Restrictions on the use to which land can be put – known as restrictive covenants – often lurk in title deeds and obtaining their release as a precursor to development can require payment of compensation. In a guideline ruling, the Upper Tribunal (UT) considered how such compensation should be calculated.
A householder had obtained planning consent to demolish the garage of his home and to construct an additional house in its place. The property’s title deeds, however, contained a number of restrictive covenants which forbade, amongst other things, erection of any additional buildings or structures without the written permission of the developer which had, during the 1980s, built and marketed the residential estate of which the property formed part.
The householder engaged in lengthy negotiations with the company which was the successor in title to the original developer and which retained ownership of certain estate roads and boundary areas. The company initially sought compensation of £34,632 for the release of the covenants but subsequently reduced its demand to £9,897.
After the householder’s offer of £4,000 was rejected by the company, he applied to the UT under Section 84(1) of the Law of Property Act 1925 for an order modifying the covenants to the extent necessary to enable the development to proceed. The sole issue for the UT to decide was how much in compensation the company should receive.
Ruling on the matter, the UT noted that the value of the company’s retained land would be unaffected by the proposed modifications. The compensation payable by the householder thus stood to be calculated by reference to any reduction in the price the original purchaser of the property would have paid for it by reason of the restrictive covenants.
The property was first sold in 1985 for £52,500 and the UT found that the original purchaser would have paid a maximum of 5 per cent, or £2,625, more for it had its title been free from relevant restrictive covenants. Using that figure as a starting point, the UT noted that taking into account inflation since 1985 would produce a sum in compensation close to, or in excess of, that sought by the company.
The UT, however, noted the lack of any concrete evidence as to the real monetary effect of the restrictive covenants in 1985. As a matter of judgment, it concluded that the householder’s long-standing offer represented fair and appropriate compensation. It directed that the restrictive covenants be modified in line with the householder’s request on his payment of £4,000 to the company.
