Developer overturns covenant preventing offices becoming homes

A developer has succeeded in overturning a restrictive covenant that would have prevented an office block being converted into homes.

The block was next to other office buildings and close to several apartment blocks.

The head lease was for a term of 150 years from 1985 and contained a covenant restricting its use to office premises. The local authority, which owned the building, was entitled to 15.5% of the net annual income received from commercial tenants of the building.

The building was in a state of significant disrepair. The lessee wished to convert it into residential flats and applied to remove the office user restriction on the basis that it did not secure to the local authority any practical benefits. The local authority wished it to be put back into lettable condition as office space.

The lessee submitted that the local authority would receive a higher rent for the building and the value of its reversion would be greater if it was converted to residential use.

The authority argued that there were prosperity and economic advantages for the town of retaining office use in preference to residential use.

The court ruled in favour of the lessee. It held that the covenant provided no practical benefit to the authority as the income and reversion value would be broadly similar if the building was used for offices or homes.

There was no shortage of office space. The authority's willingness four years earlier to market the property for sale based on a potential change of use demonstrated that continued office use was not a matter of importance.

Retaining the building as offices would not make a significant contribution to the economic well-being of the town.

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