England and Wales Lands Tribunal

Higgs & Anor v Paul & Anor [2005] EWLands LRA_2_2005 (24 October 2005)

LRA/2/2005

LANDS TRIBUNAL ACT 1949

LEASEHOLD ENFRANCHISEMENT – house – terms of transfer – restrictive covenants – new building and alterations – Leasehold Reform Act 1967, ss 8(1), 10(4)(b)(i) & (5)(a)

IN THE MATTER of an APPEAL against a DECISION of a LEASEHOLD

VALUATION TRIBUNAL of the NORTHERN RENT ASSESSMENT PANEL

BETWEEN PAUL and HELEN HIGGS Appellants

and

ROY PAUL and CARON ANN NIEROBA Respondents

Re: 18 Waterloo Road

Bramhall

Stockport

Cheshire

Before: P H Clarke FRICS

Sitting at Procession House, London EC4

on 4 October 2005

Mr C R Green instructed by SAS lawyers, solicitors, for the appellants

Mr Stephen Murch instructed by Last Cawra Feather, solicitors, for the respondents


 


The following cases are referred to in this decision:

Peck v Hornsey Parochial Charities (1970) 22 P & CR 789

Le Mesurier v Pitt (1972) 23 P & CR 389

Moreau v Howard de Walden Estates Limited (2003) (LRA/2/02)

Marten v Flight Refuelling Limited [1962] 1Ch 115

Re Martin (1988) 57 P & CR 119

The following further cases were referred to in argument:

Swann v White [1996] 1 EGLR 199

Wellcome Trust Limited v Romines [1999] 3 EGLR 229

DECISION

1. This is an appeal by the freeholders of a long leasehold house in Stockport against the decision of a leasehold valuation tribunal not to include two restrictive covenants in the conveyance on enfranchisement under the Leasehold Reform Act 1967.
2. Mr C R Green of counsel appeared for the appellants and called Mr Paul Edward Higgs, one of the appellant landlords. Mr Stephen Murch of counsel appeared for the respondents and called Mr Roy Paul Nieroba, one of the respondent tenants, and Mr John Aubrey Rhoades FRICS IRRV, a director of ABV Rhoades of Manchester.
3. I made an accompanied inspection of 16 and 18 Waterloo Road and the surrounding area on 18 October 2005.

FACTS

4. The house which is the subject of this appeal, 18 Waterloo Road ("the appeal property"), is in Bramhall, a pleasant residential suburb about four miles south of the centre of Stockport in Cheshire. It is a detached two-storey house built in the 1930s of traditional brick and tile construction with painted cement rendering to the walls. It is occupied by the respondents. The appellants live at 16 Waterloo Road which is immediately adjoining the appeal property. This is a similar detached house which has been extended at the rear by the addition of a conservatory.
5. The freehold of the appeal property was purchased by the appellants on 7 July 2003. By a lease dated 11 November 1937 the house is let for 999 years from 11 November 1937 at a rent of £7 per annum. The respondents acquired this leasehold interest on 21 November 1990. Two covenants in the lease are relevant to this appeal. Under clause 2(e) any building to be erected on the land shall be to the satisfaction of the landlord and in accordance with approved plans and specifications. Under clause 2(f) the tenant may not make additions, extensions or external structural alterations without the landlord's consent.
6. Mr Higgs, the first appellant, acquired the long leasehold interest in 16 Waterloo Road (the adjoining house) in 1986 and then the freehold in 1991.
7. On 3 April 2003 planning permission was granted by Stockport Metropolitan Borough Council for a single-storey rear extension to the appeal property and approval of plans under the Building Act 1984 and Building Regulations was given on 20 June 2003. Consent to this extension has not been given under the lease and it has not been built.
8. On 6 January 2004 the respondents gave notice under the Leasehold Reform Act 1967 ("the 1967 Act") of their desire to have the freehold of the appeal property. This was admitted by the appellants on 4 March 2004. On 29 July 2004 the respondents applied to a leasehold valuation tribunal ("LVT") to determine the purchase price and the restrictive covenants to be included in the conveyance of the freehold. The price was subsequently agreed at £150 and one of the three restrictive covenants in dispute was agreed (prohibition of use for trade, business or manufacture). Following a hearing on 27 September 2004 the tribunal issued a decision dated 3 November 2004 not to include the two disputed restrictions in the transfer of the freehold to the respondents. These restrictions required erection of any building on the appeal property to be to the satisfaction and approval of the appellants (or other owners of 16 Waterloo Road) (such approval not be unreasonably withheld) and required additions or alterations to the outside of the building on the appeal property to have the prior consent of the appellants (or other owners of 16 Waterloo Road) (such consent not be unreasonably withheld) with provision for compensation for any depreciation in value. Permission to appeal against this decision was refused by the LVT on 10 December 2004 but granted by the President of this Tribunal on 17 February 2005.

APPELLANTS' CASE

9. Mr Higgs referred in his evidence to his purchase of the leasehold and then freehold interests in 16 Waterloo Road, the recent purchase of the freehold of the appeal property, the construction of a conservatory at the rear of no 16 in 1991, the rear extension to no 18 proposed by the respondents and the resultant dispute regarding the covenants to be included in the freehold transfer. He said that, by seeking the inclusion of the two restrictions, the appellants are asking for nothing more than the maintenance of the status quo to protect no 16 by the continuance of similar lease covenants. They were included in the lease to preserve the environment and to allow a measure of control to protect no 16. It is not sought to unreasonably withhold consent to a proper construction proposal, only for an unreasonable construction, whether this is an extension or a new block of flats. The proposed restrictions will materially enhanced the value of 16 Waterloo Road by giving control over development on the immediately adjoining property. There are many properties in Waterloo Road subject to the same covenants.
10. In his submissions Mr Green relied on section 10(4)(b)(i) and (5)(a) of the 1967 Act, which raise the following questions. Do the proposed covenants secure the continuance of the existing restrictions in the lease? Are the covenants capable of benefiting and materially enhancing the value of 16 Waterloo Road? Are the covenants reasonable? Although the proposed extension to the appeal property has given rise to this dispute, the Tribunal is not limited to this issue when considering whether the covenants meet the statutory requirements. Although it is necessary to show that the LVT decision is wrong, it is not necessary to adduce additional evidence where it is contended that there are errors in law and valuation principles.
11. As to the first question, Mr Green said that the covenants secure the continuance of the existing lease restrictions (with suitable adaptations).
12. Secondly, the covenants are capable of benefiting 16 Waterloo Road. The appellants are not seeking to prevent any extension at no 18 only the proposed extension or any other building to which they can reasonably object. The covenants materially enhance the value of 16 Waterloo Road. Material enhancement can include the maintenance of a value which would otherwise deteriorate, although it is not so limited (Peck v Hornsey Parochial Charities (1970) 22 P & CR 789 at 799; Le Mesurier v Pitt (1972) 23 P & CR 389 at 398; Moreau v Howard de Walden Estates Limited (2003) (LRA/2/02) at para 185). Material enhancement and the maintenance of value are not limited to considerations of estate management but can reflect the circumstances of each case, including the effect on a single property. It is not the appellants' case that any extension at 18 Waterloo Road will adversely affect no 16: their objection is to the particular extension which is proposed.
13. The proposed covenants would give the owners of 16 Waterloo Road control over building works on the adjoining property. They would be able to prevent works which would adversely affect no 16. They would be able to ensure that works are to a reasonable standard, subject to consent not being unreasonably withheld. This must amount to material (i.e. non-trivial) enhancement to the value of no 16. The covenants would allow the value of no 16 to be maintained, the construction of buildings on no 18 being capable of adversely affecting the value of no 16. Although the requirement of planning permission affords some protection, this is not equivalent to protection by restrictive covenants (see Moreau at para 187).
14. Mr Green said that, although a number of extensions have been built in the area, it has remained residential. The issue is whether the ability of the owners of 16 Waterloo Road, through the restrictions, to prevent the construction of a building on the adjoining property which would interfere with their amenity, is a material enhancement to the value of no 16, including the maintenance of value. The appellants are not concerned with the effect on their house of other structures, just those proposed on the appeal property.
15. In Mr Rhoades' report his methodology and conclusions as to material enhancement are disputed. No valuation evidence is adduced by the appellants in respect of material enhancement: it would provide no assistance for the reasons given in Moreau (at para 185).
16. As to the third question, reasonableness, Mr Green said that the purpose of the lease covenants is to control building for the benefit of adjoining houses. This is as important now as it was in 1937. This is the purpose for which the appellants require the continuation of these covenants. The fact that other purchases do not include the covenants does not make it unreasonable in this particular case. There is no reason why one owner should not seek the permission of an adjoining owner in respect of matters which might affect the land, where such consent is not to be unreasonably withheld. It is clear from the statutory provisions and cases that, where the tests in section 10 of the 1967 Act are satisfied, the reversioner is entitled to continue his control when a tenant enfranchises, the nature and extent of such control depending on the particular covenants (see Peck, Le Mesurier and Moreau).
17. Other houses in the locality are leasehold subject to the same covenants as those in this appeal, eg nos 8, 12, 20, 23, 25 and 29 Waterloo Road. This suggests that a significant number of houses are occupied by longleasehold tenants and that all, or most, of the extensions required the freeholders' consent. This will continue to be the position other than in those cases where the tenant acquires the freehold.
18. Consent cannot be unreasonably withheld. If the proposed restrictions are not included, the respondents would be able to carry out works which would adversely affect 16 Waterloo Road. It is by no means clear that the appellants would have an action in nuisance. It is possible for a new building to cause diminution in value to an adjoining building but not to be an actionable nuisance. But if consent cannot be unreasonably withheld, the restrictions will not cause difficulties.
19. There is provision for compensation in the second disputed restriction. The reason for this is that a leasehold covenant carried over into the freehold should include all implied terms, including the proviso implied by section 19(2) of the Landlord Tenant Act 1927 (see Pitt). It is unclear why such a provision would be unreasonable in 2005. This section is still in force. The compensation provision does no more than allow for payment of a proper sum as a condition precedent for consent reflecting actual damage or diminution to 16 Waterloo Road. If the owners of no 16 receive an application for consent, and this could reasonably be refused because of diminution in value to that property, they could either refuse consent or grant it subject to compensation. This procedure has worked satisfactorily in leasehold covenants and would also operate satisfactorily in a freehold covenant. There is no reason why it cannot apply to a freehold (see Peck at 801). If the Tribunal should consider that inclusion of a compensation provision would be unreasonable, the appellants do not object to the removal of this part of the second restriction.
20. The issues in this appeal do not involve consideration as to whether the appellants would be unreasonable in withholding consent for the proposed extension at no 18. The issue of reasonableness under section 10(5)(a) of the 1967 Act is not the same as reasonableness of consent for the extension. If the appellants unreasonably withhold consent for the proposed extension, the respondents can proceed with the work or seek a declaration from the county court.

RESPONDENTS' CASE

21. Mr Nieroba gave evidence regarding the proposed extension to 18 Waterloo Road and the dispute which has arisen regarding consent. He said that the proposed restrictions are unreasonable: the respondents are not prepared to purchase no 18 with these restrictions. The steps taken by the appellants are a cynical attempt to prevent a valid extension to the respondents' house. Planning requirements have been adhered to but they are still unable to proceed. Mr Nieroba said that it is ridiculous to suggest that they may wish to build something hideous in their garden. Any development must comply with planning regulations. It is suggested that the proposed covenants mirror those in the lease but they were intended to prevent inappropriate development in what was then a newly-built area and are not relevant today, particularly having regard to recent building in Waterloo Road. The proposed covenants prevent the enjoyment of their house and would have a detrimental effect on value. They would enable neighbours to have influence over the respondents' property. When the appellants purchased the freehold of no 16 the owner did not impose similar covenants.
22. Mr Rhoades said that he has been asked to give an opinion as to whether the proposed covenants would materially enhance the value of 16 Waterloo Road and the value of other houses in the area. The concept of material enhancement means maintaining a value that would otherwise deteriorate.
23. Mr Rhoades referred to improvements which add value to a house and said that they also add value to surrounding houses. It is difficult to imagine their value being decreased. Planning controls limit extensions. A restrictive covenant would therefore have only a marginal effect. An analysis of sale prices in Waterloo Road shows that there is no correlation between prices and extensions next door. No comparison has been made between the sale prices of houses with and without the restrictions on development. The ability to control the extension of an adjoining property is not something that would weigh heavily on the mind of a prospective purchaser. The legal estate to be purchased does not come into play until after the price has been negotiated. A purchaser would not attach significant value to the covenant position. The conservatories built at 16 and 20 Waterloo Road do not affect the value of no 18. The same position would apply to no 16: an extension at no 18 in addition to that at no 20 would not affect the value.
24. The effect of the proposed extension at the appeal property on the conservatory at no 16 would be some loss of sunlight. This may be an annoyance but there is unlikely to be any significant loss of light. The only people affected by alterations to an adjoining property are existing occupiers. Buyers coming fresh to the scene would accept the effect of a neighbours' extension.
25. The situation at 18 Waterloo Road can be distinguished from the situation where covenants have been rigidly enforced to create an estate which is visibly different due to the effect of the covenants. Mr Rhoades referred to the large number of planning permissions for extensions granted in Waterloo Road and said that the changes which the covenants seek to prevent have already taken place.
26. The ability of the owners of no 16 to control works on the neighbouring property does not amount to a material enhancement in value. There may be circumstances where this could be the position but, in the present case where there is little likelihood of any development other than extensions or additions to the existing house, these controls do not produce a material enhancement in value. The proposed covenants would not be a matter of significance to a prospective purchaser and would not therefore affect the value.
27. Mr Rhoades concluded that the proposed extension to the appeal property would not materially affect the value of no 16 nor that of surrounding houses. A purchaser would not pay more for the ability to control building on adjoining land. The proposed covenants would not enhance the value of 16 Waterloo Road.
28. Mr Murch submitted that the appellants must show, not merely that the reasoning adopted by the LVT was wrong, but that its decision was also wrong. This decision was not wrong and the appeal must fail. In section 10 of the 1967 Act a distinction is drawn between continuing existing covenants and adding new ones. The respondents accept that the proposed restrictions are the continuance of lease covenants under section 10(4)(b)(i). A landlord cannot, however, require the inclusion of any provision which is unreasonable (see section 10(5)(a) of the 1967 Act).
29. The concept of material enhancement of value has been defined by the Lands Tribunal (see Peck, Pitt and Moreau) but these decisions can be distinguished on the facts. Furthermore, material enhancement as including the maintenance of value appears to go beyond the statutory wording, although it is now established by decisions of the Tribunal. The facts in these cases emphasise the nature of the test. Peck concerned the retention of single occupancy to maintain the value of other properties on an estate by preserving the character of the area. In Pitt it was agreed that a similar covenant was capable of benefiting other property. In Moreau the Tribunal had regard to the landlords' policy of strict enforcement of covenants to maintain an attractive estate.
30. The Lands Tribunal has warned against the grant of planning permission as a reason for declining to include a covenants in the terms sought by the landlords (see Moreau). But it is not the respondents' contention that, because planning permission has been granted for their proposed extension, it must follow that neither of the covenants should be allowed. They rely on the planning permission to show that the covenants will not maintain a value which would otherwise deteriorate and that, in view of changes in the neighbourhood since 1937, inclusion of either covenant is unreasonable.
31. Mr Murch referred to the same questions as Mr Green and said that it is only if the answer to each question is affirmative that the landlords are entitled to require the inclusion of the covenants in the conveyance.
32. Mr Murch said that the LVT made a site visit. The Lands Tribunal should be slow to conclude that the lower tribunal were wrong as to the locality and the effect of the proposed covenants. The locality of 18 Waterloo Road is markedly different from that in the Peck, Pitt and Moreau decisions. Extensions have been added to many houses: that which the appellants seek to restrict has already happened. The covenants will not "maintain a value which would otherwise deteriorate."
33. As to the first disputed covenant (new building), Mr Murch said that, although it is intended to benefit the appellants' property, this would be unsuccessful having regard to changes in the locality (ie existing extensions). It is too late to stop the changes which have already happened.
34. The covenant does not materially enhance the value of other property because additional structures have already appeared in the neighbourhood. The evidence of Mr Rhoades is that the erection of additional structures would not cause the value of the appellants' house to deteriorate. The grant of planning permission for the proposed extension shows that the character of the area has changed.
35. The covenant is not reasonable having regard to changes in the area since 1937. It cannot now be reasonable for owners to have to seek the permission of a neighbouring owner on matters relating to the lawful and legitimate use of their property (even if that permission is not to be unreasonably withheld).
36. For these reasons the appellants are not entitled to require the inclusion of this covenant in the conveyance.
37. As to the second disputed covenant (alterations and additions), Mr Murch said that the attempt to recover compensation reflects section 19(2) of the 1927 Act which would be "read into" the covenant which it is sought to continue. This covenant is not capable of benefiting other property nor does it materially enhance the value of that property for the reasons given above.
38. Furthermore, the covenant is not reasonable having regard to changes since 1937. Inclusion of the right to recover compensation is not now reasonable. Freehold ownership is different from leasehold tenure: it is not legitimate for one freehold owner to recover compensation from another owner on the grant of consent for the use of the neighbouring owner's land. If there is an actionable nuisance, resulting in diminution in value, then the appellants have their ordinary common law remedies.
39. For these reasons the appellants are not entitled to require the inclusion of this covenant in the conveyance. It follows that the LVT reached the correct decision on both covenants and the appeal must fail.

DISCUSSION

40. The issue in this appeal is whether two restrictive covenants, relating to new building and alterations respectively, should be included in the transfer of the freehold of 18 Waterloo Road to the respondents. The LVT declined to include these covenants and the freeholders have appealed to this Tribunal. They have the burden of proof to show that the decision of the LVT is wrong.
41. Although this dispute has arisen out of the respondents' wish to build a rear extension to 18 Waterloo Road, for which planning permission has been granted, and which is opposed by the appellants as owners of the neighbouring property, I am not concerned with this particular extension (eg. as to the effect on no 16 or whether consent should be granted). I am concerned solely with the proposed restrictions and whether they can be included in the transfer on enfranchisement having regard to section 10(4)(b)(i) and (5)(a) of the 1967 Act. I shall not therefore consider the proposed extension further but concentrate on the restrictions.
42. Under section 21(2)(a) of the 1967 Act (as amended) an LVT (and this Tribunal on appeal) has jurisdiction to determine what provisions ought to be contained in a conveyance of the freehold on an application to fix the price. The LVT declined to include the two proposed restrictions in the conveyance of the freehold of 18 Waterloo Road on the grounds that:-

(i) They were unlikely to materially enhance 16 Waterloo Road because of changes since 1937 and there was no evidence to prove that any other building on the site would have a detrimental effect on the adjoining house.

(ii) Having regard to the many extensions built since 1937, the lack of evidence as to consent, and the evidence that freehold sales have taken place without accompanying covenants, it would be unreasonable to continue the corresponding leasehold covenants on the freehold sale.

(iii) The proposed restrictions are an attempt by the landlords to continue to exercise control and wholly inconsistent with the spirit and purpose of the 1967 Act.

43. I look first at the relevant statutory provisions. Section 8(1) of the 1967 Act provides that, following notice by the tenant to enfranchise, the landlord is bound to make, and the tenant to accept, a grant of the house and premises in fee simple absolute, subject to the tenancy and to tenant's encumbrances, but otherwise free of encumbrances. Section 10 deals with the rights to be conveyed to the tenant. The following provisions are relevant:-

"(4) As regard restrictive covenants (that is to say, any covenant or agreement restrictive of the user of any land or premises), a conveyance executed to give effect to section 8 above shall include –

(a) …

(b) such provisions (if any) as the landlord or the tenant may require to secure the continuance (with suitable adaptations) of restrictions arising by virtue of the tenancy …, being either –

(i) restrictions affecting the house and premises which are capable of benefiting other property and (if enforceable only by the landlord) are such as materially to enhance the value of the other property; or

(ii) …

(c) …

(5) Neither the landlord nor the tenant shall be entitled under subsection (3) or (4) above to require the inclusion in a conveyance of any provision which is unreasonable in all the circumstances, in view –

(a) of the date at which the tenancy commenced, and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy; and

(b) …"

44. It is not in dispute that there are similar covenants in the lease of the appeal property and that the proposed restrictions secure the continuance (with suitable adaptations) of those covenants under section 10(4)(b) of the 1967 Act. Three questions must be answered in respect of the proposed restrictions:-

(1) Are they capable of benefiting other property (section 10(4)(b)(i))?

(2) The restrictions being enforceable only by the landlords (the appellants), are they such as to materially enhance the value of the other property (section 10(4)(b)(i))?

(3) Are the restrictions unreasonable in all the circumstances, in view of the date at which the tenancy commenced and changes since that date which affect the suitability at the relevant time of the provisions of the tenancy (section 10(5)(a))?

The answers to these questions will determine whether the proposed restrictions can be included in the conveyance.

45. The particular restrictions required by the appellants, and opposed by the respondents and rejected by the LVT, are preceded by the following general wording:-

"A covenant by the Tenant with the Landlord to the intent that the covenant will run with and bind the Claimed Premises and every part thereof and to the intent that the benefit thereof may be annexed to and run with each and every part of the property 16 Waterloo Road, Bramall, Stockport, Cheshire SK7 2NX ('the Landlord's Premises') to observe the stipulations contained in the Schedule hereto"

46. I can consider the proposed restrictions together. Their purpose is to give the appellants, as owners of 16 Waterloo Road (and their successors in title), control over building works – new buildings and certain additions, extensions or structural alterations – on the adjoining appeal property no 18. The first covenant relates to buildings which may be erected on the appeal property:-

"That any messuage dwellinghouse or other building which shall hereafter be erected on the Claimed Premises shall be erected to the satisfaction of the owner or owners from time to time of the Landlord's Premises or of his or their agent or surveyor for the time being and in accordance as to character elevation form and materials with plans elevations and specifications which have been submitted to and approved in writing by the said owner or owners or his or their agent or surveyor such approval not to be unreasonably withheld"

I will call this "the new building restriction".

47. There is a similar restriction in the lease (clause 2(e)):-

"That any messuage dwellinghouse or other building which shall hereafter be erected on the land hereby demised shall be erected to the satisfaction of the Lessor or of his agent or surveyor for the time being and in accordance as to character elevation form and materials with plans elevations and specifications which have been submitted to and approved of in writing by the Lessor or his agent or surveyor"

48. The second disputed covenant relates to external additions, extensions or structural alterations to any building on the appeal property:-

"That the Tenant will not make any addition or extension or structural alteration to the outside of any building for the time being erected on the Claimed Premises without the previous consent in writing of the owner or owners from time to time of the Landlord's Premises or his or their agent or surveyor for time being PROVIDED THAT if such works should consist of the making of improvements such consent shall not be unreasonably withheld but this proviso does not preclude the right to require as a condition of such consent the payment of a reasonable sum in respect of any damage to or diminution in the value of the Landlord's Premises and of any legal or other expenses properly incurred in connection with such consent"

I will call this "the alterations restriction".

49. There is a similar covenant in the lease (clause 2(f)):-

"That the Lessee will not make any addition or extension or structural alteration to the outside of any building for the time being erected on the land hereby demised without the previous consent in writing of the Lessor or his agent or surveyor for the time being"

50. The first question is whether these restrictions are capable of benefiting other property (section 10(4)(b)(i))? Mr Green, for the appellants, said that they are clearly capable of benefiting 16 Waterloo Road, the adjoining house. Mr Murch, for the respondents, said that, although they are intended to benefit the appellants' property, given the changes in the area and the other building which has already taken place, the restrictions are now too late to stop the changes which have already occurred.
51. In Marten v Flight Refuelling Limited [1962] 1Ch 115(cited in Pitt at 399), Wilberforce J said (at 136):-

"Question (c): Was the land capable of being benefited by the covenant? On this point, …, the answer would appear to be simple. If an owner of land, on selling part of it, thinks fit to impose a restriction on user, and the restriction was imposed for the purpose of benefiting the land retained, the court would normally assume that it is capable of doing so. There might, of course, be exceptional cases where the covenant was on the face of it taken capriciously or not bona fide, … As Sargant J said in Lord Northbourne v Johnston and Son [1922] 2 Ch 309, 319: 'Benefit or detriment is often a question of opinion on which there may be the greatest divergence of view, and the greatest difficulty in arriving at a clear conclusion.' Why, indeed, should the court seek to substitute its own standard for those of the parties – and on what basis can it do so?"

I do not find in this appeal that the proposed restrictions are sought by the appellants capriciously or for reasons that not bona fide.

52. It is clear from the evidence of Mr Rhoades that many houses in Waterloo Road have planning permission or Building Regulations approval for additions and extensions. He could not say how many have been built but Waterloo Road appears to be similar to many other residential areas where owners have added to their houses to provide more accommodation. I do not agree that this prevents the restrictions from being capable of benefiting the appellants' house. In my view, there is benefit in the ability to control building works on the next door land, bearing in mind that such works would have a much greater effect on no 16 than development which has occurred or might occur in other parts of Waterloo Road. Furthermore, I was told that no extensions or additions have been made to the original house at no 18. From my inspection I noted that there is space for a rear extension at no 18 and this could be seen from the conservatory and garden at no 16 and from the bay window to the rear bedroom of this adjoining house. The ability to control the size and appearance of such an extension is, in my view, capable of benefiting no 16.
53. In Marten one of the issues was whether a restrictive covenant preventing the use (without consent) of a particular area of land for purposes other than agriculture was capable of benefiting the vendor's retained land. A similar argument to the one used by the respondents in this appeal was rejected (at 137):-

"Next it is said that the covenant was useless because, in any event, there was plenty of other land in the area in the vicinity of the estate which was free from restrictions. I have no difficulty in rejecting this argument. Why should not a vendor protect what he can, and is such protection useless because other land (at the relevant date itself all solidly agricultural) might be desecrated? Is a covenant against using premises for a certain trade useless because adjoining premises may be so used? … This contention, in my judgment, fails".

Each case, of course, depends on its own facts but I have no hesitation in following this reasoning (which I wholly accept) and in finding that the restrictions in this appeal are capable of benefiting the appellants' house at 16 Waterloo Road. I agree with Mr Green that "benefiting" in section 10(4)(b)(i) is used in a conveyancing sense and not as a matter of valuation. I answer the first question in the affirmative.

54. The second question under section 10(4)(b)(i) of the 1967 Act is whether, the proposed restrictions being only enforceable by the landlords, they are such as materially to enhance the value of the other property, ie 16 Waterloo Road?
55. Mr Green submitted that the ability to control building works on the immediately adjoining land would materially enhance the value of no 16. Material enhancement includes the maintenance of value. It is not limited to considerations of estate management; it can apply to a single property. The extensions in Waterloo Road do not prevent the ability to control development on the adjacent property from constituting a material enhancement of value. Mr Murch argued that the many extensions in Waterloo Road have prevented the ability to control building at no 18 from producing a material enhancement to the value of no 16. The changes have occurred and cannot be prevented for the benefit of no 16. There are no estate management considerations in this case. Mr Rhoades gave evidence that, in consequence of the large number of extensions in Waterloo Road, the ability to control building on one other property would not materially enhance the value of the property said to be benefited. The effect over and above planning control would be insignificant. The proposed restrictions would not be of significance to a purchaser of no 16 and would not therefore affect the value.
56. I will deal with this evidence first. In my judgment, it is impossible to consider the concept of material enhancement of value as a detailed valuation exercise. It can only be considered in general terms: a matter of impression (see Moreau para 185). I give no weight therefore to Mr Rhoades' evidence on this matter.
57. I have been referred to three decisions of this Tribunal on material enhancement of value. In Peck the respondent landlords were the freehold owners of an estate of 27 houses and sought to include in a conveyance on enfranchisement certain restrictions as to use as a private dwellinghouse and as to building on the land. On the question of material enhancement of value the member (J Stuart Daniel QC) said (at 799):-

"The main conflict in evidence was whether the restrictions are such as materially to enhance the value of other property. I have no hesitation in finding that they are. When I put the question to him in argument Mr Bramall conceded that the concept of material enhancement must include the concept of maintaining a value which would otherwise deteriorate. If this is right, and I think it is, Mr Bagnall-Oakeley's evidence that the quality of the estate was being threatened by unself-contained sub-letting seems to me to be incontestable, and to decide this particular question in favour of the landlords."

58. In Pitt the respondent landlord, owner of an estate in Kensington, sought to include in the conveyance of a house on enfranchisement the continuance of leasehold restrictions relating to use, the hanging out of washing, erection of aerials and outside painting. The member (R C Walmsley FRICS) followed the decision in Peck on material enhancement (at 398):-

"… I deem the concept of material enhancement to include the concept of maintaining a value which would otherwise deteriorate, as was common ground in Peck …"

59. In Moreau, the appeal was concerned with the inclusion in the transfer on enfranchisement of a house on the Howard de Walden Estate of restrictions relating to alterations, user and machinery. I followed the guidance in Peck and Pitt on material enhancement (para 185).
60. In my judgment, and following these decisions, the concept of material enhancement includes both an increase in value due to restrictions and the maintenance of a value which would otherwise deteriorate. The concept is to be applied as a matter of general impression and not by attempting a detailed valuation exercise.
61. Mr Murch, however, sought to distinguish the above three decisions on the grounds that they were concerned with estates where material enhancement related to the maintenance of value on the estate and not to a single property, as in this appeal. Furthermore, there could be no maintenance of value in respect of 16 Waterloo Road due to the effect of extensions over which the appellants have no control. I reject both arguments. Material enhancement can relate to a single property and is not solely applicable to estates. In my judgment, the value of 16 Waterloo Road is, at the least, maintained by the owners' ability to control building on the immediately adjoining property (no 18) by the operation of the proposed restrictions. I do not think that this ability to control development next door is deprived of value by an inability to control development on other properties in Waterloo Road. I have reached the conclusion from my inspection that the impact of a new building or alterations or an extension at no 18 would have a much greater impact than works on other houses further away from no 16.
62. I find that both restrictions materially enhance the value of the appellants' house at 16 Waterloo Road. I answer the second question in the affirmative.
63. For the reasons set out above, both restrictions satisfy the requirements of section 10(4)(b)(i) of the 1967 Act. They must now be considered under section 10(5)(a). This is a proviso to the former subsection (see Peck at 799). The question is whether the restrictions are unreasonable in all the circumstances, in view of the date of the commencement of the tenancy (11 November 1937) and changes since that date which affect the suitability at the relevant time (6 January 2004) of the provisions of the tenancy. The test of unreasonableness is to be applied to the proposed restrictions, not to the separate question of the reasonableness of withholding consent for the proposed extension at 18 Waterloo Road. This question is outside this appeal and the jurisdiction of this Tribunal.
64. Mr Green argued that the control of building for the benefit of an adjoining house is as important now as it was when the tenancy was granted in 1937. A requirement to seek permission from an adjoining owner is not unreasonable. The provision for compensation in the alterations restriction is not unreasonable; it arises from the inclusion of an implied leasehold term under section 19(2) of the 1927 Act, a statutory provision still in force. Mr Murch submitted that, having regard to changes since 1937, it cannot now be reasonable for an owner to be required to seek consent from another owner on matters relating to the lawful use of his property. As to the requirement of compensation, this is unreasonable in a freehold covenant. If new building constitutes an actionable nuisance the appellants have a common law remedy. The grant of planning permission for numerous extensions in Waterloo Road is evidence of changes in the locality rendering the proposed restrictions unreasonable.
65. I consider this question of reasonableness under four headings: changes since 1937, the requirement of control in a freehold covenant, the requirement of compensation in the alterations restriction and the effect of planning control.
66. It is common ground that the locality in which the appeal property is situated has remained residential but that extensions have been made to many houses in Waterloo Road. The evidence of Mr Rhoades is that planning permissions have been granted for car ports, garages, conservatories and extensions at some 40 houses in Waterloo Road and Building Regulations approvals (where planning permission was not required) have been given on 10 houses. Houses close to nos 16 and 18 where planning permission or approval have been given include nos 2, 6, 12, 22, 24 and 28 Waterloo Road. I noted on my inspection that conservatories have been added to nos 14 and 20. In my experience this situation is typical of residential areas and I do not find it unusual. I cannot find that the additions and extensions to houses close to nos 16 and 18 render the proposed restrictions unreasonable. The appeal property is next door to the land to be benefited by the restrictions and, in my judgment, it is not unreasonable for the appellants, as vendors and owners of neighbouring land, to seek control over building on the appeal property, notwithstanding changes in the locality which have less impact on no 16.
67. In Peck one of the covenants in dispute required the purchaser, not without the written licence or consent of the Trustees, to use the premises only as a private dwellinghouse. It was suggested that the Trustees did not propose to enforce the requirement of single occupation. Reference was made to social changes in the area. The member said (at 800):-

"I am satisfied by the evidence that they were concerned to maintain the quality of the estate as well as to reduce its unprofitability. Moreover the covenants themselves do not express a rigid requirement. The requirement is not to do something without licence or consent which immediately imports the notion that the lessor, or the vendor, may sanction something, to the extent which he thinks fit, which is not in full compliance with the basic restriction. No doubt there have been changes in the social situation, so that only a handful of these houses are now in fact in single family occupation, but there are cases in the reports where, in actions to enforce covenants, the courts have said that in order to make good a defence based on change in the character of the neighbourhood the defendant must show that there is no value left in the covenants at all. This is not, of course, an action to enforce a covenant and no doubt the test in such an action may be somewhat more stringent against the wrong-doer than the kind of general considerations of reasonability which I have to take into account under section 10(5). I have only referred to a rather different context in order to say that there is nothing new or foreign in the idea of a covenant, particularly one which is variable by licence, surviving in a world where there has been some change in the extent to which its original object can be achieved."

68. I am not, of course, bound by this decision and the facts are different, the covenants in Peck being taken for the benefit of a small estate, not a single property. I am, however, in agreement with the underlying principle expressed by the member. Notwithstanding the changes which have occurred in Waterloo Road, the proposed restrictions can still protect the amenity and value of no 16 by controlling building on the adjoining property, no 18.
69. I look now at the requirement for control in a freehold covenant. It was argued on behalf of the respondents that, in contrast to a landlord and tenant relationship, it is unreasonable for a freehold owner to be subject to control by another owner in respect of building works on his property. I do not agree, having regard to the circumstances, namely that the control is for the benefit of the immediately adjacent house, and that I have found that the covenants are capable of benefiting and materially enhancing the value of this property. Where an owner sells part of his land and lives in the part retained it seems to me to be both prudent and reasonable for him to impose restrictions on the land sold to protect his use and enjoyment of the land retained. Such restrictions are, in my experience, common, whether imposed for the benefit of a single property or, more usually, for the benefit of an estate. In Peck the member said (at 799):-

"There was some suggestion during the hearing that restrictions which might be suitable enough in a lease were nevertheless unsuitable when applied to a freehold. I cannot see anything in this point. I do not suggest that if this estate had been born freehold it would necessarily have been subjected to a building scheme; but the restrictions which were in fact imposed on the leaseholds are of the kind which are commonly found in building schemes and I cannot see anything unsuitable in there being applied to the freeholds (as has already been done on this estate in some ten cases)."

70. It should be borne in mind that the proposed restrictions correspond to similar restrictions in the lease of no 18 which had an unexpired term of some 933 years when the respondent tenants served notice to acquire the freehold. This existing long term benefit under the lease would be lost if similar powers of control are not included in the freehold transfer. Furthermore, the proposed restrictions do not place an absolute prohibition on building works at no 18 but give the owners of the adjoining house control over such works by the ability to grant or withhold approval or consent, not to be unreasonably withheld (my emphasis). Control cannot be exercised in an arbitrary manner: it is for the courts to say, in any dispute, whether approval or consent has been unreasonably withheld.
71. The alterations restriction contains a provision for reasonable compensation for damage or diminution in value and for expenses, as a condition of consent. This follows the implied proviso in leasehold covenants under section 19(2) of the 1927 Act, that consent for improvements is not to be unreasonably withheld, but that this does not preclude the right to require payment of a reasonable sum for damage or diminution to the premises or the landlord's neighbouring premises or legal or other expenses. I have hesitated as to whether this compensation provision is reasonable in a freehold covenant (the appellants have said that they would not object to exclusion if I consider it to be unreasonable). I have, however, reached the conclusion that it is not unreasonable to continue the leasehold proviso in the corresponding freehold covenant. I have adopted the approach used by the member in Peck, when he included in a freehold covenant the provisos in section 19(2) and (3) of the 1927 Act on the grounds that "I do not think that the new freeholder should be in any worse position as regards the covenant than was the tenant" (at 801).
72. Mr Murch suggested that the compensation provision is unnecessary because, if there is an actionable nuisance from any new building, resulting in a diminution in value, then the appellants will have a common law remedy. He did not elaborate on this point and I am not attracted to this proposition. It does not seem to me to be unreasonable to link consent to compensation, rather than separating these two elements and requiring the grantor to bring separate proceedings to obtain compensation for the consequences of his consent.
73. I do not find the grant of planning permission for an extension to 18 Waterloo Road nor the existence of planning control generally to be relevant to the separate issue of the reasonableness of the proposed restrictions. There is a distinction between control under town planning legislation and control by restrictive covenant, and the former is not a substitute for the latter (see Re Martin (1988) 57 P & CR 119 at 124). In Peck the member said (at 800):-

"Nor do I think that the existence of planning powers or powers under the Housing Act make it unreasonable to continue control by covenants."

I do not find it unreasonable for the appellants to seek control over building works on the adjoining property rather than placing reliance on the local authority to prevent development which may be detrimental to them.

74. For the reasons given above I am satisfied that the proposed restrictions are not unreasonable under section 10(5)(a) of the 1967 Act.

Conclusions

75. I now summarise my conclusions. It is not in dispute that the proposed restrictions secure the continuance (with suitable adaptations) of covenants in the lease of the appeal property, relating to new buildings (clause 2(e)) and additions, extensions or structural alterations (clause 2(f)). The tests to be applied to the proposed restrictions are therefore to be found in section 10(4)(b)(i) and (5)(a) of the 1967 Act. I find that both restrictions are capable of benefiting the appellants' other property (16 Waterloo Road) and materially enhance the value of that property. The tests under section 10(4)(b)(i) are satisfied. The restrictions are not unreasonable in all the circumstances, in view of the changes which have occurred since November 1937 which affect the suitability at the relevant time of the provisions of the tenancy. The test under section 10(5)(a) is satisfied.
76. In Peck the member said (at 799):-

"If the restrictions satisfy the requirements of section 10(4)(b)(i) then, if either party requires them to be included in the conveyance, it is mandatory that they shall be so included unless section 10(5) which is really a proviso to section 10(4), comes into play."

I agree. In this appeal the proposed restrictions satisfy the requirements of section 10(4)(b)(i) and section 10(5)(a) does not come into play to render them unreasonable.

77. Accordingly, I find that the LVT were wrong, both in their decision and in their reasons, to exclude these restrictions from the conveyance of the freehold of the appeal property to the respondents. The appeal is allowed. I direct that the restrictions set out in paras 45, 46 and 48 above shall be included in the conveyance of 18 Waterloo Road.

Costs

78. The power of the Lands Tribunal to award costs in this appeal is restricted by section 175(6) of the Commonhold and Leasehold Reform Act 2002. Neither party applied for costs and I make no order as to costs.

DATED: 24 October 2005

(Signed) P H Clarke