A very topical and interesting case has been recently reported relating to a developer’s attempt to modify some leasehold restrictive covenants. It is a decision that will interest all landlords, leaseholders and developers. Here, Hannah Al-Shaghana looks at the case of Great Jackson Street Estates Limited -v- Manchester City Council 2023.

It is of particular interest for two reasons:

1. it relates to a central site in Manchester; and
2. it concerns Manchester City Council (MCC) and the dual role that it has in this matter.

Manchester City Council’s dual role

In this case, MCC is both:

1. the local planning authority – and therefore its main primary function is to determine planning applications in accordance with their policies; and
2. the landlord of the building in question and therefore owns the land as in investor/freeholder.

Brief facts

The facts of the case concern G who is the tenant of two redundant warehouses (Site) under a lease with about 60 years unexpired.  G wanted to redevelop the Site into a major residential flat scheme and managed to obtain planning permission from MCC in 2021 to redevelop the warehouses into 1037 flats (subject to a completion of a section 106 agreement).

In conjunction with the planning consent, MCC also offered G a new 250-year lease to facilitate the development of the Site. The draft lease enabled G to sell the flats under long leases however G did not agree to their proposed terms.  There were 11 tenant covenants in the lease which restricted G’s ability to develop in the way they that they required and many of the leasehold covenants required the prior consent of MCC. Furthermore, many of the restrictive covenants impose restrictions on future use, waste storage, sub-lettings, nuisance, and the use of hoardings.

Due to these onerous restrictions, G therefore made an application under section 84 of the Law and Property Act 1925 to have these covenants modified to enable them to develop the Site freely and without MCC’s consent.  Interestingly, the Upper Tribunal dismissed G’s application and found in favour of MCC.  In summary, the Upper Tribunal found that:-

(a).       The restrictions in the lease were not considered “obsolete” and MCC had a legitimate strategic interest in retaining control over the use of the land and ensuring any development was carried out with appropriate safeguards.

(b).       Whilst the restrictions did interfere with G’s proposed use in that it required the landlord’s consent to the works and other changes – this was a practical benefit of substantial advantage to the landlord by allowing it to influence the form of the development and mitigate the risk of it not being completed in a timely fashion.

(c)        Injury would be caused to Manchester City Council if those restrictions were modified as they would lose their practical control over the redevelopment.

This decision is interesting because it demonstrates that a local authority can wear multiple different hats and, as a result, can have opposing/differing views on effectively the same matter.  In its capacity as a planning authority, it was prepared to grant planning for the development of the Site. In its capacity as a landlord however, they were not prepared to relax the restrictive covenants to enable the development to be carried out as freely as the developer had hoped. Protecting their strategic position as landlord and ensuring they retained the sufficient controls over the land trumped the planning decision.

Warning to all developers

It serves as a reminder to all developers that you cannot ignore restrictive covenants that affect the title to a building (be it leasehold or restrictive covenants). Exercise caution and ensure that you carry out a thorough title investigation and check for any restrictions, consents and prohibitions that may restrict or hinder your development plans.

Incidentally, the Upper Tribunal did say that they would be reluctant to interfere with a local authority which seeks to use its private rights to ensure that a desired development takes place. They also took the view that these matters could be resolved through sensible commercial negotiations and they felt it was inappropriate for the Upper Tribunal to interfere and intervene with what appeared to be still ongoing commercial negotiations.

Whilst I have no connections to this case whatsoever, I am hopeful that a commercial resolution will be reached between the parties and that we will see this development in the making in the near future.

If you have any questions or require any further advice on this topic, get in touch with our specialist teams today at hello@beyondcorporate.co.uk

[This blog is intended to give general information only and is not intended to apply to specific circumstances. The contents of this blog should not be regarded as legal advice and should not be relied upon as such. Readers are advised to seek specific legal advice.]