Upper Tribunal rejects bid by developer to have discharged covenants requiring consent of council to redevelopment

Manchester City Council 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, the Upper Tribunal (Lands Chamber) has found.

In Great Jackson Street Estates Ltd v Manchester City Council (RESTRICTIVE COVENANTS - Modification - Obsolescence) [2023] UKUT 189 (LC) the Upper Tribunal dismissed an application by Great Jackson Street Estates (GJSE) over covenant conditions.

Martin Rodger KC, Deputy Chamber President, and tribunal member Peter McCrea heard GJSE holds the lease of two redundant warehouses in an area being developed with high-density housing.

It wants to demolish these and replace them in a £300m project with two 56-storey tower blocks containing 1,037 flats.

GJSE though faces the hurdle that the unexpired term of the lease is only 61 years and so too short to enable any flats to be sold on mortgageable leases.

It further faces the problems that the lease includes a series of covenants which prevent the warehouses’ redevelopment without the consent of its landlord, which is the city council, who will consent to redevelopment only on terms GJSE considers unacceptable.

GJSE applied to the tribunal under section 84, Law of Property Act 1925, for the modification or discharge of 11 covenants so it could redevelop the site without Manchester’s consent.

It said it would then complete the project using its own money and let the flats on short tenancies at rack rents, before the land reverts to the council at the expiry of the lease.

The tribunal heard the council owns the freehold reversionary interest in three Great Jackson Street development plots, on terms very similar to those of GJSE and has reached agreements with other developers.

GJSE’s own application was approved by Manchester’s in June 2021 subject to a section 106 agreement.

The council offered to grant GJSE a new 250 years lease similar to those agreed with other nearby developers. But GJSE “strongly disagrees and considers the proposed terms to be onerous and thinks that they would be unacceptable to any potential funder or investor in the project,” the tribunal was told.

GJSE said it wanted the council's consent to the proposed development under the terms of the existing lease, which Manchester is unwilling to agree.

Mr Rodger said that to succeed GJSE had to show the covenant restrictions ought to be deemed obsolete.

The tribunal said: “The touchstone of obsolescence is whether the object of the covenant is still capable of fulfilment. We have no doubt that the object of the restriction on use…remains capable of fulfilment.”

Its ruling continued: “The nub of this application is about the control the restrictions secure to the council as a local authority.

“We are satisfied that the council's concerns about the viability of the development are genuine, and the conditions that it seeks to impose address its wish to see the development commencing and being completed within a certain period.”

The tribunal said it had to decide the extent of the advantage which the restrictions secure for the council, by preventing the development going ahead unless GJSE satisfies its concerns.

“Those concerns are not pecuniary in nature but are aimed at ensuring one of the last pieces of the development jigsaw slots into place,” the ruling said.

It followed injury would be caused to the council by modification of the restrictions as GJSE proposed, “since the council would lose the practical control which it currently enjoys over the redevelopment of the site”.

Mr Rodger and Mr McCrea had visited GJSE’s site and were “in no doubt that the development of the site is capable of being achieved through sensible commercial negotiations”.

Mark Smulian