Victory for developer as Upper Tribunal modifies restrictive covenant under rarely successful statutory provision

Derreb Ltd v Blackheath Cator Estate Residents Ltd & Ors Re Manor Way [2017] UKUT 209 (LC)

In a recent decision given in September 2017, a developer secured the modification of a restrictive covenant which obstructed plans for a residential development at a private estate in Blackheath. The decision was a rare successful operation of ground (a) of section 84(1) of the Law of Property Act 1925.

What was the dispute about?

The developer, Derreb Ltd, purchased land within the Caton Estate, Blackheath, with a view to developing it from a former sports club known as The Huntsman, into residential use. The Huntsman had not been used as a sports ground since 1999, the pavilion had since been demolished and the grounds were generally overgrown and unused.

However, the land was subject to a deed from 1956, whereby the land was made subject to a covenant that restricted its use to a sports ground, or alternatively for the erection of detached houses for use as private residences only. Derreb’s proposed residential scheme was for the construction a mixture of housing types, which included detached, semi-detached, terraced houses and apartment blocks. The developer therefore sought that the restrictions in the 1956 deed should be discharged or modified.

Derreb contended that there was no prospect either as a matter of planning or market demand that the Huntsman would ever again be actively used as a sports ground. Instead, it contended that the appropriate use was for a residential development, but that planning policy demanded that this should be a mixed development of substantial density and not just detached houses. It referred to the Kidbrooke Development Area supplementary planning document. This provided that the Huntsman was zoned for residential development as an “area for intensification”, which discouraged detached houses.

Whilst at trial Derreb did not yet have planning permission, one expert gave evidence that he had every confidence that it would be granted, as the sole point in discussion with Greenwich Council was the agreement of appropriate terms under an agreement pursuant to section 106 of the Town and Country Planning Act 1990 regarding affordable housing. Conversely, the expert was of the firm conclusion that Greenwich Council would refuse planning permission for the development solely of detached houses as it would be contrary to relevant planning policy. Other witnesses noted that there had been numerous other developments within the Cator estate since 1956 which had not involved solely detached houses and also that it would mainly only be detached houses that would be visible from the objector’s respective properties.

Derreb’s application relied upon two grounds of section 84(1):

• that the covenant was obsolete because the character of the property had changed (ground (a)); and
• that it would impede some reasonable user unless modified (ground (aa)).As matters developed during the hearing, the objectors each accepted that the application would not be refused outright and that Derreb should not be prevented from carrying out the proposed scheme. Derreb, for their part, was amenable to the imposition of conditions to address certain concerns. The Tribunal therefore gave consideration to how to achieve the desired result for Derreb under section 84 but accommodate the objectors by way of imposing further conditions or payment of compensation.

The objectors argued that the application should be refused. They emphasised the tranquil, spacious, private character of the Cator estate, which they attributed to the low volume of traffic and density resulting from detached houses. They argued this would be disturbed if the covenant was discharged and the high density development proceeded. Arguments were also put forward as to the devaluation of the objector’s properties with the proposed scheme as opposed to with a hypothetical development of only detached houses. However a valuation expert stated that in his opinion it was more beneficial to the value of the objector’s properties to have a known scheme than to have the status quo coupled with uncertainty for the future.

What did the Tribunal decide?

The Tribunal granted an order to modify the restrictive covenants in part under ground (a) and in part under ground (aa), with further restrictions imposed under section 84(1C):

• Ground (a): The Tribunal granted an order under the very rarely successful ground (a) in respect of the “use only as a sports ground” element of the restriction. It accepted that having regard to its existing state, the relevant planning policies and to the lack of any demand for its renewed use, there was no prospect that the Huntsman would ever be used again as a sports ground and therefore that part of the covenant was obsolete.
• Ground (aa): Regarding the “alternative use only for erection of detached houses” element, the Tribunal decided that the modification should be granted under (aa) on the basis that the proposed development was a reasonable use of the land and that the continued existence of the restriction, unless modified, would impede this reasonable use. The Tribunal agreed that without modification, the Huntsman was likely to remain derelict and undeveloped and that this would be contrary to public interest.
• Conditions under section 84(1C): The Tribunal imposed a number of restrictions, including: only permitting detached houses with elevation construction requirements along the northern boundary of the development (adjoining the objector’s properties); making provisions for the general location of balconies; limiting the total number of properties; and restricting access to and egress from the property for motorised vehicles.

Key points for developers

• Whilst unusual, it is possible for developers to persuade the Tribunal to grant an order modifying a restrictive covenant, under ground (a), if they can demonstrate that:
  • there has been a change in character to the property or neighbourhood which renders the covenant obsolete; and
  • the modification will not result in a substantial change in the nature of the area.
• It is also possible for developers to obtain modification of a restrictive covenant under an alternative ground (aa) if the covenant would impede some reasonable user unless modified, even if planning permission has not yet been secured.
• This decision demonstrates the Tribunal’s ability to impose conditions to the development to address the objector’s concerns.