Introduction

In the recent case of Great Jackson Street Estates Ltd v Manchester City Council, the Court of Appeal considered a developer’s application to modify and discharge leasehold restrictive covenants under section 84 of the Law of Property Act 1925 (“the 1925 Act”). The covenants were preventing a proposed residential development in Manchester city centre, raising important questions about the court’s approach to balancing private property rights with broader development objectives pursued by local authorities when acting in a joint capacity as landlords.

Background and facts

The appellant, Great Jackson Street Estates Ltd (“Great Jackson”), was the developer-tenant holding a long leasehold interest in land on Great Jackson Street, Manchester (“the Site”). The respondent, Manchester City Council (“the Council”), was the freehold owner of the Site and the relevant planning authority. The Site consisted of two redundant warehouses, which Great Jackson intended to redevelop into two 56-storey tower blocks comprising 1,037 flats, with an estimated cost of £300–350 million.

Planning permission for the redevelopment was granted, subject to a section 106 agreement. However, the lease contained numerous restrictive covenants that prohibited the redevelopment of the warehouses, along with other covenants requiring the Council’s consent. With only 60 years remaining on the lease term, the Council offered Great Jackson a new 250-year building lease in return for a premium on proposed terms that were unacceptable to Great Jackson.

As a result, Great Jackson applied to the Upper Tribunal (“UT”) under section 84 of the 1925 Act, seeking modification and release of the covenants to allow the development to proceed without the Council’s consent.

The UT dismissed the application, finding, among other reasons, that although the covenants did impede Great Jackson’s proposed use for the purposes of section 84(1)(aa) of the 1925 Act, they also conferred a “practical benefit of substantial advantage” on the Council under section 84(1A). Specifically, the restrictions enabled the Council to retain influence over the form of the redevelopment and reduce the risk of it not being completed in a timely manner.

Great Jackson appealed the decision to the Court of Appeal on two grounds: first, that the covenants conferred no practical benefit on the Council; and second, that the Tribunal erred in law in stating that, even if it had the discretion to modify the covenants, it would not have exercised that power.

Court of Appeal’s decision – “practical benefit”

The appeal was dismissed, and the Court of Appeal adopted a broad interpretive approach in defining “practical benefits” under section 84(1A) of the 1925 Act. It was held that a “practical benefit” must be practical and arise from compliance with the covenants, rather than the opportunity to extract financial gain from their release. The Court of Appeal rejected the submission that the Council was seeking a monetary advantage from the release of the covenants, noting instead that it was using them for their intended purpose (i.e., maintaining an element of control over the development of the Site). 

Lady Justice Asplin stated that the ability to prevent development of the Site was itself a benefit which flowed from compliance with the covenants in the lease. It was confirmed that the covenants supported the Council’s overarching development strategy for the area, prevented uncontrolled site development, and mitigated the risk that Great Jackson might fail to commence, progress, or complete the project in a timely manner. The restriction was therefore a useful tool in the overall management of the estate.

The judgment further stated that even if the Council’s role were to be considered solely as that of a landlord and not a public authority, it is legitimate to take account of its wider public duties, one of which is to ensure the orderly and proper development of the Site for the benefit of Manchester as a whole.

It was confirmed that the UT made an evaluative judgment in relation to all relevant elements in determining whether there was jurisdiction to discharge or modify the covenants under section 84(1)(aa). The question of whether the UT’s hypothetical exercise of discretion was correct did not arise.

Practical implications

The Court of Appeal's decision highlights the court’s broad interpretation of “practical benefits” under section 84 of the 1925 Act and emphasises the court’s reluctance to modify or discharge restrictive covenants. Even where a covenant may frustrate a commercially significant development, it may not be modified or discharged if it confers a practical benefit such as enabling a landlord to exercise meaningful control over how the land is developed. 

The judgment also confirms that a local authority acting in its capacity as landlord may legitimately take account of its wider public duties when assessing the benefit of restrictive covenants. For developers, this case underscores the importance of factoring in not only legal but also strategic planning considerations when dealing with leasehold land subject to restrictive covenants.