As a property investor, who loves investing in serviced accommodation (SA), it can be completely disheartening when you are looking through a lease or deeds to a property and the restriction of not ‘carrying on of the trade or business on the property’ jumps out at you.
Makes you want to swear at the restrictive covenant, those 10 words, undoing your exciting plans!!
However, a modification to case law by the Upper Tribunal, namely Holden’s Application  UKUT 21 (LC);  PLSCS 13, may give us some hope.
In this case, Holden opened a Dog Grooming Parlour in his garage (situated on a residential estate). Yet, that dreaded restricted covenant was in place which restricted Holden from using the garages as a business. Holden applied for the restrictive covenant to be discharged under section 84(1) Law of Property Act 1925 Grounds A (that there had been material changes in the character of the land or the neighbourhood, or that there had been some other change in material circumstances so that restrictions could be obsolete) and Grounds C (that the proposed discharge or modification would not injure the persons entitled to the benefit of the restriction).
In the end, the Tribunal was prepared to modify the covenant to allow the proposed dog grooming use.
- The dog groomers had not altered the look and feel of the area. Anyone new coming into the area wouldn’t know it was there
- The entity who put in place the restrictive covenant would not be at a loss because the dog grooming parlour was trading.
I must note that the Tribunal didn’t discharge the restrictive covenant, they instead altered it to permit the garage to be used for dog grooming.
Why could this be exciting for SA lovers? Well, firstly because this case sets a precedent that restrictive covenants around trading as a business can be modified (Woohoo, so that means that leases can be modified).
It also identifies on what basis the modification could take place… the premises has to maintain its original look and feel and not negatively impact the person who put the restriction in place.
Ultimately, if you wouldn’t know that anything was different, so your SA wasn’t impacting on anybody else, you would have an argument for modification of the restrictive covenant.
Just be wary… SA’s often have the stigma of being noisy, with strange people trampling through common parts of properties (It’s not just here say, there is some element of truth in it, right?). That’s usually why they are disallowed. As Investors, we need to manage the negative impact, put it place rigorous guest vetting procedures, make the welcome procedure seamless and keep noise levels to a low. Sort that out and you’ve probably got a case to modify a restrictive covenant.
Does this Case Modification make you feel like new doors could be opened to you? Will you be speaking to your solicitor about modifying a restrictive covenant?
Let me know in the comments section below!
I certainly won’t be as put off by restrictive covenants, instead, I’ll be looking at how I can be a good landlord and host and where the opportunities lie!
P.S I read about this modification in Estates Gazette (P.62) from 17th February 2018, written by Ellodie Gibbons, Barrister @ Tenfield Chambers. It made me think about how this could be direction changing for property investors! #seeingthepropertyworldwithrosetintedglasses