The Court of Appeal has recently reined in the doctrine of statutory annexation of the benefit of restrictive covenants, so that the owner of a plot later sold off may not enforce the covenants. Two common restrictive covenants have also been interpreted in the case. Crest Nicholson Residential (South) Ltd v McAllister [2004] is a classic case of proposed backland development in breach of restrictive covenants.

The claimant (Crest) had conditionally contracted to buy the back portions of plots of land. Crest wished to erect five new houses on the backland, behind the existing houses. Access via another plot would be provided by repositioning the existing house and constructing a roadway. The defendant (McAllister) objected that this would infringe standard restrictive covenants applying to the estate imposed after 1925.

The private dwellinghouse Restriction

The primary objection was that each of the plots was subject to a restriction that:

The premises shall not be used for any purpose other than those of or in connection with a private dwellinghouse or for professional purpose.

McAllister said this prohibited new houses additional to the existing permitted houses.

Crest said that the restriction merely required residential use without limiting density to one dwellinghouse.

The approval of plans restriction

A second objection concerned a restriction that:

No dwellinghouse or other building shall be erected on the land hereby conveyed unless the plans drawings and elevation thereof have been previously submitted to and approved of in writing by the Company but such approval shall not be unreasonably or vexatiously withheld.

The vendor company was dissolved in 1968 and could not be restored to the register after so long. Nobody else could give the approval.

McAllister said that the restriction on erecting buildings had become absolute. Crest said that the restriction requiring prior approval of plans was spent once approval could no longer be obtained.

The High Court action

The parties had agreed that there was no building scheme for the estate but that McAllister had the benefit of the restrictive covenants in the six conveyances of the plots by virtue of annexation under s78 of the Law of Property Act 1925 (the Act) as interpreted in Federated Homes Ltd v Mill Lodge Properties Ltd [1980].

Crest brought proceedings for declarations that, on the true construction of the conveyances, the restrictive covenants did not prevent use for the erection of more than one private dwellinghouse on each property and therefore that Crest would not be prevented by those covenants from developing the land as proposed. The claim was amended to seek determination of what was the position under the approval of plans restriction once the vendor had ceased to exist.

The issues considered in the High Court were confined to interpretation of the two standard restrictive covenants in question.

A private dwellinghouse

Neuberger J held that the proposed development would be infringed by the private dwellinghouse restriction. Restriction to ‘a’ private dwellinghouse meant the restriction to a single dwellinghouse, in the absence of contraindications.

The restrictive nature of this was reinforced by the subsequent wording permitting a professional purpose, such as a doctor using part of the house as a surgery.

There was a stipulation to fence boundaries of the plot – which did not suggest that there would be subplots. The company was likely to have wished to restrict the density so as to maintain the tone of the estate, at least whilst it had plots to sell.

Case law was examined. The natural meaning of the phrase was the starting point. Adifferent meaning could apply in particular contexts but the Court would be slow to depart from the usual meaning. Although s61 of the Act provides for references to the singular to include the plural, this did not apply where the context otherwise requires, as was the case here, under the judge’s interpretation of the phrase in question.

A similar argument failed last year in the High Court when Cala Homes (Cala Homes (South) Ltd v Carver) argued that a new block of flats was a private dwelling-house.

No need for approval of plans

Neuberger J held that the restriction against erecting a building without obtaining prior approval of plans had become spent once approval of plans by the company could no longer be obtained.

He distinguished other cases where a restriction had become absolute once the power to give a dispensation could no longer be exercised.

The owner was entitled to build a private dwellinghouse subject only to the plans being submitted for reasonable approval. That right should not be lost merely because it was no longer possible to have plans approved by the company. The company did not hold its power to approve plans on trust for owners of properties on the estate. McAllister could not have insisted that the company should refuse approval of plans.

The restriction had only been intended to apply whilst the company existed. It may be commented that the company had presumably long ago given approvals of the plans of the existing houses.

If there had been no reasonable basis for objection to plans, owners might have built permitted houses regardless of whether or not the company was available to give approvals that could not be withheld.

However, had the company still existed it could surely not have been required to approve plans of houses that infringed the density limit.

The appeals

Crest appealed against the decision on the private dwellinghouse restriction. McAllister cross-appealed concerning the approval of plans restriction. She also had to change her barrister when Kim Lewison QC became a judge.

At the hearing of the appeals Chadwick LJ questioned the common ground that McAllister had the benefit of the restrictive covenants. He said that he did not like deciding half a case. He put forward some points which indicated that the benefit was not annexed to the land of McAllister.

Crest accepted the invitation to withdraw the ‘concession’ of benefit. McAllister did not object to this nor did she seek an adjournment. There was no new issue of fact. Her counsel gamely argued against the points raised by Chadwick LJ relating to benefit that had previously been accepted as common ground.

The conveyancing background

The history began with the Miller Brothers who bought a site at Claygate in 1923 and set up a development company.

The estate was sold off in 12 conveyances between 1926 and 1936. McAllister now owned some land that had been included in a plot sold in 1936. She asserted that she could enforce restrictive covenants in six previous conveyances of plots on the estate.

The restrictions set out in the six conveyances were generally similar but there were discrepancies in the words of covenant.

Three of the conveyances had no express annexation of the benefit of the restrictions. Two of these described the properties as being plots on the Fee Farm Estate at Claygate but none of the plans showed the full extent of the estate.

Three of the conveyances expressed the benefit of the covenants as being: ‘For the benefit of the property at Claygate aforesaid belonging to the vendors or the part thereof for the time being remaining unsold’. In previous cases (not cited) this formulation was held to annex benefit to land only until sale by the vendors.

Section 78 and the Federated Homes case

Section 78 of the Act applies to covenants in conveyances after 1925.

It provides that covenants relating to land are deemed to be made with the covenantee and their successors in title and the persons deriving title under them (see below).

It goes on to say that successors in title include the owners and occupiers for the time being of the covenantee’s land intended to be benefited.

At one time it was thought that s78 was only a formula to save having to refer expressly to successors in title in a conveyance. This narrow view was rejected by the Court of Appeal in the Federated Homes case. This decided that where a covenant ‘touched and concerned’ land of the vendor, then it ran with the land of their successors and persons deriving title under them.

The Court of Appeal in that case left open whether statutory annexation only applied when the land intended to be benefited is signified in the document by express words or indication.

The wider view put forward in the Federated Homes case is that s78 applies if the covenant in fact touches and concerns the land of the vendor, whether that be gleaned from the document itself or from other evidence.

This wider view was applied in some first instance decisions, subject to the qualification that there was nothing in the document to negate an intention to annex benefit to land (for example, the explicit wording used in Roake v Chadha [1984] requiring express assignment of the benefit). In some cases it has also been held that there was sufficient indication of benefited land from incidental reference to an estate, covenants for production of retained title documents, and so on.

In Crest Chadwick LJ said that the point left open in Federated Homes had been answered by an earlier decision. In Marquess of Zetland v Driver [1939] one of the requirements for annexation was said to include that ‘the land which is intended to be benefited must be so defined as to be easily ascertainable’. Chadwick LJ said that nothing in Federated Homes suggested that this requirement was no longer necessary.

Comment

Chadwick LJ’s reasoning seems slightly odd. The point was expressly left open in Federated Homes in relation to statutory annexation. Secondly, Marquess of Zetland v Driver was a case of express annexation in a limited form and was decided before there was a doctrine of statutory annexation.

Thirdly, there have been cases where covenants were upheld even though it had not been easy to ascertain all of the land that had the benefit (as distinct from whether a particular owner’s land did).

Chadwick LJ’s views

At the hearing of the appeal Chadwick LJ had expressed the opinion that it might be difficult, some years after a conveyance was made, to ascertain what land had the benefit of covenants, and that this difficulty made it more likely that the covenant had been intended to be for the personal benefit of the vendor, so as to facilitate sales of plots.

In his judgment Chadwick LJ said that a reason for requiring that the land intended to be benefited must be identified in the document was that it would otherwise be difficult to know what land (if any) might benefit.

However, given that the indication can be a mere reference to ‘the adjoining or neighbouring land of the vendor’, often the parties would anyway have to look at extrinsic evidence such as the conveyance to the vendor and the dates of sales.

At the hearing Chadwick LJ suggested that, as the power to approve plans was limited to the company, this might suggest that the benefit of the covenants were personal. However, it is common for the vendor to have power to approve plans of new houses even where there is a building scheme or the covenants are expressly for the benefit of the geographical extent of the land of the vendor at the date of the conveyance concerned.

The final decision

The decision of the Court of Appeal was given by Chadwick LJ who held that McAllister did not have the benefit of any of the covenants. In the three instances of express annexation the additional wording ‘or the part thereof for the time being remaining unsold’ limited annexation, in effect, so as to make the covenant personal.

In the other instances statutory annexation could not be relied upon by McAllister. Even where some other land was shown on a conveyance plan it did not extend to McAllister’s land on the estate.

In two short sentences Chadwick LJ said that he agreed with what Neuberger J had decided on interpretation and for the reasons that had been given, although these points were irrelevant as McAllister did not have the benefit of the covenants.

In place of the declarations made by Neuberger J, the Court of Appeal substituted a declaration that the covenants were not enforceable by McAllister.

A neutral observer may agree with the outcome of the case on its facts but may wonder about the reasoning. Conveyancing solicitors may want guidance on how easy it must be to identify land intended to benefit, from the viewpoints of judges or barristers – perhaps a deposited estate plan marked up with the date of each sale of a plot, or a historic edition of a filed plan of a registered title.

The Court of Appeal had agreed that there would be a breach of the private dwellinghouse restriction. If, as in other cases, the Court of Appeal had kept to what were the issues in question, the appeal would have failed. The Court of Appeal ordered that McAllister should pay half of Crest’s costs in the appeal. That would have been fair had this been an action brought by her to enforce the covenants.

However, it was Crest that had sought declarations, in particular as the interpretation issues. Even if McAllister had not actively defended the case, Crest needed to clear the obvious doubts in order to be able to sell new houses. A court does not grant declarations by consent or by virtue of default.

As the judge did not interpret the private dwellinghouse restriction as Crest wanted, it had to appeal whether or not McAllister had fought the case. Crest was lucky to win the appeal, not on that issue but because Chadwick LJ prompted them to ‘withdraw’ the so-called ‘concession’, ie the previous common ground of benefit.

Implications

The decision puts in doubt whether there is a special category of statutory annexation and whether in practice there is much difference between covenants imposed since 1 January 1926 and those imposed before then.

Prudent draftsmen should spell out the position in the document so as to leave no room for doubt. However, property lawyers must advise on old documents where drafting has not been perfect.

In a conveyance before 1926 express words of annexation are not essential. If, on the construction of the document containing the covenant, both the land which is intended to be benefited and an intention to benefit that land can clearly be established, then the benefit is annexed to the land, see Shropshire County Council v Edwards [1982].

Chadwick LJ says that s78, as interpreted in Federated Homes, made it unnecessary to state in the conveyance that the covenant was to be enforceable by persons deriving title under the covenantee or under their successors in title or that the benefit of the covenant was to run with the land intended to be benefited. He says that it remains necessary to decide whether in all the circumstances the court should infer that the covenant was intended to be annexed to land defined in the document so as to be easily ascertainable (perhaps from an attached plan or from extrinsic evidence).

In Federated Homes and other decisions, it had been stressed that s78 produced a result quite different from the previous legislation. However, Crest seems to diminish the significance of the ‘watershed’ of 1925/1926.

Conclusions

Crest makes it easier for developers to flout restrictive covenants imposed after 1925 where the document lacks a specific indication of the land intended to be benefited.

The decision also confirms the pragmatic approach of the High Court to the interpretation of restrictive covenants for a private dwellinghouse and for approval of plans by persons that have long been dead or, in the case of a company, dissolved. It is also a warning that unexpected problems can arise in appeal proceedings.

Section 78 (1) of the Property Act 1925

A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and his successors in title and the persons deriving title under him or them, and shall have effect as if such successors and other persons were expressed.

For the purposes of this subsection in connection with covenants restrictive of the user of land ‘successors in title’ shall be deemed to include the owners and occupiers for the time being of the land of the covenantee intended to be benefited.

Case references Cala Homes (South) Ltd v Carver (Unreported, Ch, 14 July 2003)

Crest Nicholson Residential (South) Ltd v McAllister [2004] EWCA Civ 410

Federated Homes Ltd v Mill Lodge Properties Limited [1980] 1 All ER 371, CA

Marquess of Zetland v Driver [1939] Ch 1, CA

Roake and ors v Chadha and an [1984] 1 WLR 40

Shropshire County Council v Edwards [1982] 46 P&CR 270

Gerald Moran is a partner in the property department at Hunters.  © Property Law Journal