Options to release a restrictive covenant (Housing Act 1985 section 610?)

by Readers Question

7:35 AM, 2nd September 2017
About A year ago

Options to release a restrictive covenant (Housing Act 1985 section 610?)

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Options to release a restrictive covenant (Housing Act 1985 section 610?)

Hi folks

Does anyone have any experience of using Housing Act 1985 section 610 to have a restrictive covenant removed, thereby allowing a house to be converted to flats?

Thanks in advance

Neil



Comments

Rob Crawford

15:05 PM, 2nd September 2017
About A year ago

Hi Neil, is the property leasehold or freehold?

Puzzler

16:07 PM, 2nd September 2017
About A year ago

It doesn't matter whether it is leasehold or freehold - freehold can also be subject to such covenants. It usually applies to houses which are being prevented from being converted. Success would be more likely if it was not leasehold as you would have another freeholder to contend with. Do you own this property? If so, get a specialist solicitor. If you don't and are thinking of buying it then see above. Bearing in mind you might not succeed. Or you could ask the current owner to make the application, but that would no doubt increase the price. Get a copy of the covenant documentation and get a consultation with a solicitor.

nap har

21:58 PM, 2nd September 2017
About A year ago

It is Freehold, I own it.
I am already very familiar with the covenant, what it does and doesn't stop; I need the permission of the company that set the covenant to convert to flats, and the covenant is valid. They will want a hefty payment I believe, hence looking at the county court option, assuming I can get the planning permission.
Ignoring the planning permission, does anyone know how long this process takes, how it works, and the likely costs, excluding any award of fees etc by the court?
And does anyone know of a good specialist solicitor in this kind of arena?
Thanks

Freda Blogs

11:20 AM, 4th September 2017
About A year ago

The covenant is there for a purpose, to protect the beneficiary of the covenant from the other party doing certain acts which they want to protect their property against. Presumably you wish to convert the property into flats in order to add value/ make money, so why would you object to paying them some money to release you from the covenant? It is better that are prepared to negotiate rather saying an absolute 'No'. You think that they will seek a "hefty" figure, but if they are experienced property people, the chances are they will have assessed the premium to take a reasonable share of the proceeds that you will obtain from carrying out the development, which is just good business. If they put the figure too high, you will not do the development, simple as that, so if both parties are realistic about their respective negotiating positions, you should be able to come to a sensible solution.

I have experience in these matters and in my view, going the legal route is not the best way to get to your end game. Even if you were successful legally, the court will still have regard to the valuations put forward by both parties so you won't gain anything other than a large legal bill. The role of a good solicitor in these circumstances is to advise on the enforceability of the covenant, and from what you say, the beneficiary is aware of it and it is enforceable. It's much better to negotiate it out rather than attempt an unpredictable court process where a lot of your money could be lost/wasted on fees if you are unsuccessful - which seems likely. Any money you pay out by way of premium to the beneficiary of the covenant may also be tax-deductible from your development scheme (obviously check that out with your accountant).

Olu Adefisan

12:14 PM, 4th September 2017
About A year ago

If you are going through the negotiation route, and not litigation (not advisable), you need to get a valuer to obtain the residual value for you. The residual value is what remains after deducting the net increased in value resulting from the conversion, of the property "Net Open Market Value, NOMV" deducted from the Total costs "TC" (i.e. the total costs consists of construction works costs, short term borrowing costs and professional fees all dded together). The difference between these two figures gives the residual value "rv". Therefore NOMV-TC= rv. From the rv make further deduction of say 20% of TC representing developer's profit, to give you the net profit "np" to be shared with the covenant owner. The covenant can be viewed as a ransom on your property, the rule of thumb for valuation of the releasing of a ransom can be found in Stokes v. Cambridge Corporation (1961) 13 P & CR 77 and it is usually based on "one-third of the increase in value of the adjacent land provided by the ransom strip". Therefore in your own case, after netting out all your costs and taken a profit for your risk, by going through the residual valuation process, you are left with a net profit, what ever figure you obtain thereafter, one-third of that is what you should pay to the Covenant owner as premium. You then need to have another look at your overall calculations to see if after paying the premium the venture would still proof profitable for you. The decision as to whether the venture is profitable should be determined after you have gone through the valuation process and before commencement of the negotiation process. Once you are comfortable with the figure obtained through the process as above described, you could then put through a without prejudice offer. Basically you should start with an offer that is lower than what you are willingly to pay with a view that the other party would make a counter offer that is higher; so that by the time both parties agreed, the compromise would be as close as possible to your target figure. You should aim to strike a compromise around the one-third value figure. The next stage would then be to draft the agreement for the covenant to be discharged which would be discharged upon payment of agreed premium to the covenant-owner as above described. Sometimes, the other party may ask you to pay (or as a negotiation sweetener you may offer to pay) their legals fees, legal perfection or variation of title deed costs, you should factor these costs into the value equation process.

Freda Blogs

12:37 PM, 4th September 2017
About A year ago

I agree with Olu's observations above, but do be aware that payments under the Stokes v Cambridge principle sometimes go above one third; it depends on the issue and the relative negotiating strength/knowledge of the parties.

Puzzler

18:06 PM, 4th September 2017
About A year ago

Reply to the comment left by nap har at 02/09/2017 - 21:58
Whereabouts are you?

nap har

21:58 PM, 4th September 2017
About A year ago

Hi Puzzler
I am in East London

Thanks for all the comments so far.
If I wanted to build the flats, I'd have no issue in paying the covenant holder. It's not that simple though, but I don't want to go into the issues on a public forum, but as an overview, this covenant is stopping me doing something else on the property, for which I have permission; the covenant does not forbid what I want to do, according to my lawyer, but someone before me stupidly asked the company about it, and they stated they wanted a "hefty" fee to give permission for something they are not required to give permission for. Since they have been contacted, covenant insurance is a no-go. Hence trying to find a "work around", ie get planning for flats and ask the county court using section 610 to remove the problematic covenant. It's just open option I am considering. Negotiating with the company is another, given the barrister opinion I have since received (three solicitors and two barristers all agree the covenant does not stop the works I want to carry out, but just going ahead without insurance is a financial risk I cannot take).

Darren Peters

23:08 PM, 4th September 2017
About A year ago

If I understand correctly, the covenant wording doesn't stop you doing the other thing, you have (planning?) permission to do the other thing and your lawyer say you can do the other thing? But the covenant holder said to a previous owner that they refuse permission to do the other thing?

Why not ask, via your solicitor, the covenant holder the grounds they believe they have for refusing permission for the other thing? The covenant (probably!) can't say the covenant holder can dictate what they like but should have specific terms. Perhaps one of the terms is open to interpretation.

Freda Blogs

23:50 PM, 4th September 2017
About A year ago

It is very difficult second guessing the situation without the facts.

If the company are not required to give you permission for the 'other thing', what is stopping you from proceeding to do it anyway? In light of the advice you have received, where is the perceived risk? If the company was unhappy about what you are proposing, could they in thory take action against you? Would they have a basis for any legal action?

The boot would now be on the other foot and the company would have to take action against you, but you might still have achieved your objective. What would be the penalty/action they could take if you were unsuccessul? Would it be successful/enforceable/proportionate?

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