Great Jackson St Estates Ltd v The Council of the City of Manchester

Hearing dates: 30 April 2025

Approved Judgment

This judgment was handed down remotely at 10.30am on 19 May 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

The issues

The central issue in this appeal is whether restrictive covenants in a lease provide the lessor, which is also the planning authority, with practical benefits of substantial value or advantage to it for the purposes of section 84(1)(aa) and section 84(1A) of the Law of Property Act 1925 (the “1925 Act”), in enabling the lessor to prevent a proposed development from going ahead in an uncontrolled manner. The lessor's concern is that the proposed development might not be completed in a timely fashion or not completed at all. This arises in a context in which only 60 years of the unexpired term of the lease remain and negotiations for a new building lease, subject to stringent conditions, have faltered.

Background

The Appellant, Great Jackson St Estates Limited, (“Great Jackson”) is the tenant of two redundant warehouses in a part of Manchester which is rapidly being developed as an area of modern, high-density housing (“the Site”). It is a special purpose vehicle which has been described as dormant and which has no assets other than the lease of the Site. The Respondent, the Council of the City of Manchester (“the Council”), is the freehold owner of the Site and the relevant planning authority. The warehouses were built pursuant to an Agreement for a Lease dated 15 August 1973 by which the Council agreed to grant a predecessor to Great Jackson a term of 99 years from 25 March 1973. On completion of the warehouses, a lease was granted on 18 July 1978 (the “Lease”). The term of the Lease was subsequently extended to one of 99 years from 29 September 1984. At the date of the hearing before the Upper Tribunal, 61 years of that term remained unexpired.

At the time the Lease was granted, the Site was part of a predominantly industrial area containing light industrial units separated by car parks. The Site was included in the Council's 2007 development plan, however. That plan now forms part of the City Centre Strategic Plan published in 2016. It was designated as a new high-quality residential neighbourhood. The Site was designated as “Plot G” on the framework masterplan and was earmarked as the location for three new residential buildings. The Council owns the freehold reversion interest in three of the Great Jackson Street development plots, including Plot G. It has worked with the leasehold owners of other plots to facilitate development of the area and has granted new 999 year building leases which provide for phased development to an agreed timetable. Some of those other developments are complete and others are close to completion.

Great Jackson has been working on its own plan for redevelopment of Plot G. It wants to demolish the warehouses and replace them with two 56-storey tower blocks containing 1037 flats, at a cost of £300–350 million. It is not in doubt that its proposals are consistent with the local development plan. Planning consent for that scheme was granted subject to an agreement under section 106 of the Town and Country Planning Act 1990 and since the hearing before the Upper Tribunal, a section 106 agreement has been executed.

Great Jackson faces a number of difficulties, however. First, the Lease contains a number of covenants which prevent the redevelopment of the warehouses without the consent of the Council and other covenants which are subject to the Council's consent, not to be unreasonably withheld. Secondly, as I have already mentioned, the term of the Lease left unexpired is 60 years or so. Thirdly, although both Great Jackson and the Council wish the redevelopment to take place, the parties have been unable to reach agreement in relation to a new long lease of the Site which would be granted on similar terms to those agreed with the developers of other plots within the development area. The Council has proposed that Great Jackson enter into a new 250 year building lease at a premium. The new lease would be subject to numerous conditions and milestones in relation to the development and would provide for forfeiture if the development milestones were not achieved.

Instead, Great Jackson sought the Council's consent to the proposed development under the Lease which was not forthcoming. It then applied to the Upper Tribunal pursuant to section 84 of the 1925 Act, for the modification or discharge of eleven covenants contained in the Lease to enable the redevelopment to be carried out without the need for the grant of a new lease. As they are lengthy, I shall describe the covenants in summary only. In doing so, I rely heavily upon the judgment of the Upper Tribunal.

The first group of restrictions prevent the applicant from carrying out development without the Council's consent, but do not stipulate that the Council may not refuse its consent unreasonably:

(a) Clause 2(ii) prohibits building over a public sewer, a gas main and a service duct containing electric cables running under the Site, without the Council's consent; the covenant also prohibits doing anything which may cause damage to those installations;

(b) Clause 2(iii) prohibits building without the consent of the Council over more than two thirds of the Site or within 10 feet of the side or rear boundaries;

(c) Clause 2(viii) prohibits the use of the Site other than for the two warehouses. It also prohibits the use of the buildings, without the consent of the Council, other than as light industrial buildings or wholesale warehouses or repositories for any purpose; and

(d) Clause 2(xiii) is a covenant against damaging or removing any trees or shrubs growing on the Site without the consent of the Council's Estates and Valuation Officer.

The second group of covenants comprises two restrictions giving the Council qualified control over the development and use of the Site, by requiring that the applicant obtain its consent which may not be refused unreasonably. They are:

(a) Clause 2(vii), which prevents the applicant from making additions, alterations or improvements to the existing warehouses, or erecting any other buildings, without the consent in writing of the Council, which is not to be unreasonably withheld. If consent is given by the Council the covenant obliges the applicant to carry out the permitted work in accordance with plans and specifications prepared by, and under the supervision of, a registered architect and with materials previously approved by the Council; and

(b) Clause 2(x) prohibits the use of any open area of the Site at any time for the open storage of goods or materials without the consent of the Council (not to be unreasonably withheld) and requires the applicant to comply with any conditions subject to which any such consent may be given.

Lastly, Great Jackson invited the Upper Tribunal to modify the third group of five miscellaneous restrictions concerned with the general use and management of the Site:

(a) Clause 2(ix) is a covenant against the use of the buildings in any manner which the Council may deem to be “a nuisance damage grievance or annoyance” to it or its tenants, or to the owners or occupiers of other property in the neighbourhood, or to the neighbourhood itself;

(b) Clause 2(xii) prohibits the deposit or storage of waste material or receptacles for waste so as to be visible from any public footpath street or road;

(c) Clause 2(xvi) prohibits the posting of bills or advertisements on hoardings or on the walls or fences surrounding the Site; and

(d) Clauses 2(xxi) and (xxii) are covenants dealing with alienation appropriate to a commercial building but not commonly found in leases of residential buildings. The first prohibits assignment, sub-letting or parting with the possession of the whole or part of the demised premises without the consent in writing of the Council, which is not to be unreasonably withheld or delayed. It also requires that every permitted underlease should contain a similar covenant requiring the consent of the Council to any such dealing. The second requires notice in writing to be given to the Council within one month of any assignment, sub-letting or devolution of any part of the demised premises.

(It was accepted that the Upper Tribunal had no jurisdiction to modify this covenant, but it was argued that the covenant against subletting without consent was a restriction “as to the user” of the land).

Great Jackson's application to the Upper Tribunal was made under three of the grounds in section 84(1) of the 1925 Act: ground (a), the restrictions being said to be obsolete; ground (aa), because the proposal is a reasonable use of the land and its completion will cause the landlord no substantial loss or disadvantage; and ground (c), on the basis that the objector will not be injured by the proposed modification. It was common ground that the burden of showing that a ground is made out falls on the applicant. It was also agreed that the fact that the restrictions are leasehold rather than freehold covenants is no obstacle to their being modified as the conditions in section...