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Variation under s610 of 1985 Act

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Variation under s610 of 1985 Act

Conversion to two or more lettings

Width of discretion

Lawntown Limited v Camenzuli
[2007] EWCA Civ 949.

Introduction

Many practitioners will be familiar with the power of the Upper Tribunal (Lands Chamber) to discharge or modify restrictive covenants pursuant to s84 of the Law of Property Act 1925. Not so many will be familiar with the power of the county court to vary restrictive covenants under s610 of the Housing Act 1985. The section "applies to freehold as well as to leasehold land and is designed to provide relief against covenants in so far as they would prevent the conversion of larger houses into two or more smaller dwellings" (para 9). In this case the CA gave guidance as to how the court should exercise its discretion when deciding whether or not to make an order under s610.

Section 610 of the 1985 Act
    "(1) The local housing authority or a person interested in any premises may apply to the county court where ..
      (a) owing to changes in the character of the neighbourhood in which the premises are situated, they cannot readily be let as a single dwelling-house but could readily be let for occupation if converted into two or more dwelling-houses, or

      (b) planning permission has been granted under Part III of the Town and Country Planning Act 1990 (general planning control) for the use of the premises as converted into two or more separate dwelling-houses instead of as a single dwelling-house,


    and the conversion is prohibited or restricted by the provisions of the lease of the premises, or by a restrictive covenant affecting the premises, or otherwise.

    (2) The court may, after giving any person interested an opportunity of being heard, vary the terms of the lease or other instrument imposing the prohibition or restriction, subject to such conditions and upon such terms as the court may think just."
Facts

The Respondent was a development company ("the developer") which had purchased a freehold property with a view to converting it into flats. It obtained planning permission for change of use of the property from a single dwelling-house to two self-contained flats. However, the property was also subject to a restrictive covenant so the developer applied to the county court under s610 of the 1985 for a variation of the covenants as to permit the conversion to take place. The trial judge allowed the application. In coming to his conclusion he said:
    "it seems to me that the court should normally proceed on the assumption that planning permission was properly granted. Then, as it seems to me, the court should look to see what matters are put forward by the objectors to the application which would make it unfair to modify or vary the covenants in question. In my view, save in exceptional circumstances, the court should not have regard to planning matters which have already been considered and decided by the local planning authority, but should have regard to considerations which were not before the planning authority or were not relevant to their decision."
The appeal

On appeal the CA held that the judge was wrong to confine his attention to those matters that the planning authority had not taken into account in reaching its decision to grant planning permission (para 44). The discretion was much wider than that. Richards LJ at paras 39-41:
    "... the statute does not create any presumption in favour of the variation of a restrictive covenant where planning permission has been granted, let alone any duty to vary the covenant". It is left to the court to take account of all relevant factors and to carry out a balancing exercise, giving such weight as it judges appropriate to the various factors in the exercise of its discretion.

    In order to carry out that task properly, the court must have regard to the interests sought to be protected by the restrictive covenant, and the extent to which those interests will be harmed by the proposed variation, as well as to the interests of the person seeking to vary the covenant and the advantages that will accrue from the variation. That last factor may engage matters of public as well as private interest, in particular where there are said to be policy considerations in favour of the more intensive use of existing dwelling-houses.

    Most importantly, it is for the court to make its own assessment of the relevant factors and the weight to be accorded to them. It must not leave matters out of account, or give them no weight in the overall balancing exercise, merely because they have already been considered by the local planning authority in granting planning permission. The court's task under s.610, although triggered by the grant of planning permission, is separate from the planning process and requires an independent exercise of judgment. That does not mean that the court has to second-guess the authority's planning judgments or to reach a view on the correctness of the grant of planning permission. It is simply that the authority's factual assessment is not determinative, however careful it may have been, and the court has to examine the facts for itself and to carry out its own balancing exercise."
Decision in this case

The fact that the trial judge took such a limited approach to the decision meant that he failed to have proper regard to many of the objections to the variation of the restrictive covenants, such as the effect on amenity of neighbouring properties. The CA considered that this "was a sufficiently fundamental error of principle that his exercise of discretion cannot stand. The appropriate course in the circumstances is for this court, which has seen all the material that was available to the court below, to exercise a fresh discretion of its own in the matter" (para 44). The CA then went on to take into account a number of factors including the following:
  • The fact that conversion into flats was likely to involve a higher density of occupation, which may in turn result in some increased noise.
  • The lack of evidence that the higher density would create problems in relation to traffic noise, fumes, congestion and parking.
  • The effect on the character of the neighbourhood, ie a change from large single family homes to smaller units with a different make up of resident.
  • Precedent and the effect of variation on the scheme of covenants in the area.
  • The lack of evidence that there would be a diminution in property prices.
  • The fact that after careful consideration planning permission had been granted (ie. it was a relevant factor but not in any way dominant).
  • The urgent demand for more housing in London.
(See paragraphs 46-55 for the full discussion of these various factors).

Taking all relevant factors into account, the CA took the view that the balance came down decisively in favour of granting the variation sought by the developer. Thus, although the CA carried out a fresh exercise of discretion, the conclusion was the same as that reached by the trial judge (para 56).

Compensation

Under s84 of the 1925 Act there is express provision for the payment of compensation where covenants are modified or discharged. There are no such express provisions in s610. However, the CA took the view that the power to award compensation is implicit in the words of the section. The power under s.610 to vary the terms of a covenant "subject to such conditions and upon such terms as the court may think just" enables the court to make provision for financial compensation in a suitable case, thereby addressing any problem that might otherwise arise under article 1 of the First Protocol to the Convention.

However, this was not a case where an order for financial compensation was appropriate, given in particular the absence of any cogent evidence that conversion of the property into flats would result in a diminution in the value of the neighbouring properties. (See para 58).

Conclusion

Property developers should give consideration to using 610 of the 1985 Act (where it applies) rather than s84 of the 1925 Act. In the judgement the following passage from Scammell on Land Covenants was quoted: "the provisions of s.610 appear especially useful and straightforward in the circumstances in which they apply and it is somewhat surprising that they are not more frequently used".

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