Grounds that must be satisfied for an application modifying leasehold covenants to be successful
It is well known that restrictive covenants affecting land can be varied by an application to the Lands Tribunal (see our previous blog “Modification of Restrictive Covenants” for more information.)
It is less widely known that Section 84 of the Law of Property Act 1925 (which provides the framework for the modification of freehold restrictive covenants) also applies to leasehold covenants.
Sub section 12 of Section 84 provides that where:
“A term of more than 40 years is granted this section shall apply….to restrictions affecting such land in like manner as it would apply had the land been freehold”
An application can be made to the Lands Tribunal under the section where 25 years or more of the initial term of the Lease has expired.
In order for an application to be successful, one of the following grounds must be satisfied:
- A covenant is obsolete by virtue of changes in the character of the neighbourhood;
- The covenant is obsolete, doesn’t secure any practical benefits or is contrary to public interest;
- There has been an agreement for discharge of modification;
- The proposed discharge or modification won’t injure a person entitled to the benefit of the restriction.
The courts have acknowledged that it will be more difficult to vary or discharge covenants in leasehold cases as opposed to freehold cases. This is in part because the party with benefit of the covenants (the freeholder) is directly interested in the land in question and will become the absolute owner following the expiry of the lease.
As distinct from freehold restrictive covenants, the court will take into account matters including the length of the unexpired term, the rent or other obligations and the extent of the landlord’s interests in neighbouring land.
The case law on the interpretation of the legislation in the context of leasehold restrictive covenants is extensive but fundamentally, each case will need to be considered on its merits.
As ever when seeking to reduce the obligations to which a property is subject, there are challenges but these may not be insurmountable and leasehold covenants should not necessarily be seen as being written in stone.
If you wish to discuss any issues raised in this blog, please contact me.