Discharge of recent restrictive covenant comes under consideration

In the case of Barter Re Ivy House, the Upper Tribunal was asked to consider allowing an application to discharge a recently-made restrictive covenant over land.

The covenantee in this case did not consent to the discharge but chose not to participate in the case. The application to discharge the restrictive covenant was dismissed as the covenant was agreed so recently and by the parties themselves.

The case revolved around the purchase by Mr and Mrs Barter of Ivy House from Somerset County Council for £249,950 in January 2013. The building was designed as a large residence but had more recently been used as a day centre. It was set in grounds of about half an acre which were also included in the transfer. 

The applicants purchased the property with the intention of obtaining planning permission for residential development. Nevertheless, the transfer included a covenant, expressed as being for the benefit of adjoining highway land and any other adjoining land belonging to the council, by which the applicants agreed “not to build any additional building for use as residential accommodation” on the land comprised in the transfer.

The applicants applied for and obtained planning permission to divide Ivy House into flats, and to erect a new building containing 13 two-bedroom flats in the grounds. In May 2015, having become aware of the planning consent, the council offered to negotiate the release of the covenant in return for a share of the resulting development value, but the parties subsequently failed to reach agreement on what would be an appropriate payment. In fact, the applicants offered to pay the council only £5,000 for the discharge of the covenant, describing this as their final offer.

In January 2017, the applicants applied to the Upper Tribunal for the covenant to be discharged under the grounds set out in section 84(1), Law of Property Act 1925.  Section 84(1)(aa) provides the ground that the covenant’s continued existence would impede the reasonable use of the land and ground 84(1)(c) that the proposed discharge will not injure the person who benefits from the covenant, subject to that person possibly receiving compensation for the discharge. Assuming the grounds of application were made out, the issue to which the application gave rise was whether the Upper Tribunal should exercise its discretion to discharge a covenant so recently entered into by the applicants themselves as a term of their acquisition of Ivy House.

The Upper Tribunal held that both grounds were satisfied but refused to exercise its discretion to discharge the covenant. It said that the council was justified in refusing to discharge the covenant given that the applicants entered into the covenant personally and that they did so recently (but recentness was not a decisive factor). The Upper Tribunal also said there was a dearth of evidence as to what sum might compensate the council for losing the benefit of the covenant but that £5,000 was very low. The application was dismissed.