The meaning of a covenant is a matter of contractual interpretation, and where one party is given a discretionary power it must be exercised rationally.
The High Court has considered the exercise of a covenant restricting the sale of a former educational building in Warwickshire College v Malvern Hills District Council [2023] EWHC 2008 (Ch).
The case concerned a building in Malvern, Worcestershire. A sale in 2008 was subject to a covenant which required the premises not to be used other than as a further education college unless the defendant council provided written confirmation that it was satisfied that the Learning and Skills Council (or any successor in function) had properly determined that there was no longer a need for a college in Malvern or that the education and training provided at the property had been relocated to an alternative site within or adjacent to Malvern, approved by the council.
The claimant college acquired the property subject to the covenant in 2016.
The property closed in 2020 and the college wished to sell it to fund its educational activities at other sites. The council refused to provide the written confirmation required by the covenant so change of use was impossible.
The LSC was established in 2000 to secure the provision of proper facilities for education of 16 to 19-year-olds and reasonable facilities for education of those over 19.
The court was satisfied that the Education and Skills Funding Agency, an executive agency of the Department for Education established in 2017, was the functional successor to the LSC, although its remit was narrower, being limited to the 16 to 19-year-old duty.
The ESFA determined that there was no functional need for a college site in Malvern to deliver ESFA-funded 16 to 19-year-old provision, but could not comment on over-19 or adult provision as it did not collect comprehensive data on leisure provision it did not fund.
The covenant vested in the council a discretion as to whether the determination was satisfactory or not properly arrived at, which had to be exercised rationally: see Braganza v BP Shipping Ltd [2015] UKSC.
The council could not rationally conclude that the ESFA had not provided a satisfactory determination because it was impossible for them to comment on services they did not fund.
In the absence of facts suggesting otherwise, it was to be assumed that where a public authority has made a determination, its functions had been properly exercised.
There was no other basis on which the council could rationally reject the determination.
It was obliged to provide written confirmation in accordance with the covenant, otherwise it would effectively have a veto over the sale, which is not what the parties intended.
Louise Clark is a property law consultant and mediator
