Article - Property Law

Restrictive covenants commonly prevent a developer from building more than one residential property.  To overcome these issues, a developer may apply to the Lands Tribunal under Section 84 of the Law of Property Act 1925 for the covenant to be discharged or modified.  If it does, and the application is successful, the Lands  Tribunal may award the beneficiary of the restrictive covenant compensation.  But how much should the compensation be?

It was commonly understood that damages for the discharge or modification of a restrictive covenant was not the beneficiary's loss but the amount that the beneficiary could have negotiated from the developer for its release.  This rule often led to the developer paying a proportion of its profit, commonly up to one third, to secure its release.

In Winter v Traditional & Contemporary Contracts [2007] EWCA Civ 1088, the Court of Appeal agreed with the Lands Tribunal that damages under Section 84 of the Law of Property Act 1925 should be assessed by looking at the beneficiary's actual loss, rather than taking a percentage of the developer's profit (or loss of bargaining position in hypothetical negotiations between the developer and the beneficiary).  This appears to conflict with the amount a beneficiary would be awarded by the civil courts if proceedings are issued for breach of covenant.

So how do you assess the beneficiary's actual loss?  It is now necessary to look at the reduction in value or enjoyment to the beneficiary's property.  Each party must therefore either independently instruct a valuer or jointly instruct a valuer to express an opinion on the beneficiary's loss.

It is also arguable that developers who have negotiated payments with landowners less than six years ago may be entitled to reclaim part of the payment.  This is because the payment was made under a "mistake of law" and developers should consider this issue with their lawyers.

Good news for developers; not so good news for landowners!

Article First Published: 16 April 2008

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