Restrictive Covenants 0 Comments

Restrictive Covenants

Proposition:   (1)  Where a restrictive covenant is expressed to be for the benefit and protection of so much of the seller’s adjoining or adjacent land as is capable of being benefitted, the court normally starts with the assumption that the restriction is capable of doing so.
(2)  The burden on the person who seeks to challenge the assumption that a restrictive covenant expressed to benefit the covenantees’ retained land does in fact do so is on the covenantor;
(3)  in a recent High Court case, that burden was discharged by the covenantee; and
(4)  a covenant will not be regarded as a restrictive covenant binding on successors in title to the burdened land if it principal purpose is to extract the payment of a sum of money (i.e. “overage”).

I referred in my last blog post “Rights of Pre-Emption and the Rule Against Perpetuities” to the case of Cosmichome Limited v Southampton City Council [2013]EWHC 1378(Ch); I mentioned that the case is also of interest in relation to the law of restrictive covenants and that I would deal with that in a separate post.

The decision (in relation to a restrictive covenant) in Cosmichome rested very much on the particular facts of the case.  I will therefore describe those facts in summary.

Cosmichome was the  registered freehold owner of land known as the BBC Regional Broadcasting Centre in Southampton (“the Site”).  The Site had formerly been owned by the BBC but the BBC transferred it to Southampton City Council in 1989.  There was only a nominal consideration as the BBC was to (and did) arrange for the construction on the Site of a building to be used as a broadcasting centre (completed in around 1991).  The centre comprised a purpose-built studio and administration centre for the regional programming of the BBC.  At the time of the decision in the case, the building had since completion in 1991 been in continuous occupation and use by the BBC as a broadcasting centre.  In 2004 the BBC sold the freehold of the Site to Cosmichome, taking a 25 year lease back under which the BBC remained in occupation.
BBC Broadcasting Studio Southampton
The issue was whether a covenant by the BBC in the 1989 transfer (“the Transfer”) was a restrictive covenant binding on Cosmichome as the BBC’s successor in title to the freehold of the Site.

The principal covenant was in the following terms:-

The Purchaser for itself and its successors in title hereby covenants with the Council pursuant to S.33 of the Local Government (Miscellaneous Provisions) Act 1982 and for the benefit and protection of so much of the adjoining or adjacent land of the Council as is capable of being benefited thereby or any part of parts thereof with the intent of binding the Property (the Site) into whosoever hands the same may come that the purchaser and the persons deriving title under it will at all times hereafter observe and perform the obligations stipulations and restrictions set out in the Second Schedule hereto”.

The Second Schedule to the Transfer set out several covenants including one which restricted the Site to occupation by the BBC (or any wholly owned subsidiary or other licensed broadcaster to whom the BBC’s franchise may in whole or in part be devolved by Act of Parliament) for the purpose of a Broadcasting Centre (“the permitted user”).

However, there was an important proviso to the covenant in the Second Schedule:-

PROVIDED THAT this covenant may be removed by the written Agreement under Seal of the Council (“the Discharge”) and a further covenant that where this restriction is lifted and planning permission granted for any use other than radio television studio with ancillary offices 50% of any resulting enhanced value accruing on the Property (the Site) shall be paid by the owner for the time being of the Property to the vendor (“the Development Charge”).

This was followed by the right of pre-emption dealt with in my earlier blog post.

Cadogan SquareCosmichome sought a declaration that the restrictive covenant was not enforceable against it or any successor in title to it.  The learned Judge began by stating the general rule that “to be enforceable against successors in title of the original covenantor the burden of a restrictive covenant must, at the time it was imposed, have been intended to benefit, and in fact have been capable of benefitting, the land of the covenantee and must continue to benefit that land at the time that it’s enforcement is sought” (my underlining).  In support of this statement the Judgement referred to Dano Ltd v the Earl Cadogan [2003] EWHC 239(Ch).

The learned Judge (see Proposition (1) above) then referred to the rule that where a restrictive covenant is expressed to be for the benefit and protection of so much of the adjoining or adjacent land of the covenantee as is capable of being benefitted, the Court normally starts with the assumption that the restriction is capable of doing so.  The Judge quoted from Wilberforce J Marten v Flight Refuelling Ltd [1962] Ch 116;

If an owner of land, on selling part of it, thinks fit to impose a restriction on user, and the restriction was imposed for the purpose of benefiting the Land retained, the court would normally assume that it is capable of doing so.

The Judge went on to say (see Proposition (2) above) that the burden of proof is on the person who seeks to challenge the assumption that a restriction expressed to benefit the covenantees retained land does in fact do so (normally the covenantor) as stated by Sargant J in Lord Northbourne v Johnston & Son [1922] 2 Ch 309.

Pic 3The practical and usual course is for the vendor to impose covenants the benefit of which will not be attached to any particular parcel of land, but will be enforceable by the vendor for the general benefit of his unsold estate for the time being. Nor do I think that the vendor must on each occasion of enforcement show that the result will in fact be to benefit his remaining estate. Benefit or detriment is often a question of opinion on which there may be the greatest divergence of view, and the greatest difficulty in arriving at a clear conclusion. It is, in my judgment, sufficient for the vendor to say, at any rate in the first instance, that the bargain was that he should be protected against certain acts which were recognised as being likely to prove noxious or detrimental to his building estate treated as a whole. The covenantor, being then, in my judgment, bound at the very least to show that the estate remaining to the covenantee at the date of the action was not intended to be protected by the covenants, or that the breach of the covenants could not possibly hurt such remaining estate, the question arises whether this onus has been discharged…

The saWrotham Parkme principle was enunciated by Brightman J in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798.  The Council pleaded that the restrictions “affected the nature, quality, amenity and value” of its land, but Counsel for the claimant pointed out that the restrictive covenant was unusual in a number of respects; first, that it restricted not only the use of the property but also the identity of the person who may use the property; and secondly,  that the commercial purpose of the covenant was to obtain payment of “overage” in the event of a wider use being allowed and to  obtain that payment not only from the BBC but also (by extracting an appropriate covenant to secure that this happens) from a successor in title to the BBC.

In support of this proposition, Counsel for the claimant quoted extensively from the 4th edition (published in March 2013) of Restrictive Covenants and Freehold Land by Andrew Francis. The first passage (at p 91), dealt with “money payment” covenants (see Proposition 4 above) in the following terms:-

… ‘money payment’ covenants must be distinguished from restrictive covenants properly so called. Modern authority stresses the distinction between covenants imposed to protect, or preserve, amenity and those imposed to protect, or allow recovery of an increase in value. This latter purpose, often described as ‘overage’ or ‘clawback’ may be regarded as one lying outside the scope of the benefit of a restrictive covenant”

The second passage (at p94) dealing with ‘personal covenants’ states that:-

Restrictive Covenants and Freehold Land by Andrew Francis…the question arises where a restriction on use is limited to ‘the purchaser’ or some other defined individual and where the defined use of the land (e.g. for a specific purpose …) is such that the ‘personality’ of that individual will be important in so far as the nature, or quality of the use takes its ‘tone’ from the individual and is significant in context ….It may be possible to take other obligations in the same document imposing the covenant (e.g. a right of pre-emption) and argue that the context, with that right of pre-emption present, suggests that the covenant is a personal one.

Counsel for the claimant submitted both that the restrictive covenant in the Cosmichome case was intended to secure a payment, and that it was of a personal or quasi-personal nature and not therefore capable of benefiting the Council’s land.

The evidence given by surveyors and others on behalf of both parties conflicted greatly.  Essentially, the Council argued that the surrounding areas in its ownership – the “Cultural Quarter” did indeed derive benefit from the covenant but the Judge said “Given the varied nature of the land uses in the immediate vicinity it is hard to suppose that the restrictive covenant, confining the use of the Site effectively to BBC use as a broadcasting centre, can have any material impact on the nature, quality or amenity of the adjoining council-owned land”.

Having reviewed all of the evidence, (which I have no space for here) the learned Judge concluded:-

SouthamptonIn the light of this review of the relevance evidence I conclude that the restrictive covenant cannot be said to have benefitted the Council’s adjoining or adjacent land when it was imposed in 1989 and it does not do so now.  Moreover, the balance of the evidence strongly suggests that the reason for its imposition was two-fold; to seek thereby to maintain the BBC at the Site and to serve as a lever for extracting a payment if and when the BBC should seek to have it removed and go elsewhere.  As such it is in the nature of a money payment obligation rather than a restrictive covenant properly so called.  It is not intended to protect or preserve the amenity or value of the Council’s adjacent land.  It does not bind successors in title to the BBC.  I shall therefore grant the first of the two declarations which Cosmichome seeks”.

Conclusion:   (1)  A restrictive covenant expressed to be for the benefit of the covenantees’ adjoining and neighbouring land will not necessarily bind successors in title if the circumstances are such (referring to Mr Francis’ words), or can be regarded, in all the surrounding circumstances, as personal; and
(2)  where a land owner is disposing of land subject to a restrictive covenant to protect its adjoining or neighbouring land, and at the same time is seeking a right of pre-emption, it is difficult to see how the two can co-exist, but careful drafting might be sufficient to separate the covenant and the right so that the burden of the restrictive covenant will pass (provided that the covenantee is not able to demonstrate that there is no actual benefit).

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