Removal Of Restrictive Covenants

2nd August 2013

North East legal case re-establishes the principles of compensation

The presence of restrictive covenants preventing development on land often leads to protracted negotiations and legal proceedings, as many land owners and developers will know.

But in an Upper Tribunal case, details of which were released yesterday, the principles of compensation awarded by the Tribunal when restrictive covenants are removed have been firmly re-established.

The case surrounded a farm steading on the edge of Newcastle which had planning permission to convert its former stables into dwellings. A covenant stating the land was to be used for agricultural, equestrian purposes only, was held by the house building company, Persimmon.

During both negotiations and the court hearing, Persimmon argued that they should receive compensation if the covenant was lifted, at £250,000 – which the owners of the farm steading would have had to pay out to the house builders before they could carry out the conversion work.

However, the Tribunal established that Persimmon had no practical or significant benefit by keeping the covenant in place and that it should be discharged and compensation paid to Persimmon at just £3,000.

Andrew Entwistle, Partner at George F White, who led the case for the farm owners, commented:

“Even now it is a misconceived notion that when a covenant is discharged, compensation is payable on the basis of the increase in value to the land in question, where in fact it is simply the loss in value to the covenant holder.

“In dealing with restrictive covenant cases it is absolutely essential to understand the background and factors determining value. Here we utilised expert planning and valuation evidence to provide a logical case as to the compensation that should be awarded. Our initial assessment was confirmed by the Tribunal and the clients are now able to peacefully develop their barn conversion at a significantly lower cost than envisaged.”

Andrew Entwistle, a fellow of the Royal Institute of Chartered Surveyors (RICS) specialises in covenant and overage matters as well as undertaking specialist and complex valuations. He also sits on the RICS Valuations Standards Board providing editorial input into the RICS valuation manual.

A full copy of the Tribunal decision will be available on the HMCTS website shortly.