Permitted Development (2) – the relationship to restrictive covenants
February 12, 2020
The provisions in the Town and Country Planning (General Permitted Development) (England) Order 2015 which permit changes of use from office to residential have been controversial, particularly in parts of the south of England where many local authorities fear the effects upon the supply of office accommodation in their areas. As a result, a number of authorities have exercised the powers in Article 4 of the Order to withdraw the rights from parts of their areas. A recent case in the Upper Tribunal (Lands Chamber) illustrates the issues involved where a Council adopts a different approach by attempting to rely on its rights as landlord to enforce leasehold restrictive covenants to prevent the implementation of a change of use proposal.
Normandy House, in central Basingstoke, had been purpose built as offices in the 1980s and had been occupied for many years as part of IMB’s UK headquarters before becoming vacant in 2013, since when it had fallen into disrepair, accelerated by vandalism.
In 2015 the headlease was acquired by a developer who intended to convert the 76,000 sq.ft building to form 114 residential flats. In due course the necessary prior approval for the works was obtained from the local planning authority, Basingstoke and Deane Borough Council. The Council was also the freeholder.
The headlease contained a number of covenants, including a covenant restricting the use of the building to offices only. The developer applied to the Council as freeholder to vary the lease to permit residential use. The Council refused. The developer then made an application to the Tribunal under Section 84 of the Law of Property Act 1925 to modify the restriction. The application was possible because the headlease had been granted for an initial term of 150 years of which more than 25 years were expired at the time of the application.
The application proceeded primarily on Ground (aa) – that the continued existence of the restriction impedes some reasonable use of land for public or private purposes. It was agreed between the parties that the proposed use for residential purposes was a reasonable use and that the covenant impeded the use. Consequently, the issues were confined to the further conditions in Section 84(1A) including, in particular, whether or not the restriction secured to the Council “…any practical benefits of substantial value or advantage to them” and whether money would be an adequate compensation for the loss or disadvantage (if any) which the Council would suffer from the proposed modification.
The essence of the developer’s case was that the Council would receive a higher rent for the building if it was converted to residential use and that the value of the reversion would be consequently higher. The developer argued that rather that benefiting the Council, the restriction actually made the Council worse off both in terms of the income it would receive during the remainder of the term and the value of the reversion at the end of that time.
The Tribunal found that contrary to the developer’s evidence, the income from office use would potentially exceed that from residential use, but was more affected by risk and that the capital value of the reversion would be greater from residential use. Purely in financial terms, therefore, the Tribunal found that the restriction did not substantially benefit the Council.
The Tribunal went on to consider whether the Council benefited from the restriction in some other way, in its capacity as freeholder owner of a substantial amount of other land in the town centre. There was a disagreement between the parties as to whether the Council was to be considered simply as a commercial entity (like any other landlord) or as ‘custodian of the public interest’ in that respect. The Tribunal found that the Council did not need to demonstrate that it held its land for some particular statutory purpose, such as to promote employment, before it could be entitled to pray in aid wider social and economic considerations if they could credibly be said to be promoted by the retention of the restriction on the use of the building. Any substantial landowner would have an interest in the prosperity and economic wellbeing of the locality. However, on the evidence, the Tribunal found that the Council’s case that the retention the building in office use would make a significant contribution to the economic wellbeing of the town was not made out.
The Tribunal allowed the application and modified the restrictive covenant to permit the proposed residential development.
Case Ref: Shaviram Normandy Limited v Basingstoke and Deane Council  UKUT 256 (LC)