A landowner looking to dispose of land which it wishes to retain some degree of control over might in some instances seek to impose a restrictive covenant. There are obvious issues associated with restrictive covenants; the land which benefits must be retained, the covenants must be negative and actually enforcing the covenants can be involved.
On the face of it, the grant of a long headlease enables more control to be retained over the property. A premium can be obtained for the grant of the headlease and leasehold covenants will often be easier to enforce than restrictive covenants.
Landlords however need to be aware of the provisions of section 84 of the Law of Property Act 1925 (“LPA”). Under that section, the Upper Tribunal (Lands Chamber) has the power to discharge or modify leasehold restrictions after the expiry of 25 years in leases granted for a term of more than 40 years.
The application of Section 84 of the LPA was considered in the recent case of Shaviram Normandy Ltd v Basingstoke and Deane Borough Council. In that case Shaviram Normandy Ltd was the tenant and the Basingstoke and Deane Borough Council (” the Council”) was the Landlord. The property was let on a long lease (i.e. in excess of 40 years) and the use was restricted to offices.
The property in question had the benefit of permitted development rights permitting conversion to residential dwellings. The use within the lease was however restricted to offices and the Council (as landlord) refused to vary the permitted use.
The Upper Tribunal decided to modify the restriction on use, enabling the conversion of the office building to proceed.
Every application under section 84 will be judged on its own merits and in this instance the Upper Tribunal was swayed by the fact the capital value and returns were unlikely to be significantly different between office and residential use (and consequently there was no significant benefit to the landlord in retaining the restriction on the use). The section is however potentially extremely useful to developers looking to convert offices in light of permitted development rights and may be a useful negotiating tool in the face of an intractable Landlord.
If you have any questions concerning the points raised in this blog please contact me.