Judges dismiss appeal brought by developer seeking to discharge covenants in lease agreement with council
The Court of Appeal has dismissed a developer's appeal over the Upper Tribunal's refusal of its application to discharge a series of covenants contained in a lease agreement in order to allow a 1,000-home high-rise development to go ahead.
In Great Jackson St Estates Ltd v Council of the City of Manchester [2025] EWCA Civ 652 (19 May 2025), Lady Justice Asplin found the tribunal's decision revealed no error in law.
The case was brought by appellant Great Jackson St Estates Limited (Great Jackson), which is the tenant of two redundant warehouses in a part of Manchester that is being rapidly developed as an area of modern, high-density housing.
The council is the freehold owner of the site and the relevant planning authority.
Great Jackson wants to demolish the warehouses and replace them with two 56-storey tower blocks containing just over 1,000 flats.
However, the developer faces a series of barriers, including covenants in its lease which prevent the redevelopment of the warehouses without the consent of the council and other covenants which are subject to the council's consent, not to be unreasonably withheld.
Both parties are also unable to reach an agreement on a new long lease for the site.
The council proposed that Great Jackson enter into a new 250-year building lease at a premium, which would be subject to numerous conditions and milestones in relation to the development and would provide forfeiture if the development milestones were not achieved.
However, Great Jackson sought the council's consent to the proposed development under the lease, which was not forthcoming.
This impasse led the developer to apply to the Upper Tribunal pursuant to section 84 of the Law of Property Act 1925 (the 1925 Act), for the modification or discharge of eleven covenants contained in the lease to enable the redevelopment to be carried out without the need for the grant of a new lease.
The Upper Tribunal rejected the developer's bid in August 2023, finding that Manchester had genuine concerns about the viability of the proposed redevelopment of a site in one of its regeneration areas and to seek its completion within a specified time.
At the Court of Appeal, Asplin LJ said the central issue in the appeal was whether restrictive covenants in a lease provide the lessor, which is also the planning authority, with practical benefits of substantial value or advantage to it for the purposes of section 84(1)(aa) and section 84(1A) of the 1925 Act, in enabling the lessor to prevent a proposed development from going ahead in an uncontrolled manner.
She said that in this case, Manchester's concern as the lessor was that the proposed development might not be completed in a timely fashion or not be completed at all.
"This arises in a context in which only 60 years of the unexpired term of the lease remain and negotiations for a new building lease, subject to stringent conditions, have faltered," she noted.
Asplin LJ considered two grounds of appeal.
First, the developer argued that the Upper Tribunal was wrong in law to hold that the restrictions imposed by the covenants secured practical benefits to the council. The tribunal should have held that the restrictions secured no practical benefit, and therefore it had power by order to modify the restrictions to permit the development to be carried out.
This ground had two aspects to it:
- It is said that "practical benefits" for the purposes of section 84(1)(aa) of the 1925 Act are benefits which are enjoyed as a result of the covenant being complied with and the proposed user being prevented. In appropriate cases, terms may be imposed upon how the reasonable user is implemented and this is reflected in section 84(1C);
- Even if that is wrong, it is said that the ability to use a restriction to prevent a reasonable user from being put into effect unless the applicant agrees to enter into a new lease is not a "practical benefit" for the purposes of section 84(1)(aa) of the 1925 Act.
The second ground meanwhile contended that the Upper Tribunal erred in law by stating that had it had the power to modify the covenants, it would not have exercised its discretion to do so.
Asplin LJ ultimately dismissed the appeal, finding that the Upper Tribunal was entitled to decide that the covenants afford the council practical benefits of substantial advantage to it and that the tribunal's decision "reveals no error of law".
Lord Justice Baker and Lord Justice Nugee agreed with her judgment.
Great Jackson now has 28 days to apply for permission to appeal to the Supreme Court.
Adam Carey