Case law: cheaper to remove restrictions on development in Lands Tribunal than by negotiating - 06/06/2008

In circumstances where indemnity insurance is not available to protect a developer from consequences of breaching restrictions on use of land (such as a restrictive covenant not to build more than one residential unit on it), the restrictions can be removed either:

• by negotiating their release from the person enjoying the benefit of the covenant; or
• by applying to the Lands Tribunal to have them released (or varied).

In cases where developers have breached covenants by, eg building in breach of them, the courts have awarded damages to the person enjoying the benefit of the covenant on the assumption that he has negotiated a share of the increased value of the land. It follows that developers will have to negotiate releases from covenants on that basis.

However, if an application is made to the Lands Tribunal, a recent Court of Appeal case has confirmed that the compensation payable to release the covenant should reflect the loss to the owner of the covenant, not the potential profit to the developer.

Which route to choose depends on factors such as the nature of the intended development, and the likely costs of negotiating, but it is clear that a Lands Tribunal application is more likely to be cheaper following the Court of Appeal decision.

Recommendations

If indemnity insurance is not available, businesses should take advice on whether to negotiate, or apply to the Lands Tribunal, to remove restrictions on a proposed development.

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