How does a restrictive covenant work?
Restrictive covenants are basically a form of private planning control. They place restrictions on the development or use of land, for the benefit of another piece of land, and are enforceable by one landowner against another. By definition, they must be negative, or 'restrictive', in their effect. A key feature is that they do not only apply to the owners of the land at the time the restrictive covenant is initiated - they are passed on and also apply to subsequent owners of the two pieces of land.

As pressure on the availability of land for housing development grows, with more sites being demolished to provide land for rebuilding and with more plots being sub-divided to maximise development potential, restrictive covenants are playing an increasingly important role.

There have recently been a number of court
decisions highlighting the importance of restrictive covenants and the uncertainties around advising on and interpreting them.

There is generally no difficulty or argument that the restrictive covenants can be enforced by the original parties. However, many disagreements centre around enforcing restrictive covenants against subsequent owners of the burdened land.

For a covenant to be enforceable against subsequent owners of burdened land:

• it must be restrictive;
• it must 'touch and concern the land'; and
• the land benefiting from the covenant must be identifiable.

To 'touch and concern the land' the covenant must be imposed for the benefit of or to enhance the value of the land retained by the person with the benefit.

Section 78 of the Law of Property Act 1925 helps with interpretation by stating that the benefit of a covenant will be for all of the (retained) land unless there is a contrary intention.

It is also important to remember that a restrictive covenant has to be registered to be enforceable.

The person with the benefit of the covenant must have registered the benefit at the Land Charges Registry. However, this does not apply to new restrictive covenants where the transaction imposing the restrictive covenants itself requires compulsory registration.

When faced with a restrictive covenant there are, therefore, a number of issues to consider before a decision can be made as to whether the covenant affects the land, in particular:

• what is the extent of the land affected by the covenant;
• who has the benefit of the covenant;
• has the covenant been properly protected, if required, by registration under the Land Charges Act 1975;
• is it clear that the benefit of the covenant has passed to subsequent owners; and
• what does the covenant mean?

The nature of the housing market means that it is increasingly likely that legal advisers will have to deal with and understand these issues to advise property owners effectively. But there have been a number of cases before the courts recently which clarify several important areas.

Identifying the land that benefits
Crest Nicholson Residential (South) Ltd v McAllister concerned the proposed development by housing developer Crest Nicholson of the rear gardens of a number of properties. The land had been sold by a common seller in the 1920s and 1930s. A restrictive covenant restricted each of the plots to a single private dwelling. The case concerned who had the right to enforce this covenant and whether the benefit of the covenant had been annexed to the land.

There were a number of conveyances to consider in which the wording was different. But it was held that s78 of the Law of Property Act 1925 was sufficient to annex the benefit of these rights to the retained land of the seller at the date of the conveyance.

Therefore, those falling within the retained land of the seller when the conveyances were created had the benefit of the covenants. Those which had been sold before the conveyances did not have the benefit. Furthermore, it was essential that the land with the benefit could be identified. If not, the covenant could not be enforced. The decision makes it clear that the land with the benefit of a restrictive covenant must be identified. To ascertain this, it will often be necessary to check the original documentation to ensure that the land with the benefit was clearly identified at the outset.

Interpreting the covenant
Two recent cases on interpretation are Martin v David Wilson Homes Ltd and also Jarvis Homes Ltd v Marshall.

Both of these cases concerned a restrictive covenant restricting the use of a property to 'a private residence' only.

In the Martin case, it was decided that the reference to 'a private dwelling house' in the covenant was not a restriction on numbers. The court held that the word 'a' is an article and not a number, and therefore did not impose a numerical restriction. In this respect, the court took a different line to the Crest Nicholson v McAllister case. It shows the importance of not just the drafting of covenants, but also their interpretation. Many will have interpreted the reference to 'a private dwelling house' to mean 'one private dwelling house', whereas the court did not.

In the Jarvis Homes case, land was bought by a developer subject to a restrictive covenant that the land was not to be used for more than 'one two-storey private dwelling house with outbuildings and garage'.

But the developer wanted to use the garden as an access route to a neighbouring residential development. At first instance, the court found in favour of the developer. It held that only a building can be used as a private residence and therefore
the covenant did not restrict the construction of a roadway.

However, the Court of Appeal found against the developer. It interpreted the wording more widely. It decided that the use of the garden for a road to access adjoining land was in breach of the covenant.

These cases highlight how difficult it is to interpret similar restrictive covenants and the different approaches the courts will often take. They demonstrate that those with the benefit of restrictive covenants, as well as those seeking to develop land, face difficult decisions in deciding how to enforce and how to respond to a complaint of breach of a restrictive covenant.

A question of timing
In the case of Mortimer and another v Bailey and another, the issue was whether the person with a benefit of a restrictive covenant was entitled to an injunction to demolish unauthorised works. In this case the defendant owned a house which was burdened by a restrictive covenant to the benefit of the adjoining property. The covenant stated that they would not, without written consent, carry out building works. Such consent was not to be unreasonably withheld.

The defendant made an application for consent, but it was refused. Subsequently, the defendants started work without consent, on the basis that the decision to withhold consent was unreasonable.

Work began in June 2003. At the end of July 2003 the adjoining property owner applied for an interim injunction. By this stage the new building had been virtually completed. But it was held that the delay in applying did not stop the granting of an order that the building should be demolished. The delay in taking action by the property owner was only a factor to consider.

This should be contrasted with the 1998 case of Gafford v AH Graham and Grandco Securities Ltd. In this case the property owner complained before works commenced that such works would be in breach of a restrictive covenant. Correspondence continued over several years, including reference to a without-prejudice offer to accept compensation.

The case took seven years to reach trial. It was held that the failure by the property owner to seek an injunction at the outset meant that it would be oppressive to grant an injunction for demolition. In this case it appears that the delay, coupled with the property owner's willingness to accept compensation, made it unreasonable for the building to be demolished.

It highlights the dangers and difficulties in advising both those with the benefit of, and those subject to, a restrictive covenant. Failure by the person with the benefit of a covenant to take immediate action may result in them being unable to have a building constructed in breach of the covenant demolished. Similarly, if the person with the benefit takes pre-emptive action but the covenant turns out to be unenforceable, they may be subject to substantial damages.

But Mortimer v Bailey does brings some further clarity to the situation. It appears to say that, provided the person with the benefit of the covenant makes it clear that they object, a developer who rushes on with construction may find itself required to demolish the building.

In such circumstances it is advisable to seek a declaration before the construction of any new development.

Modifying or discharging a covenant
Section 84 of the Law of Property Act 1925 allows the Lands Tribunal to modify or discharge a restrictive covenant on a freehold title, or in a lease of over 40 years where over 25 years have passed. An application can be made on one or more of the following grounds:

• changes in the character of the property or of the area since the covenant was imposed render the covenant obsolete;
• the covenant impedes the reasonable use of the property;
• the modification has been agreed by those with the benefit of it; or
• it will not injure the persons with the benefit of the covenant.

In the case of freehold land, there is no time limit for making an application. The fact that the covenant is a new one or that the applicant is the original party will not prevent an application, although the age of the covenant could be a key determinant in whether the Tribunal agrees to vary or modify its terms.

The jurisdiction is equitable and discretionary, however. There is considerable case law on the factors which the Tribunal should take into account.

Consideration should also be given to whether the property forms part of a 'building scheme' or whether the restrictive covenant is imposed pursuant to statutory powers. In both cases special rules apply to enforcement.

Conclusion
As the issues outlined above indicate, restrictive covenants remain a complex area to advise on. It is essential to carefully consider:

• whether the covenant is enforceable;
• who has the benefit of the covenant; and
• the wording of each covenant, to interpret how it applies to a particular piece of land.

With more development taking place on brownfield sites and in-filling of larger plots, disputes around restrictive covenants are likely to occur more regularly, for example on the sale of land for development, in option or pre-emption agreements, and in many other situations. Whatever the situation, the pressure is on legal advisers to draft and interpret restrictive covenants accurately.

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

Martin v David Wilson Homes Ltd [2004] EWCA Civ 1027

Jarvis Homes Ltd v Marshall [2004] EWCA Civ 839

Gafford v AH Graham and Grandco Securities Ltd [1998] EWCA Civ 666 © In-House Lawyer

Mortimer and another v Bailey and another [2004] EWCA Civ 1514