Does the Tribunal have the power to modify alienation and keep open covenants in a lease?

In Blackhorse Investments (Borough) Ltd v London Borough of Southwark [2024] UKUT 33 (LC), the Upper Tribunal (Lands Chamber) (“the UT”) held that it had no power under section 84 of the Law of Property Act 1925 to modify alienation and keep open covenants in a long pub lease as they were positive covenants.

The applicant, Blackhorse, owned the leasehold of a pub in Southwark. The respondent Council held the freehold title.

The pub closed and Blackhorse obtained planning consent to enable the pub to be demolished and re-constructed as a mixed-use property (which included a new pub).

Blackhorse also needed to apply to the UT under section 84 to modify/remove certain lease covenants so the development could take place.

Blackhorse applied to the UT to vary the leasehold covenants that required the property to be kept open and to be used as a pub, and the restrictions against alienation and alterations. It also sought to release an obligation to use best endeavours to renew liquor licences.

In order to succeed an applicant needs to satisfy one of the statutory grounds on which a restrictive covenant may be discharged or modified. The grounds are;

1.     That the covenant is obsolete;

2.     That the covenant impedes the reasonable use of the land;

3.     The modification or removal would not injure those who are entitled to benefit from the restriction; or

4.     Where all parties who benefit from the covenant give their consent to its modification or discharge.

The Council did not object (the Council later raised procedural issues which we will not go into here) and the UT made the order to modify the covenants as requested.

The Council later applied to set aside the order on the basis that the covenants (apart from the alterations covenant) were positive in nature.

UT held that:

1.     It had no jurisdiction to modify the alienation covenant as this was not a restriction on land use but concerned ownership of a property interest only.

2.     The obligation to use as a pub only could be modified.

3.     The obligation to keep open as a pub could not be modified as that was positive.

4.     The best endeavours to renew licences obligation was positive and could not be released.

The UT issued a new order that modified the covenants only to the extent permitted.

This case serves as a useful reminder that it is not always easy to establish whether a covenant is genuinely negative/ restrictive and the nature of the covenants needs to be considered carefully. 

Posted on 04/03/2024 by Ortolan

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