Are “restrictive covenants”/title restrictions the end of the road for developers?

It is well known that well-drafted title restrictions on land can be an effective way of controlling future development of that land, sometimes indefinitely.  Faced with such restrictions, developers have a number of options and it is not necessarily “the end of the road” so far as the particular piece of development land is concerned.  So what are “restrictive covenants”? An example is a restriction that the land that a developer wants to acquire for say residential development cannot be used for any purpose other than as agricultural land. This could have been imposed on the title to that land many years ago and could still benefit an adjoining land owner.

Is indemnity insurance the best option?

Faced with historic title restrictions, property developers often look to take out defective title indemnity insurance, usually obtainable for a single premium and capable of benefitting successors in title and also, perhaps more importantly, mortgage lenders.  The insurance policy would provide for a sum/fund in order to defend against any future claims to pay compensation to neighbouring landowners who are able to show that the proposed development would be in breach of the title restriction and has affected their rights.  It needs to be understood however that insurers are unwilling to offer indemnity policies if it appears likely that neighbours might object to the proposed development.  Also, insurers will usually want to see full details of all objections to the proposed development received during the planning application process.  Such issues can make it very difficult to obtain indemnity insurance. 

Is there any other mechanism for release or variation of title restrictions?

There is a mechanism available under Section 84 of the Law of Property Act 1925 for releasing land from title restrictions in certain circumstances.  Very basically, those circumstances are:

  1. If a change in the character of a neighbourhood means that a restriction has become obsolete, or
  2. If the restriction impedes some reasonable use of the land.  In this case, it must also be shown that the person or persons benefitting from the restriction should not obtain any practical benefit of substantial value from the restriction or it would be contrary to public interest and in either case it has to be shown that payment of a sum of money would be adequate compensation to the person benefitting from the restriction.

What are the practicalities of applying for release or variations of title restrictions?

As any lawyer will tell you, in practice the Section 84 procedure can be lengthy and the outcome can be difficult to predict.  If you want to make an application then you must contact any party who may benefit from the restriction and that gives notice to those persons that they might have a reason to object which they might not otherwise have appreciated. Whilst that has to be borne in mind, given the difficulties that can arise in trying to get indemnity insurance against title restrictions, there may be some merit in applying to a tribunal for release or modification.  In fact case law has shown that title restrictions do not necessarily need to be removed and the courts often consider that updating may be sufficient.  In one notable case, the tribunal invited all parties to agree terms for a revision to the restriction which would be mutually acceptable.  In the end, the relevant title restriction was preserved, but relaxed to the extent that it enabled the proposed development to go ahead.  If good expert evidence is supplied, then a mutually beneficial result can be achieved for all concerned. 

The moral of the story?

Always take proper legal advice.

Should you have any queries or if you are considering the issue of a title restriction against land which you are considering acquiring for the purposes of development and need advice, please contact Carlo Sereni (Head of Commercial Property) on 01743 285861 or by email to: carlos@terry-jones.co.uk

 

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