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Whether it’s building a new property, or extending and altering an existing one, developers and homeowners often assume that obtaining planning permission is the last major hurdle to overcome before construction begins. However, restrictive covenants detailed within the title deeds also place limitations on how land or a property can be used, and as this recent claim shows, the threat of a covenant being successfully enforced can be enough to prevent a development project proceeding. 

Green and pleasant land 

In June 2021, we were contacted by solicitors acting on behalf of a client who was selling a plot of land for development. Planning permission for a two-storey residential dwelling had been granted on land being used for tennis courts, but the title deeds were subject to restrictive covenants imposed by a university landowner in 1985 “not to erect any building on the land” and to “use it only as garden and pasture land”. The intention at the time being for the land to be used as part of the buyer’s existing neighbouring property. Mindful that the proposed development would breach the covenants, the solicitor was seeking cover, should anyone instigate proceedings to enforce them in the future.

Our underwriting team considered all the available information. Positively, we were able to confirm that no objections to the proposed development had been raised during the planning process. We also established that there had been no communications with the original landowner who imposed the covenants. 

We also reviewed the plan attached to the Transfer detailing the 1985 covenants. While this confirmed the area of land affected by the covenants, it provided no clear indication or clues as to which land had been retained by the seller who imposed them and could therefore claim the benefit. Additionally, when comparing the plan with Land Registry records and online mapping tools, we discovered that the adjoining land, which had originally been part of the larger plot of land sold in 1985, had already been built on in breach of the covenants. Another positive risk factor was that the building plot had been more recently used as tennis courts, also in breach of the covenants. 

Taking the existing breach of the covenants into consideration, we were happy to provide cover for £1,335 with a policy limit of £2m. 

Staking a claim

In the late summer of 2024, preparatory works began ahead of the main build. Alerted to the works, land agents representing the neighbouring landowner contacted our policyholder. Initially, they objected to the preliminary works which related to laying services, as they were taking place on land owned by their client. 

A few weeks later, the situation escalated. Our policyholder received another letter from the land agents and this time they were more explicit in their communication. They outlined that their client, who was still in ownership of their retained land to the south of the proposed building site, had become aware of the planned construction of a residential property, which they said was prohibited by the 1985 restrictive covenants. As the original covenant beneficiaries, their client intended to enforce the covenants, and seek the legal costs for doing so. Concerned at the potential impact this intervention threatened to have on the development, the policyholder contacted our claims team right away.

The best course of action

After reviewing the land agent’s letter, the title deeds, and the restrictive covenants, our team quickly concluded that the landowner had a strong case, and that seeking a financial resolution was likely to be the best approach. They sought advice from a property litigation specialist, whose assessment was very clear, and supported our view that there was little prospect of being able to successfully defend any legal action. The covenants would be breached by the planned building works, and they were clearly enforceable by the neighbouring landowner as the beneficiary. We concluded that if they were to apply for an injunction, it would likely be granted, which would stop the works completely. 

Discarding the option to proceed with the development regardless as a complete non-starter, we were left with two possible options - negotiate a financial settlement with the landowner to modify or release the restrictive covenants; or apply to the Upper Tribunal for modification of the covenants under Section 84 of the Property Act 1925. In conjunction with our litigation lawyer, we opted to negotiate for a release of the covenants, and to suspend any construction work while this took place. 

A tactical approach

While it was clear that the neighbouring landowner was in a strong position to enforce the covenants, there were still aspects of the situation that would benefit our policyholder in negotiations. The land adjoining our policyholder’s plot was well-screened by surrounding trees and bushes, and the beneficiary’s neighbouring land was rented out as stables rather than as a residential home, so a reasonable argument could be made that any loss or impact on the property would be minimal. 

As the party threatening legal action was a major landowner and commercial entity, it seemed more likely that they would open to finding a reasonable financial resolution rather than protracted or entangled legal proceedings. With this in mind, we appointed a surveyor to respond to the landowner’s agents and, with our strategy in place, the surveyor opened negotiations. Our approach was to present a modest opening offer of £10,000 to reflect our initial compensation calculations for the release of the covenants. We went on to outline the possibility of applying to the Upper Tribunal to have the covenants modified, if a settlement couldn’t be reached quickly, as our policyholder was keen to proceed with the planned build. 

A quick turnaround

Just under a month later, the landowner’s solicitor responded with a counteroffer to release the covenants for £50,000. Negotiations for the release or modification of covenants tend to be based on a proportion of the profit the development is expected to achieve. Based on the projected value of the land with the new house, we felt this figure was fair and represented an excellent outcome for all sides, so we accepted the offer. The total cost covered under the policy was just over £73,000, made up of legal costs and professional fees, in addition to the cost of the release. 

The policyholder was very happy with the way our team worked to ensure that he was able to proceed with the planned build, quickly resolving the legal claim in a way that was satisfactory for all parties, and with the minimum of disruption. The team’s knowledge of how complex and disruptive the situation had the potential to become, as well as appointing the right specialist legal advisors and consultants, meant that they were able to resolve matters before they escalated into a full-blown legal dispute involving Court proceedings.