Developers take note, Covenants Arntz set in stone!
19 September 2019
The £100m development at the old Arntz Belting Company site in Londonderry can now proceed without fear of legal action by the freeholder, after the Lands Tribunal modified the covenants in the developer’s 999 year leases.
In February, Derry City and Strabane District Council granted planning permission for a 75,000 sq ft medical hub and a 60,000 sq ft retail superstore at the site, but the developer held title under leases granted by Invest NI’s predecessor, the Industrial Development Board, in the 1980s, and these leases included covenants which (i) prevented the property being used for purposes which were not industrial or commercial, (ii) prohibited retail use and (iii) required the freeholder’s consent to any new building.
Under Article 5 of the Property (NI) Order 1978, the Lands Tribunal has power to modify covenants which “unreasonably impede the enjoyment of land”, so the developer applied to the Tribunal accordingly. The 1978 Order lists seven factors which the Tribunal has to consider, including the purposes for which the covenant was originally imposed, any subsequent change in the character of the neighbourhood and any practical benefit secured by the covenant.
The developer’s expert witness was able to show that the character of the neighbourhood had changed, with a trend away from industrial and manufacturing use and towards retail development. The Tribunal agreed that the original purpose of the covenant was to maintain a supply of industrial land in the Derry area, to foster job creation, and that this purpose was now obsolete, particularly with public focus shifting to job creation in the high-tech sector.
While the freeholder protested that the development might have an adverse impact on traffic flows within the estate and on capital and rental values, it did not adduce any supporting evidence. The Tribunal was not persuaded that the freeholder would lose any practical benefit, were the covenant to be modified, particularly since it had already allowed office use and a cinema complex nearby.
The decision sounds a hopeful note to developers: many former industrial sites are still held under similar leases. Armed with sufficient evidence of a change in the area’s character, a developer holding the relevant statutory consents might well persuade the Tribunal to modify or extinguish the relevant covenants.