Discharge of Restrictive Covenants – practical benefit and compensation

Stephen Pritchett, Barrister and Accredited Commercial Mediator

In a recent reported decision of the Upper Tribunal (Lands Chamber) – Re Ben Lynch [2016] UT 488 (LC) (Judge Peter McRea FRICS) – some clear indications have been given as to how the Judges approach the question of discharge under ground (aa) – the ground relating to the impeding of a proposed reasonable use.

The Judge referred to the comments of Carnworth LJ in Shepherd v Turner [2006] as follows:

“In my view, account must be taken of the policy behind paragraph (aa) in the amended statute. The general purpose is to facilitate the development and use of land in the public interest, having regard to the development plan and the pattern of permissions in the area. The section seeks to provide a fair balance between the needs of development in the area, public and private, and the protection of private contractual rights”

It is also trite law that where a development has obtained planning permission it will almost always be regarded as a reasonable use of the land.

Faced with numerous local objectors, the Judge held that only those actually adjoining the development were likely to suffer any diminution in value of their properties by the proposed development. He valued the diminution of the two houses likely to be affected at £25,000 and £15,000 being 2.5% and 1.5% respectively of their £1m OMV.

In those circumstances the Judge held that the covenant should be modified to permit the development because, as he said:

“Having regard to the effect on value of the two adjoining properties as a likely percentage of their capital values, I do not consider that the benefits secured by the covenant are of substantial value or advantage, and I am satisfied that money would be adequate compensation.”

His decision suggests:-

  1. That where planning permission has been obtained, the objectors will need to establish some substantial benefit which is lost giving rise to some substantial diminution in value
  2. That a narrow view will be taken as to the properties which actually enjoy a practical benefit – the closer they are the greater is likely to be the benefit
  3. Practical benefit is something which has an impact upon value whereby its loss would result in some not insubstantial diminution
  4. “Substantiality” is likely to be tested by reference to the degree, possibly in percentage terms, to which the proposed development affects value
  5. Any Order in these circumstances will be for a modification to permit the specific approved development upon payment of the amount of compensation found to be appropriate

Stephen J Pritchett
Commercial and Property Counsel
23 Essex Street Chambers

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