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It’s Perfectly Fine for Public Authorities to Profit from Their Land Holdings

It is perfectly legitimate for public authorities to exploit their property holdings for the benefit of the public purse. A tribunal made that point in opening the way for a local authority to claim a share of the profits from a £1.7 million development.

A couple had bought a large Victorian house, formerly used as a day centre, from a local authority for £249,500. The sale was subject to a restrictive covenant that prevented construction of any additional buildings on the site for use as residential accommodation. The couple had, however, obtained planning consent to convert the building into seven flats and to erect a block of 13 more flats in its grounds.

In an attempt to obtain the council’s consent to the lifting of the restriction, the couple offered it £5,000. That was rejected and, after negotiations broke down, they asked the Lands Chamber of the Upper Tribunal (UT) to exercise its powers under Section 84 of the Law of Property Act 1925 to discharge the covenant.

The couple complained that the restriction was only mentioned at a late stage in negotiations prior to their purchase of the property. They accused the council of a covert and apparently underhand attempt to use the covenant as a means of making money. They also argued that their plans included provision of affordable homes and that maintaining the restriction was not in the public interest.

In rejecting their application, however, the UT noted that, although the conversion of the original building would not be affected by the covenant, the additional apartment block would be. The 20 proposed flats would have a combined value of up to £1.7 million and the council had been entitled to insist on the restriction as a means of ensuring that it received a share of any increase in the land’s value arising from a grant of planning permission.

The price that the couple had paid for the property took account of the covenant and, following a commercial negotiation, they would have agreed to pay substantially more than £5,000 to have the restriction lifted. If the covenant were discharged, the couple would receive a significant windfall at the expense of the public. The ruling meant that the couple would have to return to the negotiating table with the council or see their plans for the apartment block stymied.

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