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Small Development Sites: Restrictive Covenants

Before a developer considers acquiring a site for development purposes, it is important that the title to the property is examined for the presence of valid restrictive covenants, which could have the potential to restrict development. Ann Ebberson, Partn

While not fatal to the development of a site, the risks associated with a restrictive covenant should be addressed early on and in any event before the site is acquired, if at all possible. A restrictive covenant affecting land involves an agreement that one party will restrict the use of its land in some way for the benefit of another's land. The restriction of use can manifest itself in several different ways; for example, there could be a restriction on the number or type of buildings that can be erected or the activities that can be carried out on the property.

Once it is established that the restrictive covenant is enforceable, there are a number of ways to address the risk posed by the restrictive covenant and the approach taken will vary depending on the nature of the restrictive covenant in the context of the proposed development of the land. In this commentary, we will review the various options available to a developer when confronted by restrictive covenants on a title. In particular, we will look at the option of applying to the Upper Tribunal for the modification or discharge of a restrictive covenant as a comprehensive, long term solution, and in this context the very interesting, recent case of Millgate Developments Limited and another v Smith and another, Re: Exchange House, Woodlands Park Avenue, Maidenhead [2016] UKUT 515 (LC) (‘Millgate’).

Indemnity Insurance Policy
Purchasing an indemnity insurance policy can be a straightforward, cost effective option if the restrictive covenants are historic and the benefiting land or the full extent of the burdened land cannot be identified. An indemnity policy can offer a quick solution to the problem, make a site more marketable in the interim and can offer assurances to a funder who may have concerns that a restrictive covenant will be enforced at some date in the future.  

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