Agricultural Brief – Dream of diversification

Not a briefing goes by without there being some mention of the uncertainty facing Britain’s landowners in the current political and economic climate. 

The importance of diversification has been drummed into us as a means to counter this, and there are very few people who would now look at an estate or holding and not think of ways in which they could make changes to produce additional revenue streams. 

One issue that arises with increasing frequency, however, is restrictive covenants listed against the title to land which is intended to be developed. A restrictive covenant is a covenant imposed against a property or parcel of land preventing certain uses of it to preserve the value or amenity of a neighbouring parcel of land. They are commonly used to prevent development and enable a selling party to retain a degree of control over what happens to property or land when they no longer own it.

It follows that there may be times when such a covenant prevents development that the now owner wishes to make. Such covenants can theoretically bind a property or parcel of land forever, but the Law of Property Act 1925 provides a procedure to modify or discharge such covenants, including in circumstances where ‘their continued existence would impede a reasonable user of the land’. There is, of course, a delicate balance to be struck between protecting the rights of private individuals who negotiated a covenant in good faith, and the public good in providing additional development to an area – most notably housing in rural areas.

Cases such as these are heard in the Upper Tribunal (Lands Chamber), which is similar to a court, but forms part of the tribunals service. When considering whether an application should be approved to modify or discharge a covenant, the tribunal will look at whether there is a public interest in allowing the covenant to be modified or discharged, and that the person with the benefit of the covenant will not be harmed in doing so. For a landowner to demonstrate this, it is useful to have an approved planning permission in place, together with evidence that it cannot be implemented because of the existence of the covenant in its present form. The tribunal may, in such circumstances, be willing to modify or discharge a covenant in order to allow the planning permission to take place, in turn making provision for compensation to be payable to the other party. Such compensation would generally be calculated based on any loss or disadvantage suffered by that person as a result of the discharge or modification, but does not entitle that person to receive compensation for the loss of the right to use the covenant to prevent development. 

This means that the compensation payable under the tribunal’s decision may be modest when compared to the value of the landowner’s land after the planning permission has successfully been implemented. The landowner may, however, be asked to pay the objector’s costs in bringing the claim, if it was not unreasonable for the objection to be raised.

Two recent cases have confirmed that when considering the benefit of the covenant on an adjoining landowner’s land, the tribunal will consider how it benefits the entirety of that person’s land, rather than just the area which has the benefit of the covenant. Time will tell whether these decisions will make it more difficult to argue such a claim.

Alternative approaches could include speaking to the people with the benefit of the covenant in order to obtain their consent, which will usually be subject to their being compensated financially or with concessions in the development made. However, the risk here would be that you could not identify all of the people with the benefit of the restrictive covenant, perhaps because the land originally adjoining the property was not well defined or had subsequently been parcelled up and sold to multiple different owners. Obtaining consent from one or more landowners could potentially be very expensive, and is not guaranteed.

You could also consider taking out indemnity insurance against losses suffered as a result of the terms of a restrictive covenant which you have breached being enforced. However, the availability of such policies varies, and you would struggle to obtain insurance in respect of a breach that you have committed. 

Equally, if there is a real risk of enforcement of a covenant; perhaps because the people with the benefit of the covenant are known, the premium may be prohibitively expensive (if available at all). There is also a risk that you may not be able to claim under the policy because of a technicality which was overlooked when it was taken out. Indemnity insurance would not be available if you had already approached anyone with the benefit of the covenant.

If you are faced with a restrictive covenant on a site which you may wish to develop as part of your diversification plans, you would be well advised to seek legal advice on the best way to approach it. A solicitor can review the terms of the covenant and advise on the merits of the different courses of action to take to see the development through. 

Furthermore, when buying land, landowners should be careful to only agree to such covenants as are strictly necessary, and think long term as to what effect they may have should circumstances change and there is potential for the land use to change.

For advice please contact a member of the Agriculture and Estates Team.

This article is from the spring 2019 edition of Agricultural Brief, our newsletter for farmers, landowners and others involved in agriculture. To download the latest issue, please visit the newsletter section of our website. Law covered as at May 2019.

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