by Simon Gibbs
Covenants by a tenant not to take certain actions without the landlord’s consent are a common feature of leases, and practitioners will be familiar with the provisions of section 19 of the Landlord and Tenant Act 1927 which imply into such covenants that the landlord’s consent is not to be unreasonably withheld. However, less prominence has been given to the covenants in freehold documents where a consent is required before various works can be carried out.
Most conveyances or transfers by a developer of a house on a new housing estate will impose a covenant not to make alterations to the dwelling-house without the developer’s consent. From the purchaser’s point of view this covenant should contain a qualification that the developer’s consent is not to be unreasonably withheld. But if the “magic words” are not included are they implied by law?
Certainly by statute they are not. The only assistance statute renders to a covenantor is the right to apply to the Lands Tribunal under section 84 of the Law of Property Act 1925 (as amended by the Law of Property Act 1969) to discharge or modify the covenant and the power under section 610 of the Housing Act 1985 for the county court to authorise the conversion of a house into two or more tenements in contravention of a restrictive covenant.
Wrotham Park Estate Co v Parkside Homes Ltd
Surprisingly, there have been very few cases on this aspect of covenants. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd [4] 2 All ER 321 part of the Wrotham Park Estate, Hertfordshire (“Area 14”) was conveyed subject to a covenant that the land was not to be developed “….for building purposes except in strict accordance with a layout plan to be first submitted to and approved in writing by the Vendor or his Surveyors….”. Following a chain of conveyances over a period of 36 years or so part of Area 14 was purchased by the defendants, Parkside Homes.
Having obtained planning permission for the development of 14 houses on the site, Parkside began to carry out preliminary site works and to accept holding deposits from prospective purchasers who were intending to enter into building and purchase agreements with them. The estate’s managing agents drew Parkside’s attention to the layout stipulation in the 1935 conveyance, asserting that any further development on the site would be in contravention of it and seeking an assurance that no building would take place. Parkside’s solicitors replied the next day confirming that they were aware of the stipulation but stating that they were advised that it was not enforceable.
More preliminary building work was carried out and the estate issued a writ against Parkside seeking a (prohibitory) injunction to restrain them from building on the site other than in accordance with the lay-out plan approved by the plaintiffs and a mandatory injunction for the demolition of any buildings in breach of the stipulation. The estate made no application for interlocutory relief. Holding deposits having been accepted, building work proceeded and, backed up by indemnities and an insurance policy, contracts were exchanged with purchasers of all 14 houses.
These were the facts of Wrotham. I will deal later with the decision in the case, but for present purposes there are two parts of the judgment of Brightman J (as he then was) which are of interest. First, and this is not in the Weekly Law Reports but only in the All England Law Reports (p 328 d), the judge stated that the layout stipulation in the conveyance of another area of the Wrotham Park Estate was in the same terms as in the conveyance of Area 14 with an addition to the effect that approval should not be unreasonably withheld; “this qualification would have been implied if not expressed, as was conceded before me”. Second (p 330 f), the judge stated that counsel for the Wrotham Park Estate (G H Newsom QC) had conceded that the covenantee would have no right under a layout stipulation to refuse approval unreasonably.
Mutual covenants
Wrotham was considered in the recent case of Price v Bouch [6] 2 EGLR 179; (1986) 279 EG 1226. This concerned a deed of mutual covenant executed in 1895 which established a co-operative scheme on the part of 53 Victorian tradesmen for the acquisition, lotting and subdivision among themselves for building purposes of an estate in Northumberland. The deed contained restrictive covenants entered into by the mutual covenantors among themselves as part of the scheme of development to be administered by a committee appointed by the mutual covenantors or their successors in title. Fairly detailed provisions as to the appointment of officers, meetings, quorums and proxies and other matters were also in the deed and it even contained a clause that not more than two pigs should at any one time be kept on any holding, which the judge rather drily pointed out was a provision which he took to be for the amenity of the estate rather than the comfort of the pigs!
The deed went on to provide that the committee of the mutual covenantors had the duty to inspect plans of dwelling houses and other buildings proposed to be erected and that no house or building was to be erected unless the plans had first been submitted to and approved by a majority of the committee. The plaintiffs in the case were the owners of land subject to the deed of mutual covenant and they wished to build themselves a new house upon this land. With that in view they duly prepared building plans and submitted them to the committee for approval. They submitted amended plans on two further occasions, but on each occasion they were rejected without reasons.
Millett J was asked to make declarations on whether:
(i) it was an implied term of the 1895 deed that approval of plans was not to be unreasonably withheld and
(ii) it was incumbent upon the committee to give reasons for their refusal to approve a building plan submitted to them.
On the first issue, the judge stated that there was no general principle of law that, where a contract requires the consent of one party to be obtained by the other, there is an implied term that such consent is not to be unreasonably withheld; it all depended upon the circumstances of the particular contract. The judge then went on to consider Wrotham and the statement by Brightman J that the words “such consent not to be unreasonably refused” would have been implied.
Millett J was prepared to assume, but “without in any way deciding”, that in the circumstances of a common vendor’s selling off an estate piecemeal and imposing covenants, a term is to be implied that consent shall not be unreasonably refused. However, the judge distinguished that case from the one he had to consider. The decision to approve the plans or not was vested not in a common vendor or his successors in title but in the mutual covenantors who had delegated to a committee.
It had been conceded that the committee had a duty to inspect and consider any applications submitted to them, to reach a decision themselves and not to delegate it to others, and to act honestly and in good faith and not for some improper or ulterior purpose. It had also been accepted that, if the committee took into account irrelevant considerations or failed to take into account relevant considerations or reached a perverse decision such that no reasonable committee could possibly reach, then their decision could be impugned, for it would be ultra vires.
However, the plaintiffs went further. They insisted that the committee must act reasonably (the first question) and that they must give reasons (the second question). The judge held that there was no implication that the committee’s decision was not to be unreasonably withheld. He said that the scheme of the covenants was for control to be by the committee and a decision by the court would usurp the committee’s function, provided only that it was given honestly and in good faith and not for some improper purpose.
On the second question, the judge also decided in the negative. It might be appropriate, he said, for the committee to give reasons for their decision, if only because a failure to give any reason at all might lead to the inference that there was no good reason to give. But even a landlord who was not entitled to refuse consent unreasonably was not bound to give reasons for his refusal and the judge could find no legal duty on the committee to do so.
Conclusions
It is difficult to draw general conclusions from these cases — for two reasons. First, each document will be construed according to its own terms and circumstances in accordance with the usual rules for the construction of legal documents. Second, these matters have not been considered by a higher court. However, one can tentatively conclude that:
(a) There is no reason in principle why, if any general conclusions can be drawn from the cases, these conclusions should relate only to consents to layout plans and for alterations. They ought to apply to other covenants, for example relating to user, where a consent is required.
(b) In the relatively rare cases of mutual covenants, there is no implication that the covenantee’s consent is not to be unreasonably withheld.
(c) In the more usual case of a common vendor of an estate sold off in individual plots, the authority for an implied term that the consent is not to be unreasonably withheld is somewhat limited. The point does not appear to have been argued before Brightman J. Indeed, quite the contrary appears to have been the case; counsel (albeit the author of the leading book on restrictive covenants) conceded the point. At best, the statement was obiter by a court of first instance. It will also be noted that in the Price case the judge expressly did not decide the point. Further, in Guardian Assurance Co Ltd v Gants Hill Holdings Ltd (1983) 267 EG 678 Mervyn Davies J declined to follow a dictum of Megaw LJ in Bocardo SA v S & M Hotels Ltd [0] 1 WLR 17, and would not imply into a lease that the landlord’s consent to a change of use was not to be unreasonably withheld.
(d) If the covenantee, or successors in title to the covenantee, is a committee or trustees its or their decisions must be given honestly and in good faith and not for some improper purpose.
(e) A qualification of reasonableness goes further than a duty to act honestly and in good faith and not for some improper motive. Putting it another way, even though the covenant does expressly contain a qualification of reasonableness, the covenantee can seemingly still reasonably withhold consent although he has acted honestly in good faith and not for an improper motive. What may or may not be reasonable obviously depends on the circumstances of the particular case.
(f) No reasons need to be given for the covenantee’s decision.
(g) If the alteration, or whatever, is carried out without a licence, any damages claimed by the covenantee are possibly limited to fairly modest (perhaps nominal) damages. For example, in Wrotham the judge found, inter alia, that the lay-out covenant had no commercial or even nuisance value, for it could not be turned to account except to the detriment of the existing residents, who were the people the estate professed to want to protect. Accordingly, he awarded damages equal to 5% of Parkside’s anticipated profit. A case where nominal damages were awarded was Powell v Hemsley [9] 1 Ch 680.
(h) It is unlikely that the court will grant a mandatory injunction to restore the premises to their previous state. Certainly a mandatory injunction was refused in Wrotham and the damages awarded were under the jurisdiction which originated with the Chancery Amendment Act 1858 (Lord Cairns’s Act) to award damages in substitution for an injunction. However, if an injunction is sought before the works commence then the covenantee may well be successful. In the words of Lord Westbury LC in the case of Isenberg v East India House Estate Co Ltd (1863) 3 De GJ & Sm 263 “The jurisdiction of this Court, so far as it partakes of the nature of a preventative remedy, that is, prohibition of further damage or and intended damage, is a jurisdiction that may be exercised without difficulty….” An example of a case where a prohibitory injunction was granted was Goolden v Anstee (1868) 18 LT 898 in which the covenantor built in contravention of a stipulation to build to the satisfaction of the vendor’s architect. Building works were commenced and the court granted an injunction preventing building except in conformity with the covenant.
The moral is clear; from the covenantor’s point of view, in any covenant requiring the covenantee’s consent insert the words “not to be unreasonably withheld”.