Restrictive covenants – can they be enforced?

Posted: 25/05/2022

Restrictive covenants are often encountered on the title to land earmarked for development by registered providers, which begs the question, can they be enforced? A recent case, Bath Rugby Limited v Greenwood and Others [2020] EWCA Civ 1927, highlighted the issues to be considered when a person claiming to have the benefit of a restrictive covenant seeks to prevent development which would breach the covenant.

Broadly, the main aspects around enforceability of covenants by successors in title are:

• Has the covenant been correctly protected by registration or, if registration is not applicable, did the owner of the land which is subject to the covenant have notice of the covenant when the land was purchased?
• Does the covenant relate to land owned by the person seeking to enforce it, rather than being of a personal nature (in legal speak, does it ‘touch and concern’ the land)?
• Has the benefit of the covenant passed to the person seeking to enforce it? This is generally achieved by direct assignment or by ‘annexation’.
• Covenants entered into after 1925 are likely to be automatically annexed to the land by virtue of section 78 of the Law of Property Act 1925, whereby a covenant is deemed to be made not only with the relevant contracting party, but also their successors in title. Provided the land intended to be benefitted by the covenant is sufficiently clearly identified, future owners, and lessees, of the land will be able to enforce the covenants.
• In the case of covenants entered into before 1926, it must be evident from the wording of the document containing the covenant that the covenant was intended to benefit the land, and not just the person named in the document. Typical wording might be ‘so that the benefit will be annexed to and run with the land’ or ‘for the benefit of each and every part of the land’.

It was the question of annexation in a pre-1926 conveyance that the court had to consider in the Bath Rugby case. Briefly, Bath Rugby Club owned land which it wished to develop, but was potentially prevented from doing so by restrictive covenants contained in a 1922 conveyance from the Bathwick Estate. Parts of the estate owned by Bathwick at the time were subsequently sold off, including a property known as 77 Great Pulteney Street (No.77).

The owner of No.77 claimed to have the benefit of the covenants, as a successor in title to Bathwick Estate, and objected to the proposed development. The High Court initially determined that, because the wording of the covenant referred to the covenant being for the benefit of ‘successors in title’, this was sufficient to indicate that the covenant was intended to benefit the land owned by the Bathwick Estate ‘adjoining or near’ the rugby ground.

However, the Court of Appeal found that the covenant did not sufficiently clearly identify that No.77 was intended to have the benefit of the covenant. There was no plan attached to the conveyance, and the covenant referred only to the ‘adjoining premises or neighbourhood’ which was considered to be too vague. The fact that No.77 was actually owned by the Bathwick Estate at the time of the conveyance was not sufficient to impute an intention that it should have the benefit of the covenants.

One other point for registered providers to consider, when approached to release the benefit of a restrictive covenant, is to be cautious of entering into negotiations for the payment of a premium in return for the release of the covenant. If such negotiations are not conducted on a ‘without prejudice’ basis, which means they can be used in any subsequent court proceedings, it is likely that this will compromise the ability of the registered provider to enforce the covenant by seeking an injunction, and the right to damages, if the developer proceeds with the development in breach of the covenant, may be lost.

Subject to this, registered providers are at liberty to release restrictive covenants and charge a premium for doing so, which should be professionally valued. In fact, in the case of charitable organisations, they are likely to be under a statutory duty to do so, in order to obtain best value from their assets.

Registered providers should therefore take note: careful investigation into restrictive covenants which appear to prevent development may show that they are unenforceable. But when creating new restrictive covenants, make sure the rules are followed, so they can be enforced against future owners.

As always, please do contact us for advice on any of the above issues.

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