13 July 2021
RED alert - Summer 2021 – 2 of 6 Insights
The Courts have recently been faced with two interesting recent cases regarding the procedural issues arising in relation to applications under section 84 of the Law of Property Act 1925 (Section 84), which deals with the power of the Upper Tribunal to discharge or modify restrictive covenants affecting land.
A useful provision to be aware of if your land is subject to a restrictive covenant.
This case concerned a restrictive covenant which prevented the owners of a number of flats and houses in a marina development from using their properties "other than for private residential purposes". Numerous property owners had been renting their flats or houses as holiday lettings. The development's management company contended that these lettings were prevented by the restrictive covenant.
The management company subsequently issued proceedings against itself to seek clarity from the Court regarding interpretation of the restrictive covenant, with a view to stopping the holiday lettings. However, it did not involve any of the property owners. The management company was then ordered to remove itself as defendant but no defendant was identified to replace it when it applied for a declaration under Section 84(2) as to the proper meaning of the covenant.
The Court therefore declined to exercise its powers under Section 84 on the basis that there was no defendant to the proceedings. In particular, the owners of the flats had not been adequately warned that, even though they had not been joined as a defendant in the proceedings, they could still end up bound by a court order.
In this case, the tenants of a holiday park chalet were subject to a restrictive covenant which only permitted them to use the property for 37 weeks of the year. The tenants had made an application under Section 84(1) to discharge this covenant and the parties eventually agreed to settle the matter by way of compromise agreement and consent order.
As an applicant to a Section 84(1) application is asking the Tribunal to release him from an otherwise binding obligation, the default position on cost liability is usually that:
However, in this instance, the consent order prescribed that there would be no order as to costs between the parties, meaning that each party was responsible for its own costs.
Despite this costs order, the landlord the tried to recover its litigation costs from the tenant through the service charge. It argued that it had a contractual entitlement to recover these costs under the lease and that this was separate from the court order.
The Upper Tribunal held that the landlord was not entitled to recover its costs in this manner. The fact that it had agreed to the "no costs" order as part of the settlement prevented it from recovering these costs from the tenant; whether in the Section 84 proceedings or otherwise. Otherwise, the landlord would be able to "get through the backdoor what it had agreed to forego at the front".
Whilst the application of the Court's powers under Section 84 was not the focal point of these judgments, both decisions serve as stark reminders of some of the procedural issues to be aware of when making applications to Court to modify or discharge restrictive covenants.
The decision in Conwy Marina Village Management Company makes clear that an attempt to seek clarification from the court as to the meaning of a restrictive covenant under Section 84(2) will generally require a defendant to the dispute, apart from in very limited circumstances.
The outcome of Shearbarn Holiday Park has also reinforced that careful consideration should be given to the issue of costs associated with an application under Section 84(1) as, despite the usual default position regarding costs liability, there is no guarantee that these will be recovered.
If you are considering making an application under Section 84, get in touch with one of our expert advisors who can provide practical advice on how best to consider and approach such applications to avoid these, and similar, procedural pitfalls.
by Saleem Fazal