Client: Grand Union Housing Group
Fee Earner: Fred Perrin
Background
Grand Union Housing Group had previously through Perrin Myddelton obtained Counsel’s Opinion that the restrictive covenant applied to any new build property built on the land that was the subject of the covenant. There was an anomalous situation whereby the Association had the standing to enforce the covenant but only the Mid Bedfordshire Council could give consent. This anomaly had been overcome in the past with advice from ourselves by an Agency Agreement between what is now Central Bedfordshire Council and the Association.
The core matter related to a dispute about the appropriate level of consideration. The owner of the land subject to the covenant had obtained planning permission for an additional residential unit on the land and approached the Association pursuant to the covenant for consent. The Association were advised by their surveyor that on the principle of Stokes v Cambridge the Association should agree to release the covenant for a consideration of £30,000, as it should be entitled to a share of the enhanced development value of the site by reason of the planning permission.
The owner engaged a chartered surveyor which challenged the validity of the Association’s surveyor’s valuation and methodology and referred to Section 84 of the Law of Property Act 1925 which provides a mechanism under which an application can be made to the Upper Tribunal (Lands Chamber) for modification or discharge of a covenant. Broadly speaking an application can be successful if it can be shown that the covenant does not afford the covenant holder a substantial value and used various arguments to state that if an application was made to the Upper Tribunal and if any compensation was awarded it would be no more than £2,000.
The Association sought advice from Perrin Myddelton. While there were two differing valuation approaches we advised the client that we should defend our position in open correspondence but in a Without Prejudice letter agree to release the covenant for a reduced consideration but substantially above that proposed by the owner’s surveyor. Our letter to the owner’s Solicitors pointed out that our clients had been totally open about what they required to release the covenant and rejecting the implicit suggestion that the Association was somehow taking an unreasonable or unlawful stance in the matter. We pointed out that our clients in response to a request had offered to enter into a Deed of Release in return for a monetary payment and that as far as the Association was concerned this was what the owner wanted and asked for, and the hope remained that the Deed of Release could be entered into on a negotiated basis. We also pointed out that the valuation principles established in Stokes v Cambridge (1961) were widely used in covenant negotiations. We challenged the other points made by the owner’s surveyors and advised that if the matter came before the Upper Tribunal our clients would have to consider the issue of loss of amenity since they owned several properties in the vicinity of the proposed development and had a responsibility to their tenants to consider the possible adverse consequences of excessive infill development on local infrastructure and in relation to practical issues such as car parking
Subsequently the owner accepted this and the matter proceeded on the basis of a Deed of Release without reference to the Upper Tribunal.
This case demonstrates our strategic and tactical skills borne of long commercial experience. If unsuccessfully challenged the situation could have resulted in the elimination of a useful income stream for the Association. We put the owner in a position where he had a choice of the uncertainty and expense of going to the Lands Tribunal which might have resulted in a lower consideration or paying a larger consideration now for an immediate release of the covenant. This thus enabled him to proceed with the sale of the new build property without further delay. We persuaded both the owner and our client to take a commercial view.