Sustained breaches of restrictive covenants could prevent later modifications, expert warns

The Upper Tribunal (Lands Chamber) allowed partial modification of the covenant in this particular case so that the property could lawfully be used as a mosque and madrasah – in the circumstances, it had been used as a mosque and a madrasah in breach of covenant for many years. The Tribunal was "extremely critical" of the fact that the parties who made the application, a charity, had previously used the property in breach of covenant. 

However, despite previous suggestions from the Tribunal that it would refuse to modify or discharge a covenant if an applicant had deliberately and wilfully breached that covenant prior to an application, the Tribunal did exercise its discretion to modify on this occasion, and only awarded partial costs against the applicant. The Tribunal might not have been so lenient if it had been a developer which had acted in breach of the covenant, said property litigation expert Richard Bartle of Pinsent Masons, the law firm behind Out-Law.com.

"It is crucial that those who own land that is burdened by restrictive covenants treat them with caution and respect," he said. "The courts have repeatedly warned developers not to deliberately breach covenants, and those who ignore this warning may be in for what the courts have described as 'a rude awakening'."

"The reason for refusing to punish the applicant in this case was seemingly based on the fact that the applicants were a charitable institution, and the breach was not intended to make profit for them. It is highly unlikely that the Tribunal would be so lenient with a profit-making developer - there is still therefore a very real risk that deliberately breaching a restrictive covenant, particularly in the face of objections, may doom to failure a subsequent application to modify or discharge the covenant in question," he said.

The case involved a site in Birmingham, owned by the trustees of the Green Masjid and Madrasah, which had previously belonged to Birmingham City Council. The land was subject to a restrictive covenant preventing its use as anything other than a private house or an office for a dentist, solicitor or other professional person. Restrictive covenants are restrictions affecting how an owner can use a piece of land.

In 2009, the land was purchased by a nominee for the trustees. At the time, the nominee asked the City Council to modify the covenant to allow use of the property for "educational purposes". Permission was refused, for reasons including the impact of the site on a predominantly residential area and likely increase in traffic. The nominee began using the site as a mosque and masadrah despite the existence of the covenant and lack of consent, and the site was transferred to the trustees in 2011.

At this point, the trustees applied to the Upper Tribunal (Lands Chamber) for modification or discharge of the covenant. The Tribunal has the power to do so if certain conditions are met: these are that the covenant must either have become obsolete or it impedes a reasonable user of the land; if the party with the benefit of the covenant agrees to the modification or discharge; or the party with the benefit of the covenant would not be badly affected by the modification or discharge.

In this case, the Tribunal agreed to partial modification of the covenant. The judge said that it would be appropriate to allow the specific use of the property as a mosque and madrasah, provided that the land would not be used for an audible call to prayer and that car parking facilities would be maintained. However, he ordered the trustees to pay 50% of the council's legal costs due to their "sustained and wilful breach of the covenant".

Property litigation expert Richard Bartle said that the case was good news for developers, as it emphasised that it is possible to successfully apply for modification or discharge of a restrictive covenant. He warned that that applications are relatively uncommon because of the difficulty in proving the grounds for modification or discharge in practice.

"The practical effect of modification or discharge of a covenant is that it allows a developer to potentially 'free up' burdened land that would otherwise remain undevelopable," he said. "It is therefore a potentially powerful weapon in a developer's armoury, particularly given that the majority of covenants that burden freehold land remain in place indefinitely unless challenged."

"This case shows that ground (aa), that the covenant impedes a reasonable user of the land, can be made out in practice and a suitable modification of a covenant obtained. It also emphasises that developers should always take advice on the merits of a potential application to modify or discharge at the earliest possible opportunity, including prior to purchasing burdened land.  An early application to modify or discharge a covenant can provide clarity as to what can and cannot be done on burdened land, and may also help to avoid the protracted and high-stakes litigation that often arises in disputes over restrictive covenants," he said.

However, developers should also pay attention to the costs consequences of their development strategy, he said. Previous decisions had suggested that the Tribunal should refuse to discharge or modify the covenant, even if the applicant had made out the grounds for doing so, if that applicant had deliberately breached the covenant. In addition, deliberately breaching a covenant could also increase the risk of the court awarding an injunction to restrain the breach, he said.

"Developers should always take early advice on their development strategy for burdened land in order to mitigate these risks," he said.