The Upper Tribunal (Lands Chamber) (UT) has exercised its discretion to modify restrictive covenants pursuant to an application under section 84(1) Law of Property Act 1925, (LPA 1925). However, the UT recognised that the covenants were imposed to minimise competition between neighbouring businesses and, in modifying them, sought to maintain that equilibrium.
In this case, the UT found that the protection of the objectors’ commercial interests was a practical benefit secured by the restrictive covenants. The case illustrates that, in certain circumstances, the UT will consider the potential economic effect on neighbouring businesses when faced with an application pursuant to LPA 1925, s 84(1).
Simplifying the facts considerably, the applicant, Pendennis Shipyard (Holdings) Limited (Pendennis), owns approximately ten acres of the dockyard and its business is the building, repair, restoration and refitting of yachts, in particular superyachts, and other leisure craft. The objectors, A&P Falmouth Limited & others (the objectors), own surrounding areas of the dockyard and have commercial interests in building and repairing sea-going vessels, principally commercial and military vessels. When the dockyard was developed in the 1980s, various covenants were put in place to ensure that the principal players could not compete with each other. Thus, Pendennis’ business focuses on recreational yachts whereas those of the objectors focus on commercial and military vessels.
Pendennis owned two areas of land known as the Existing Land and the Application land. The covenants are complicated but, in essence, the covenants affecting the Existing Land permit Pendennis to build or fit out the hulls of yachts, commercial, military and pleasure craft whereas those affecting the Application Land prohibited ‘boat building’ of any kind on that land. Pendennis applied to the UT for the harmonisation of the covenants affecting both areas of land. This was important because, logistically, it presented challenges to Pendennis if certain work which constituted boat building could only be carried out on part of its land.
The objectors opposed the proposed modification because it would mean that Pendennis would have greater scope to carry out works on commercial or military vessels on the Application Land. The objectors feared that this modification of the covenant would mean that Pendennis could operate in direct competition with them.
The UT found that the covenants did not secure to the objectors practical benefits of substantial value insofar as yachts and pleasure craft were concerned (ie the objectors would not be prejudiced if the covenants were amended so as to permit Pendennis to build yachts and pleasure craft on the Application Land). However, whilst it seemed clear that Pendennis had no intention of branching out into building commercial or military vessels, a modification of the covenants in the terms proposed by Pendennis could permit competition with the objectors’ businesses in the future. The UT reached the view that the restrictions as they apply to commercial and military vessels did secure practical benefits of substantial value to the objectors. Therefore Pendennis had not made out its case for harmonisation of the covenants affecting the Existing Land and the Application Land.
The form of the covenant affecting the Application Land was unwieldy and the UT decided that, in the interests of clarity, it was necessary to depart from its wording. The UT effectively re-drafted the covenant to permit building or repairing yachts and pleasure craft on the Application Land.
The judgment is interesting in two respects. Firstly, the objectors succeeded in making out their case that the protection of their commercial interests was a practical benefit. Although the UT ordered the modification of the covenant, it recognised the purpose for which the covenants were imposed (ie to regulate the businesses’ respective interests and prevent them from competing with each other) and refused to interfere with that. Secondly, the UT decided not to amend the existing, cumbersome covenant (as was proposed by the parties) but instead drafted its own version. This illustrates that the UT’s discretion is extensive and it is not limited to considering the proposed modifications put before it.
For further advice contact Tom Warrender, Head of Commercial Property, or Stuart Love, Head of Commercial Litigation on 0800 088 6004.