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20 February 2015 0 Comments
Posted in Opinion, Real Estate

College land & restrictive covenants: addressing the risk

Posted by , Senior Associate

Colleges often own land, or have land gifted to them, which they may want to sell, mortgage, lease or develop for their own purposes. Often this land will be affected by covenants. This may prevent the land from being used for certain activities, the sale of certain items, the carrying on of a particular business, or for the construction of buildings which are over a certain height or for multiple occupancy.

Oxford College

The issues covenants create

The intention of the covenants will have been to protect the neighbouring land from nuisance or diminution in value. However, the covenants will continue to restrict the use of the land for generations after they were introduced regardless of who owns the neighbouring land today.

An example of this might be that the intended use of the land is for the college to re-develop for its own use, which may fall foul of a covenant, say, not to use for the sale of alcohol or as a hostel when the land is being used as student accommodation with a bar, or a covenant not to hold public meetings if the land is being developed as a lecture hall.

Possible solutions

Should a covenant exist which prohibits the intended use of the land, or that of a prospective tenant or purchaser, there are several possible solutions to consider, the main ones being as follows.

Release of the covenant

One is to seek a release of the covenant from the beneficiary of the covenant. For this to be an effective solution, it will be necessary to establish that the restrictive covenant does in fact burden the land, identify fully the extent of the land that benefits from the covenant and locate the owners of all the beneficiary land. It is often the case that the documents granting the covenants have been lost over time, despite there being a reference to them on the register at the Land Registry. There can be difficulty in locating the beneficiary or identifying the extent of the land affected. Typically, the Land Registry will refer to “this and other land” as being the only guide, and will not have a copy of the deed creating the covenant. It may be there are several neighbouring land owners who have the benefit of the covenants if the land with the benefit has since been sold off in smaller parcels. If these matters can be addressed, it is then a question of commercial negotiation to agree a deed of release and the associated payment to the beneficiaries.

Insurance

Another option may be to take out indemnity insurance, often for an indefinite period, against a claim by a beneficiary of a covenant. This would cover legal costs in contesting a claim, any damages payable to the beneficiary in respect of the breach of the covenant and compensation to the insured if the use cannot continue. Insurance is a popular solution as it is quick, potentially the least expensive option, and avoids having to ascertain who has the benefit of the covenant, particularly if the land has been divided and sold to various third parties. It is important to note that insurance will not be available in circumstances where the beneficiary of the covenant has been approached. Indemnity insurance is not as robust as an express release as the covenant still exists and you can be at risk of an insurer contesting the validity of the policy at a later date if a full disclosure of the circumstances have not been provided or the terms of the policy have not been complied with.

Modifying or discharging the covenant

If insurance is not available and the beneficiary cannot agree terms of release, a third option is to make an application to the Upper Tribunal (Lands Chamber), formerly the Lands Tribunal, to modify or discharge the covenant. In looking at the application, they will consider whether the covenant is obsolete, whether it impedes reasonable use of the land, whether the beneficiaries agree and whether any injury will be caused by the release.

It is important to understand the nature and extent of covenants affecting land, for the purposes of assessing the amenity of the land to the college. It is also important to understand the possible solutions and how to implement them according to circumstances in order to mitigate risk and maximise the value of the land to the college.

Our Commercial Property team has considerable experience in reviewing titles to properties and advising on restrictive covenants as well as providing practical commercial advice. If you have any issues regarding restrictive covenants please contact Mike Cooper

01865 268 659     Email usmike.cooper@roydswithyking.com

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Senior Associate

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