Tribunal modifies covenant to allow landowner to build house

A landowner has succeeded in getting a restrictive covenant modified to enable him to build a second house on a small plot.

By Jonathan Carroll Director and Head of Agriculture

Mr Neil Sheppard owned a detached house on a 1980s housing estate. He bought the property in 2010, subject to restrictions on the title imposed by a conveyance in 1985, made between the developer and the original buyer.

The restrictions prevented the building of another house without consent in writing of the developer.

Sheppard had planning permission to demolish the garage on his property and build an additional house. He sought modification of the restrictions to enable him to go ahead.

The original developer’s assets comprised of the estate roads and several areas at the boundary of the estate where access to adjoining land could be gained. These assets now belonged to Martin Grant Holdings Ltd, which objected to the restrictions being lifted.

The main issue was the compensation payable to Martin Grant for modifying the restrictive covenants.

The Law of Property Act 1925 provided two options:

• a sum to make up for any loss or disadvantage suffered by the modification;

• a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the price then received for the land affected by it.

The Upper Tribunal (Lands Chamber) noted that Martin Grant had accepted that the value of its retained land would not be affected by the modification of the restrictions so there was therefore no basis for compensation under the first option.

That left the second option. The original purchase price was £52,500. The question was how much more the purchaser might have paid had the restrictions been removed to allow the proposed second house on the site.

But it could not be assumed that planning permission for the extra house would have been in place in 1985.

The tribunal calculated that the 1985 purchaser would have been willing to pay a maximum of 5%, or £2,625, on top of the purchase price for the benefit of sufficient modification of the restrictions to allow a second house to be built as now proposed, subject to planning permission.

As to whether the sum of £2,625 should be adjusted to allow for inflation, the movement of the retail prices index since 1985 would suggest something in the order of a three-fold increase.

Alternatively, if regard was had to actual house prices, the Nationwide Index would suggest a six-fold increase.

However, the tribunal also needed to consider the benefit which Martin Grant had derived from the restrictions since 1985.

Taking all the above factors into account, the appropriate amount of compensation was £4,000.

If you would like advice about the legal aspects of planning and development please contact Jonathan on 01228 585245.