Most interests in land (if you include leasehold) are subject to covenants. The party giving the covenant will usually be bound by it and, in some circumstances (e.g. restrictive covenants), a successor in title can also be bound.
The focus of this article is on obtaining consent to release the covenantor (by which we mean any party which has an obligation under a covenant) from the obligations set out in a "qualified" covenant. By this we mean a covenant not to do something save with the consent of someone.
Legal advice should be sought before seeking to negotiate a release. The covenant might not be valid or binding and there may no longer be any party with a right to enforce the covenant. If so, there may be no need to negotiate a release.
There may also be an argument for obtaining title indemnity insurance instead, which is likely to be easier if there have not yet been any discussions with any party which has the benefit of the covenant (which we shall refer to as the beneficiary) or any party entitled to consent to a release of the covenant.
Consent to release
Qualified covenants usually permit the covenanted land to be used in a way which is inconsistent with the covenant, subject to first obtaining the consent of the beneficiary.
Usually, a qualified covenant will say that this consent is not to be unreasonably withheld or delayed. In some circumstances, the party who is asked for consent can be under certain statutory duties, for example landlords under leases entered into after the Landlord and Tenant Act 1988 came into force.
Who should give consent?
The wording of the covenant in question will need to be considered, as the beneficiary of a covenant may not be the party that is required to give consent.
- If the covenant states that consent can be given by successors in title to the original beneficiary, that will be a good indicator that the current owner of the benefiting land should give consent.
- If the covenant refers to the original beneficiary by name, and does not refer to successors in title, consent may have to be given by the original beneficiary, even if it no longer owns the covenanted land.
- If the covenant refers to "the Vendor" or "the Transferor", the wording of the covenant and the circumstances, both at the time of the transfer and at the time consent is sought, may indicate that consent is required from either the original beneficiary or the current owner of the benefiting land.
If the consent of the original beneficiary is required, but that beneficiary no longer exists because it has either passed away or (if a company) is dissolved, yet more questions arise. A recent trend of Court decisions has suggested that such circumstances may lead to the discharge of the covenant altogether, although this will depend on the purpose and construction of the covenant. Alternatively, it may not be possible for anybody to give consent to a release, in which case a qualified covenant may effectively become an unqualified covenant.
Problems in obtaining consent may arise where multiple people or companies are named as the original beneficiaries or where benefitting land has been divided up among a large number of beneficiaries.
What can the covenantor do if consent is unreasonably withheld?
The covenantor can seek a declaration from the Court that consent has been unreasonably withheld or delayed. If such a declaration is made by the Court, the covenantor will be able to proceed as if consent had been given.
Alternatively, the covenantor may be able to simply proceed with whatever it sought consent to do, even though no consent has actually been given. This can be a risky move, however, as if the covenantor has misjudged the situation this may give rise to an action for breach of covenant against the covenantor. Getting a declaration first from the court removes this risk, but the process can be costly and time-consuming, so taking this risk may be the best commercial option in some circumstances.
Whether or not the covenantor can seek damages for failure to give consent will depend on the wording of the qualified covenant and the circumstances. Where the party asked for consent (e.g. a landlord) is under a statutory duty not to unreasonably withhold or delay consent, but does so, the covenantor will be able to bring a claim for damages for breach of statutory duty.
Similarly, where a party has expressly covenanted not to unreasonably withhold or delay consent, but does so, the covenantor will have a claim for damages for breach of covenant.
Where neither of these apply, however, a failure by that party to give consent expeditiously and/or reasonably will not sound in damages (it was for this reason that s1 of the Landlord and Tenant Act 1988 was introduced).
Stamp Duty Land Tax or Land Transaction Tax may be payable if a covenant is released altogether. The sum payable will depend on the size of any payment made by the covenantor to the beneficiary for the release of the covenant and whether the release is linked with another land transaction.
If a covenant is released, it would be prudent to update the Charges Register (in the case of registered land) or amend/cancel any Land Charges.
Every case is likely to be different, as covenants are used for different purposes and the specific wording can be critical. Legal advice should therefore be sought whenever entering into or taking the benefit of any covenants affecting land and when considering your options in relation to such a covenant.