Restrictive covenant against 'nuisance' and 'annoyance' - Dangers for developers

Countless developers looking to extend existing buildings have ignored restrictive covenants against nuisance or annoyance and taken the view that planning permission is enough. Many may have got away with this approach, but a recent Court of Appeal decision (Davies v Dennis and others) highlights the dangers of such covenants.

Many properties are affected by some form of restrictive covenant.   Provided a covenant benefits another property, which can be clearly identified, and the covenant meets certain criteria, it may well be enforceable by the owner of that property.

A covenant 'not to do anything on the property that may be a nuisance or annoyance to the owners or occupiers of the land with the benefit from time to time', or similar wording, is one that, in the light of the Davies case, developers should take seriously. As with all breaches of restrictive covenant, the Court has the power to award damages, award an injunction, or both.

In Davies, the Court of Appeal decided that building a house extension breached such a covenant, as it blocked a neighbour's view of the nearby River Thames. This was deemed to satisfy the test of whether reasonable, sensible people would, having regard to the ordinary use of the house for pleasurable enjoyment, be annoyed and aggrieved by the extension.

This decision supports the argument that a covenant against nuisance and annoyance can apply to the construction of buildings and extensions on a property, as opposed to merely the behaviour of the people on it. 

It is crucial for developers to be aware that, although planning permission may be obtained, this does not necessarily mean that a project cannot be prevented, or made more expensive to carry out.

So how can you protect a development against these risks? You might be able to obtain insurance, although be careful not to approach the party with the benefit of the covenant as doing so could well invalidate any insurance already obtained and, if the approach is made before seeking such insurance, it would need to be disclosed and may well prevent cover being obtained. You could approach the party with the benefit and request a release or waiver, but this may be a mistake if they were unaware of the covenant and you alert them to it. It could also prove expensive!

There is the possibility of applying to the Land Tribunal to have the covenant discharged or modified. However, this will only succeed in certain specified circumstances and the process can be costly. If the covenant remains relevant, and the party with the benefit of it has a real interest to protect, then it is unlikely to be released or modified.

Developers should, therefore, take a covenant against nuisance or annoyance seriously, irrespective of any planning permission, and should ensure that they are fully covered in relation to any potential enforcement of the covenant.

To find out more, please contact Simon Elliott

The Financial Services Authority proposals for reform:  Mortgages and security

The Financial Services Authority (FSA) is currently carrying out an extensive review of the current mortgage regime, and published a Market Review Discussion Paper on 19 October.

The FSA's main proposals for reform are as follows:

1.  Verification of the borrower's income must be obtained for all Mortgage Applications, which would
      signal the end self-certification mortgages.

2.  The lender will be responsible for assessing whether the borrower can afford to repay the loan,
      which should reduce repossessions.

3.  The lender can prohibit loans to borrowers that exhibit a 'toxic combination' of high risk
      characteristics.

4.  Widening the FSA's powers over second charge lending and buy-to-let mortgages.

The FSA have not ruled out any further changes, which could include caps on loan-to-value, loan-to-income or debt-to-income ratios.

It would appear that the FSA are trying to rectify the mistakes that lenders have made in the past to avoid the problems that were experienced from late 2007-present.  The reforms to the UK mortgage market will surely not come without problems, but hopefully they will benefit both lenders and borrowers.

Subsequently, on 25 November, HM Treasury published a consultation paper (click here to view) setting out the Government's proposals to extend the scope of the FSA's regulations of mortgages. The FSA have always regulated the first charge residential mortgages, but the consultation paper has suggested that the FSA should now regulate other credit business such as second charge mortgages, which previously remained the responsibility of the Office of Fair Trading. The consultation paper builds on announcements made in HM Treasury's White Paper on reforming financial markets, published in July 2007. The consultation process will come to an end on 15 February 2010.

It would appear that both the FSA and the HM Treasury are making moves to ensure a more secure future for the current mortgage market.

To find out more, please contact Sophie Owen

Landlords consent to assignment/subletting

Under the provisions of the Landlord and Tenant Act 1988, when landlords are faced with applications for consent to assign or sublet, they must respond within a reasonable time and can only refuse consent if it is reasonable to do so (assuming no absolute covenant against assignment/subletting exists).

Where a tenant is unreasonably denied license to assign or sublet a property for which they have no use, they may find themselves unable to dispose of that property for several years to come. In these circumstances, the rent, service charge and rates liability that they must continue to bear can be substantial and can warrant the cost and risks of litigation. In a property downturn, cases reaching the Courts are likely to increase.

It is now well established that a landlord's notification to the tenant of its decision to withhold consent must be given:

-   within a reasonable time

-   in writing

-   must contain the reasons relied upon to withhold consent.

The Courts have also held that if a landlord relies on a reason for withholding consent that is not contained in their notice that constitutes a breach of their statutory duty under the Act.

When faced with a refusal of consent or the imposition of terms that are thought to be unreasonable, it might be thought that it was simply necessary to consider the reasons given in the notice and to consider whether or not those reasons constituted reasonable grounds for refusal or imposing conditions.  However, the Courts will ask 3 questions in turn:

1.  What in fact was the reason for the landlord's refusal of consent?

2.  Is this reason contained in the landlord's notice of refusal?

3.  If the reason is contained in the landlord's notice of refusal, is it a reasonable reason?

Cases such as Norwich Union Life and Pensions v Linpack Mouldings [2009] EWHC 1602 show that the Courts will engage in a detailed examination of the landlord's files to establish what in fact motivated the refusal of consent.

The landlord was successful in that case.  However, the key point is that if a landlord relies on a reason not set out in its notice, that will be sufficient to render its decision unreasonable. This will apply even where the reasons set out in the notice would themselves have constituted reasonable grounds for refusal.

This case stresses the importance of landlords taking advice at an early stage and ensuring that their decision-making process is well-informed and properly documented. If they are considering refusal, they need to identify potential grounds for refusal and to establish which of those grounds would be reasonable to rely upon.  They then need to be able to show that those were the grounds they in fact relied upon.

Tenants will be encouraged by the fact that they can mount a forensic attack on the landlord's decision-making process where they suspect that unreasonable factors have played a part in the decision to refuse consent.

To find out more, please contact Donald Lambert