Disregarding a restrictive covenant over land is a high-risk move – for which there is a litany of case law displaying all the reasons why such a strategy should be avoided. Instead, developers should adopt a proactive and commercially strategic approach from the outset of a project. Below, we outline key steps and options for dealing with restrictive covenants effectively, helping unlock a site’s full development potential.
1. Review for enforceability
A restrictive covenant is a legal right. However, it may no longer be continuing and therefore, unenforceable. Where a covenant is ambiguous or appears unenforceable – and where business certainty is critical – it is possible to seek a declaration from the court on its enforceability.
2. Indemnity insurance
It may be possible to obtain indemnity insurance to protect against the risk posed by a covenant, in cases where, for example, the beneficiary is unknown, or the covenant is not actively being enforced.
3. Seek a release or variation
It may be possible to agree an express release of the covenant with the party entitled to enforce it. Compensation might be expected in exchange for the release, the cost of which should be factored into the development spend.
4. Apply to modify or discharge
For freehold land (and some leasehold) affected by a restrictive covenant, a party may apply to the Tribunal to discharge or modify a covenant where, for example, the covenant is obsolete, the covenant impedes some reasonable use of the land, and secures no practical benefit or is contrary to public interest or, there has been an express or implied acceptance by an act or omission, to modify or discharge it. In certain circumstances compensation may be due, again, the cost of which should be factored into the development spend.
If you are a developer or investor dealing with restrictive covenants over land or you have any concerns or questions about how these issues may impact you or your business, please do not hesitate to contact the Real Estate Disputes Team or your usual Brodies contact.
