Restrictive Covenant Disputes on Development Land

A restrictive covenant can materially affect the development potential of land even where planning permission has been granted. Covenants may restrict building, density, use or alterations and can therefore influence land value, finance, site assembly and whether a proposed scheme can proceed at all.

At The Jonathan Lea Network, we advise developers, investors and landowners on restrictive covenants affecting development land. We can assess enforceability, identify who may have the benefit, advise on injunction risk and help pursue a negotiated release or an application to the Upper Tribunal (Lands Chamber) where appropriate.

These issues should ideally be addressed before development begins. Once substantial works have been carried out in the face of a known restriction, the practical and litigation risks can increase significantly.

What Is a Restrictive Covenant?

A restrictive covenant is a promise restricting the way land may be used. Unlike a positive covenant, which requires somebody to do something, a restrictive covenant generally prevents or limits particular activity.

Common development-related examples include restrictions against:

– building additional houses or structures;

– using land other than for a specified purpose;

– developing more than a stated number of units;

– carrying on particular commercial activities;

– altering the external appearance of buildings; or

– building without another owner’s consent.

The existence of wording on a title does not by itself answer whether it is enforceable against the current owner or in relation to the proposed development.

Planning Permission Does Not Override a Covenant

Planning permission and private restrictive covenants operate under different legal regimes. A local planning authority may grant permission for a development, but that does not remove private rights benefiting another landowner.

This can create a difficult position where a developer has obtained planning consent but still faces a threat of enforcement. The planning permission may be relevant to the commercial context and to an Upper Tribunal application, but it is not a licence to ignore the covenant.

A developer should therefore investigate title restrictions alongside planning due diligence rather than waiting until construction is ready to begin.

Is the Covenant Enforceable?

Enforceability can depend on a number of questions, including:

– whether the covenant is genuinely restrictive in nature;

– what land was intended to benefit from it;

– whether that benefit passed to the person now seeking enforcement;

– whether the burden is binding on the current development land;

– whether the covenant is sufficiently clear;

– whether registration requirements were met; and

– whether later agreements, releases or changes affect the right.

Historic conveyances and title plans may be necessary to identify the original parties and the land intended to benefit. In some cases, the person threatening enforcement may not actually have the necessary benefit.

We can review the title, historic documents and proposed scheme and advise on the strength of the enforcement risk.

Identifying Who Has the Benefit

One of the most important practical issues is determining who can enforce the covenant.

The beneficiary may be the owner of neighbouring land, but historic development estates can create more complex questions about annexation, assignments and schemes of covenants. The original beneficiary may also have sold its land long ago.

Identifying the potential beneficiaries can affect negotiation strategy, insurance options and whether an application to the Upper Tribunal is likely to be contested.

Developers should be cautious about contacting possible beneficiaries before taking advice. If restrictive covenant indemnity insurance is being considered, an approach to the person who may enforce the covenant can affect whether cover is available.

Injunction Risk

A beneficiary may seek an injunction to prevent a development from proceeding or, in serious cases, require works to be altered or removed. The court’s response depends on the circumstances and damages are not automatically a substitute for an injunction.

The risk is especially important where a developer knowingly proceeds despite an unresolved covenant. Beginning construction may increase the financial pressure, but it does not necessarily improve the developer’s legal position.

We can advise on the likelihood and consequences of an injunction application and on urgent steps where enforcement is threatened.

Negotiating a Release or Variation

A commercial agreement with the beneficiary is often the most direct way to resolve the issue. The beneficiary may agree to release the covenant entirely or vary it so that a particular development can proceed, usually in return for payment or other terms.

The negotiation should consider the actual value of the covenant to the benefiting land rather than simply the development profit at stake. Where the identity of the beneficiary is uncertain, care is needed before opening discussions.

Any release or variation should be properly documented and, where appropriate, reflected in the registered titles so that the issue does not reappear during financing or disposal.

Restrictive Covenant Indemnity Insurance

Insurance may be available in some circumstances to protect against financial loss if a covenant is enforced. It does not remove the covenant and may not be suitable where enforcement is likely or the beneficiary has already been approached.

Cover varies and often contains conditions on disclosure, contact with third parties and changes to the development. The policy should therefore be reviewed against the proposed scheme and the lender’s requirements.

Insurance is a risk-management tool rather than a legal determination that the covenant is unenforceable.

Applications to the Upper Tribunal

Section 84 of the Law of Property Act 1925 allows the owner of land burdened by a restrictive covenant to apply to the Upper Tribunal (Lands Chamber) for the covenant to be discharged or modified on statutory grounds.

An application may be considered where, for example, changes in the character of the property or neighbourhood have made the restriction obsolete, or where the restriction impedes a reasonable use of the land and the statutory conditions are met. The Tribunal may also consider agreements by beneficiaries and other specified grounds.

An application is not automatic simply because planning permission exists. Evidence about the development, the benefit provided by the covenant and any loss or disadvantage to beneficiaries can be important. The Tribunal may award compensation in appropriate circumstances.

We can advise on the merits and strategy of an application and work with planning, valuation or other expert evidence where needed.

When Modification Is Better Than Discharge

A full discharge is not always necessary. A developer may only need the covenant modified to permit a defined scheme while preserving restrictions against more extensive future development.

A targeted modification may sometimes reduce opposition and provide a commercially sufficient solution. The proposed wording needs to align with planning permission and the development documents so that it gives the certainty required by funders and purchasers.

Effect on Development Value and Finance

An unresolved restrictive covenant can affect valuation because a purchaser or lender may discount the site to reflect enforcement risk. A lender may also require a release, insurance or satisfactory legal opinion before allowing drawdown.

Where the development is being acquired subject to the covenant, the issue can influence price negotiations and contractual conditions. If the problem emerges after acquisition, the available strategy should be assessed before further planning and construction costs are committed.

Documents We Commonly Review

Relevant documents may include:

– official copies of the registered title;

– historic transfers, conveyances and deeds;

– title plans and estate plans;

– planning permissions and drawings;

– correspondence from potential beneficiaries;

– previous deeds of release or variation;

– valuation evidence; and

– any existing restrictive covenant insurance policy.

Site context can also be important, including how the benefiting and burdened land are now used.

How We Can Help

Our team can:

– interpret restrictive covenant wording;

– investigate whether the burden and benefit are enforceable;

– identify potential beneficiaries;

– assess injunction and damages risk;

– advise before approaching a beneficiary;

– negotiate releases or variations;

– review restrictive covenant indemnity insurance;

– advise on Upper Tribunal applications;

– respond to threatened enforcement; and

– resolve disputes affecting the value or viability of development land.

Our lawyers can work with JLN’s commercial property team and relevant surveyors, valuers or planning consultants where the covenant forms part of wider development due diligence.

Frequently Asked Questions: Failed Property Development

Speak to Our Restrictive Covenant Dispute Solicitors

A restrictive covenant can affect the viability and value of a development long after planning permission has been secured. Addressing the issue early usually provides more strategic options than waiting until construction or finance is at risk.

Contact The Jonathan Lea Network if a covenant affects proposed development, enforcement has been threatened or you need advice on a release, insurance or Upper Tribunal application.

For our wider services, see our Property Development Disputes Solicitors page.

Contact Us

We provide most enquiries with an indicative scope of work and fee estimate, based on the information you share. We aim to respond within one working day.

In the same email you will be invited to arrange a 20-minute complimentary, no-obligation video consultation, should the proposed scope of work and fee estimate be of interest. This initial discussion is designed to better understand your requirements, refine the scope and ensure our approach is fully aligned with your objectives, at the end of which we will email you a definitive formal fee estimate to consider and approve.

Where you would prefer to receive initial advice and guidance from the outset, or where a short introductory call would not be the most appropriate starting point, we may instead recommend a 2.5-hour fixed-fee appointment, starting from £700 + VAT. This enables us to review the information you provide, discuss your situation with you and provide considered, tailored advice at an early stage.

To make an enquiry, please email us at wewillhelp@jonathanlea.net, complete our contact form, or call us on 01444 708640.