RESTRICTIVE COVENANTS

16 / 03 / 2021

Game on for development?

When making an assessment as to whether to acquire a property, ensuring that it is suitable for the intended use is key. A recent case in the High Court has highlighted how detrimental restrictive covenants can be to the use of a property and its potential for future development. Knowing how to identify whether a property is affected by restrictive covenants and whether these will impact a proposed development is therefore essential for any property developer.

What are restrictive covenants?

Covenants are promises made from one landowner to another in connection with the use of land. These are usually made when land is conveyed, and noted on the property title deeds by registration. Covenants can be positive and require the covenantor to do something, for example maintain a boundary wall, fence or gate. Covenants can also be negative and restrict the use of the land, which are more likely to be of concern. This is because positive covenants do not “run with the land”, meaning that once the covenantor has disposed of the land to someone else the covenants fall away. By contrast, negative covenants are enforceable between the original parties, and also between successors in title.

Bath Rugby Limited v Greenwood and Others  [2020] EWHC 2662 (Ch)

The restrictive covenant in question was created in 1922, and posed a potential threat to the redevelopment of Bath Rugby’s home ground which they hold on a long lease – The Recreation Ground, or “Rec”.  The covenant was contained in a conveyance of the Rec dated 6th April 1922 which restricted the use of the land, so that nothing could be “built or done upon the land which may be or grow to be a nuisance and annoyance, or disturbance or otherwise prejudicially affect the adjoining premises or neighbourhood”. The local residents owning properties on the land adjoining the Rec used this as the basis of their claims opposing the development. 

A successor in title will only be able to enforce a restrictive covenant in a certain set of circumstances:

  • The covenant needs to affect and benefit the land, not merely be a benefit to the owner seeking enforcement. They often preserve the land’s character, view or prohibit nuisance.
  • The benefitting land must have passed to the party seeking to enforce it by:    
  1. Annexation: the benefit must be attached to the land. This is often determined from the wording of the covenant which should make it clear that the land was intended to benefit from the covenant, and the extent of the benefitting land is identifiable; or
  2. Assignment: a full chain of assignment needs to be shown, normally through past conveyances or transfers of the benefitting land which expressly refer to the covenant and the fact that the benefit is to pass to the assignee; or
  3. Scheme of development: in the case of building schemes, covenants will pass to buyers of individual plots and their successors in title. 

Covenants made after 1925 will be attached to the land by statutory annexation by virtue of s.78 of the Law of Property Act 1925 (LPA 1925), meaning the covenant automatically passes to successive benefitting land owners. In the Bath Rugby case, as the High Court found that there was nothing to indicate that the benefit of the covenant had been assigned or the existence of a building scheme, annexation was the important factor. This needed to be proved as the conveyance was made before the LPA 1925.  Bath Rugby claimed that the covenant was not enforceable because the benefitting land was not sufficiently defined in the 1922 conveyance, and therefore the restrictive covenant could not be annexed to it.

The court held that the covenant was enforceable by virtue of annexation, and specifically that it could be enforced by those who owned properties on the adjoining land to the Rec, which were part of the Bathwick Estate at the time of the 1922 conveyance. This was because of the covenant wording, which stated that it was for the covenantee and “his successors in title and assigns”. The use of the word “title” suggested annexation specifically to the covenantee’s land, as opposed to benefiting just the covenantee personally. The second point was whether the 1922 conveyance had sufficiently identified the benefiting land.  It is typical for older covenants to be less specific when identifying the benefitting land, and Bath Rugby argued that the boundaries of the Bathwick Estate were not clear. The court’s view was that in the case of covenants made before the LPA 1925, “it is sufficient for the conveyance to describe the land intended to be benefited in terms which enable it to be identified from other evidence”. The court refused Bath Rugby’s application on the basis that it is not necessary to show that the benefiting land is “easily ascertainable”. It was concluded that the test is to be applied when the covenant was created and that its validity should not be affected by any evidential difficulties in identifying the benefitting land later. As the Bathwick Estate could have been identified at the time the covenant was created, the fact that the full extent of the Bathwick Estate was now unknown did not prevent enforcement by benefitting land owners. This case is therefore a very useful reminder to anyone acquiring land to ensure any restrictive covenants noted on the title deed are closely examined for their enforceability. It also highlights how the drafting of covenants themselves is vital to guarantee their future intended enforceability.  

The Future of The Rec

Bath Rugby Club remain optimistic that the Rec can be developed. However this decision has not been appealed within the statutory timescale so it will be interesting to see how those ambitions are realised.