Right to buy": restrictive covenants

Citation

Lee, R. and Waterson, G. (2001), "Right to buy": restrictive covenants", Property Management, Vol. 19 No. 1. https://doi.org/10.1108/pm.2001.11319aab.008

"Right to buy": restrictive covenants

"Right to buy": restrictive covenants

R v. Braintree D.C. ex.p. Halls [2000] 36 EG 164

Readers will doubtless be familiar, at least in general terms, with the "Right to Buy" provisions now contained in the Housing Act 1985, under which the majority of council tenants who have lived in their council-owned properties for the minimum period of two years specified in the Act (including, in some cases, any periods previously spent as tenants in other public sector rented accommodation) will find themselves entitled to purchase the property at a substantial discount.

In this case the father of the applicant had purchased his house from the council in August 1988 at the discounted price of £20,000. The conveyance had included a restrictive covenant which required the purchaser and his successors in title:

To use the property as a single private dwellinghouse only and not to carry out or to permit to be carried out on the property any trade or business of any description whatsoever and not do or cause suffer or permit anything to be done on the property which is or might grow to be a source of nuisance or annoyance to the Council the owners or occupiers of adjoining or neighbouring properties.

The tenant later died, and his son (the applicant) succeeded to the property. In July 1995 the same council had granted the applicant planning permission to build a bungalow and garage in the garden of the property. In July 1996 the applicant's solicitors wrote asking the council for consent to carry the proposed development, i.e. in effect requesting a partial release or relaxation of the restrictive covenant. In August 1996 the council replied, saying that they would be willing to release the applicant from the covenant "subject to [his] paying to the council a sum equivalent to 90 per cent of the open market value of the building plot …" There was then further correspondence, with the applicant's solicitor asking what was the council's justification for imposing the covenant in the first place, and the council replying that it had been imposed in order to realise for the council the benefit of any future development value. The applicant applied to the High Court for judicial review of the council's decision, alleging variously: that the covenant was illegal and void; that the demand for any payment as consideration for the release of the covenant was unlawful or irrational; in that alternative, that the demand for 90 per cent of the value of the plot was irrational. The question of the illegality of the covenant was abandoned at first instance, but re-instated when the matter came to the Court of Appeal.

Laws LJ delivering the principal judgment upheld the application for judicial review in the following terms:

In my judgement, the policy of this legislation generally is to enable tenants exercising the right to buy to enjoy what might be called the ordinary fruits or advantages of homeownership, including a rise in the value of their property, whether that is because of the benefits of a later acquired planning permission or otherwise …

The course of events in this case has the appearance … of a state of affairs in which, in truth and in effect, the local authority are exacting a price for the property under the right-to-buy scheme in two stages or tranches: first, the price fixed in the conveyance itself; and, second, through the mechanism of this covenant, a further price if the value of the property is enhanced by the potential for development. Such a state of affairs is entirely outwith the scheme of this statute, which, in general terms, as it seems to me, requires the local authority to convey to the tenant purchaser the property upon conditions that the tenant purchaser, and not the vendor council, has and retains the financial as well as any other benefits arising sooner or later from possession and ownership of the property. The tenant's rights are constrained, certainly by sections 155 and 157. The provisions for valuation are tight and carefully set out. There is simply no room, as it seems to me, for what has been done here.

Cardon D.C. v. Paton [2000] 35 EG 132

In this case, the conveyance contained a not entirely dissimilar restrictive covenant and the question was whether it had been breached by the use of the properties in question for short-term commercial holiday lettings. Yes, said the Court of Appeal: the occasional use of such a property by the owner as a second home to which he repaired as and when circumstances allowed would probably not be in breach of the covenant; nor, probably, would such intermittent use by members of the owner's family; nor an extended letting for, say, six months or more at a time. However, short term commercial holiday lettings were contrary to the terms of the covenant, and an injunction would be granted to restrain any future breaches, with costs awarded to the council.