying out a large release fee.
The facts of Hennessy v Kent  UKUT 243 (LC) were unusual but the decision was an example of how s84 (1) of the Law of Property Act 1925 can be used to overcome a covenant problem. In this case, a former large house had been nearly destroyed by fire. The site of the house was subject to a restrictive covenant which prevented more than one house being built and also required approval of plans. Planning permission for three new dwellings on the land was obtained. Building these houses would have been in clear breach of the restriction.
Mr Kent, who had the benefit of the covenant, objected to the scheme. One of the joint owners, Mrs Hennessey, decided to apply for a modification of the covenant under s 84 (1) (aa) and (c). The former allows a modification of a covenant if:
- The restriction impedes some reasonable use
- the restrictions secure practical benefits of substantial value or advantage
- money would adequately compensate the objector for the loss of practical benefits; and
- the Tribunal considers it should modify the covenants
The Tribunal found that the use of the site to build 3 dwellings was reasonable given its location and the fact that planning permission had been granted. It was accepted that Mr Kent would suffer some injury if the development was built but this loss could be compensated by a payment assessed at £21,000.
A modification of the restrictive covenant was ordered to allow three dwellings to be constructed, provided the use of the replacement dwelling was limited to a private residence and not a residential care home.
Whilst a modification order is certainly not guaranteed where planning permission has been granted, if the impact of a development on the objector is small it is certainly worth considering an application to the Tribunal in these circumstances.