Restrictive covenant –– Right to buy –– Housing Act 1985 –– Restriction to single dwelling-house use –– Payment demanded for release of covenant –– Whether covenant imposed for improper purpose –– Whether covenant lawfully imposed
The appellant was the owner of a dwelling-house. In 1988 the appellant and his father, who were then tenants of the respondent council, purchased the property under the “right-to-buy” provisions of the Housing Act 1985 for a price of £20,000. The price represented the market value, less a £30,000 statutory discount. The conveyance contained a restrictive covenant restricting the use of the property to use as a single private dwelling-house. In 1995 the council granted planning permission for the erection of a further dwelling on part of the garden of the property. Following a request by the appellant, the council stated that they would release the restrictive covenant upon payment of a sum equivalent to 90% of the open-market value of the building plot. The council claimed that the covenant had been imposed so that they could realise any further development value. In 1998 the council confirmed that the imposition of the restrictive covenant was reasonable, and that if the appellant wished to be released from it, he had to negotiate terms with the council. The appellant’s application for judicial review of the council’s decision was dismissed. The appellant appealed.
Held: The appeal was allowed. The covenant was not imposed to depress values in the interests of potential tenant buyers; it was imposed to retain for the council any future profit, or the bulk of it, arising out of development value. The policy of the right-to-buy legislation was to enable tenants, upon buying, to enjoy the ordinary fruits or advantages of homeownership, including a rise in the value of their property, whether because of the benefits of a later acquired planning permission or otherwise. The ordinary incidents of a sale under the right-to-buy provisions, and having regard to section 127 of, and para 6 of Schedule 6 to, the 1985 Act, would not include the reservation of a right in the seller to keep the profits of any enhanced value arising from any potential development. The covenant was unlawfully imposed; it was outwith the policy and objects of the statute and so ultra vires the council. The alternative remedies in sections 167 and 168 of the Act did not oust an application by judicial review.
The following cases are referred to in this report.
Allnatt London Properties Ltd v Newton [1984] 1 All ER 423; (1982) 45 P&CR 94; [1983] 1 EGLR 73; 265 EG 601, CA
Bromley London Borough Council v Greater London Council [1983] 1 AC 768; [1982] 2 WLR 92; [1982] 1 All ER 153
James v United Kingdom A/98 (1986) 8 EHRR 123
Joseph v Joseph [1967] Ch 78; [1966] 3 WLR 631; [1966] 3 All ER 486, CA
Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1999] 2 AC 1; [1997] 3 WLR 1177; [1998] 1 All ER 218; (1998) 75 P&CR D21
Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997; [1968] 2 WLR 924; [1968] 1 All ER 694, HL
Sheffield City Council v Jackson [1998] 1 WLR 1591; [1998] 3 All ER 260; (1999) 31 HLR 331
This was the hearing of an appeal by the appellant, Malcolm William Halls, from a decision of Jackson J in an application for judicial review of decisions of the respondents, Braintree District Council, concerning the Housing Act 1985.
Andrew Arden QC and Andrew Gore (instructed by Stevens, of Haverhill) appeared for the appellant; Rabinder Singh (instructed by Holmes & Hills, of Braintree) represented the respondents.
Giving judgment, Laws LJ said: This is an appeal against a decision of Jackson J given in judicial review proceedings on 2 July 1999. The appeal, which was launched on 26 July 1999, is brought with permission granted by the judge at first instance. Jackson J dismissed the appellant’s application for judicial review.
In his skeleton argument for the respondent district council, Mr Rabinder Singh submits at the outset that it is important to have precisely in mind the nature of the district council’s decision in respect of which judicial review was sought. It was as follows:
The refusal of the respondents by letter dated 9th January 1998 to agree to the release of a covenant imposed on the sale of a freehold reversionary interest in the property of the respondents to the applicant and his late father by which the purchasers and their successors in title were to use the property thereof as a single private dwelling house only.
Alternatively the refusal by the respondents to waive or vary the covenant for the purpose of allowing the erection of a further dwelling-house within the curtilage of the property.
The appellant is the freehold owner of 7 Sages End, Helions Bumpstead, Essex (the property). The property was originally owned by the respondent council. The appellant and his father were council tenants living in the property. In 1988 they exercised what is called the “right to buy” pursuant to section 118 of the Housing Act 1985. In October 1987 the district valuer had produced a written valuation of the property in the sum of £50,000. It is plain, as the judge stated and all parties agreed, that this figure did not include any allowance for the possibility that, in the future, part of the garden might be sold off as development land.
The property was duly conveyed to the appellant and his father on 22 August 1988. The price was £20,000. That was stated to be the market value less £30,000, being the statutory discount to which the purchasers were entitled. I shall come to the legislation in due course.
The conveyance is before us. It included, in the third schedule, a covenant binding the purchasers in these terms:
(b) To use the property as a single private dwellinghouse only and not to carry out or to permit to be carried out on the property any trade or business of any description whatsoever and not do or cause suffer or permit anything to be done on the property which is or might grow to be a source of nuisance or annoyance to the Council the owners or occupiers of adjoining or neighbouring properties.
The respondents’ offer notice under Part V of the Housing Act, dated 6 November 1987, had warned that the conveyance would include a provision insisting upon dwelling-house use only. Some time after the conveyance was executed, the appellant’s father sadly died and the appellant became the sole owner of the property. On 11 July 1995 the respondent council, in their capacity as local planning authority, granted to the appellant planning permission to erect a further dwelling-house within the property’s curtilage. On 24 July 1996 the appellant’s solicitors wrote to the respondents as follows:
Mr Halls has agreed, subject to Contract, to sell part of the garden land of the property, which he purchased in 1988 from the Council, as a Building plot.
Your Council has granted Planning Permission in outline for a bungalow and garage.
Could you please confirm that the Council’s consent to the sale off for the purposes of the restrictive covenant in the Conveyance to Mr Halls.
The respondents’ substantive reply is dated 22 August 1996. In that letter they said:
As you are aware, the Conveyance from the Council to Mr Halls contains a covenant which permits the property to be used as a single private dwellinghouse only.
The Council would however be prepared to release Mr Halls from this covenant subject to:
(a) Mr Halls paying to the Council a sum equivalent to 90% of the open market value of the building plot.
Other conditions were then set out, but I may break off there.
There followed further correspondence, as the judge said, concerned with two matters, the reasonableness of the sum demanded and whether the respondents were entitled to demand any sum at all.
On 27 September 1996 the appellant’s solicitors wrote thus:
we should be interested to hear the Council’s original justification for imposing the restrictive covenant when the sale was first completed under the right to buy legislation.
On 1 October 1996 the respondents replied:
With regard to the final paragraph of your above mentioned letter [that is the letter of 27th September] I would advise that the Council imposes this restrictive covenant on the sale of all Council houses in order to realise any future development value. Obviously when the property is sold to the tenant it is valued as a single private dwellinghouse and the valuation ignores any possible development value.
At length, the respondents wrote on 9 January 1998. This letter, as I have said, constitutes the decision formally under challenge. It was written in response to a letter from the appellant’s solicitors of 22 December 1997, in which this was said:
We are not prepared to disclose Counsel’s Opinion, but the gist of it is basically thus.
(i) The relevant provision in the Housing Act prohibits charging for such consents.
(ii) Your earlier letter of 1st October 1996 confirms that there is a blanket policy to include this provision and that it is done for the specific purpose of charging for consents.
(iii) That (i) and (ii) are irreconcilable.
(iv) The valuation of the property on sale by the Council was, by virtue of the statutory provisions, an open market value.
The letter of 9 January 1998 referred to paras 4-6 of Schedule 6 to the Housing Act 1985. I will come shortly to the statute, but it is convenient, in order to make sense of the letter, just to read paras 5 and 6 of that schedule at this stage:
(5) Subject to paragraph (6) and to Parts II and III of this Schedule, the conveyance or grant may include such covenants and conditions as are reasonable in the circumstances.
(6) A provision of the conveyance or lease is void in so far as it purports to enable the landlord to charge the tenant a sum for or in connection with the giving of a consent or approval.
The council’s letter of 9 January 1998 continued thus:
It is this Council’s view that the Council could impose within the Conveyance of 7 Sages End, Helions Bumpstead “such covenants and conditions as are reasonable in the circumstances”. The Conveyance of 7 Sages End to your client does not impose any condition which purports to enable the Council to charge the tenant a sum for or in connection with the giving of a consent. It is therefore the Council’s view that the Council are not in any way breaching the terms of the Housing Act 1985 because their Conveyance does not include an undertaking on the part of your client to pay a charge for a consent. Furthermore, the request made is for the release of a restrictive covenant, not for the grant of a consent.
(ii) The Council’s letter of 1st October 1996 makes no mention of any charge for consent for the release of a restrictive covenant. I can confirm that it is the council’s policy that a restrictive covenant of this kind is imposed on every council house sold. It is the Council’s contention that it is a reasonable covenant in as much as if it were not imposed any Council house on any estate could be used for whatever purpose (assuming of course that planning permission could be obtained).
(iii) The Council does not consider that (i) and (ii) are irreconcilable. The covenant is a restrictive one which is absolute. If a purchaser wishes to be released from that covenant then it is for him to negotiate terms with the Council for that release. If the terms cannot be negotiated then obviously the covenant must be adhered to.
(iv) It is confirmed that the property was sold at an open market value on the basis that the property was a dwelling-house. The valuation therefore ignored any possible development value.
In addition to paras 5 and 6 of Schedule 6, I should next notice these following provisions of the Housing Act 1985 dealing with the right-to-buy regime. Section 126(1):
The price payable for a dwelling-house on a conveyance or grant in pursuance of this Part is ––
(a) the amount which under section 127 is to be taken as its value at the relevant time, less
(b) the discount to which the purchaser is entitled under this Part.
Section 127(1) provides in part:
(1) The value of a dwelling-house at the relevant time shall be taken to be the price which at that time it would realise if sold on the open market by a willing vendor ––
(a) on the assumptions stated for a conveyance in subsection (2)…
Subsection (2) reads:
(2) For a conveyance the assumptions are ––
(a) that the vendor was selling for an estate in fee simple with vacant possession,
(b) that neither the tenant nor a member of his family residing with him wanted to buy, and
(c) that the dwelling-house was to be conveyed with the same rights and subject to the same burdens as it would be in pursuance of this Part.
Section 128(1):
Any question arising under this Part as to the value of a dwelling-house at the relevant time shall be determined by the district valuer in accordance with this section.
Then sections 129-131 and Schedule 4 provide for the statutory discount. It is unnecessary to travel into the details. Essentially, although this is certainly an oversimplification, the discount to be granted to the tenant in the transaction under the right-to-buy scheme is geared to the length of time that he has lived in the property.
Section 138(1) reads:
Where a secure tenant has claimed to exercise the right to buy and that right has been established, then, as soon as all matters relating to the grant… have been agreed or determined, the landlord shall make to the tenant ––
(a) if the dwelling-house is a house and the landlord owns the freehold, a grant of the dwelling-house for an estate in fee simple absolute…
Section 139(1), in part, reads:
A conveyance of the freehold executed in pursuance of the right to buy shall conform with Parts I and II of Schedule 6…
That then engages paras 5 and 6 of Schedule 6, which I have already read.
Section 155(1) reads:
(1) A conveyance of the freehold or grant of a lease in pursuance of this Part shall contain (unless, in the case of a conveyance or grant in pursuance of the right to buy, there is no discount) a covenant binding on the secure tenant and his successors in title to the following effect.
(2) In the case of a conveyance or grant in pursuance of the right to buy, the covenant shall be to pay to the landlord on demand, if within a period of three years there is a relevant disposal which is not an exempted disposal… the discount to which the secure tenant was entitled, reduced by one-third for each complete year which has elapsed after the conveyance or grant and before the disposal.
Section 157(1):
Where in pursuance of this Part a conveyance or grant is executed by a local authority, the Development Board for Rural Wales or a housing association (“the landlord”) of a dwelling-house situated in ––
(a) a National Park;
(b) an area designated under section 87 of the National Parks and Access to the Countryside Act 1949 as an area of outstanding natural beauty, or
(c) an area designated by order of the Secretary of State as a rural area,
the conveyance or grant may contain a covenant limiting the freedom of the tenant (including any successor in title of his and any person deriving title under him or such a successor) to dispose of the dwelling-house in the manner specified below.
I need not enter into the details contained in the balance of section 157, and, indeed, section 158.
Given an argument relied upon by Mr Singh in relation to the availability of an alternative remedy, I should also read parts of section 167 and 168. Section 167(1):
Where it appears to the Secretary of State that, if covenants or conditions of any kind were included in conveyances or grants of dwelling-houses of any description executed in pursuance of this Part ––
(a) the conveyances would not conform with Parts I and II of Schedule 6,
…
he may direct landlords generally, landlords of a particular description or particular landlords not to include covenants or conditions of that kind in such conveyances or grants executed on or after a date specified in the direction.
Section 168, in part, reads:
(1) If a direction under section 167 so provides, the provisions of this section shall apply in relation to a covenant or condition which ––
(a) was included in a conveyance or grant executed before the date specified in the direction, and
(b) could not have been so included if the conveyance or grant had been executed on or after that date.
(2) The covenant or condition shall be discharged or (if the direction so provides) modified, as from the specified date, to such extent or in such manner as may be provided by the direction; and the discharge or modification is binding on all persons entitled or capable of becoming entitled to the benefit of the covenant or condition.
The first head of relief pleaded in form 86A in the judicial review application was a declaration that the covenant was, and is, illegal and void. But counsel for the appellant, appearing before Jackson J, abandoned this claim, as the judge recorded at p12C-D of the transcript of his judgment. That left two claims for relief. The next was that a demand by the respondents of any money consideration as the price of releasing the appellant from the covenant was unlawful or irrational. The last was put in the alternative: the demand for 90% of the value of the plot was irrational.
I should read part of the judge’s reasoning deployed to support his conclusion that it was not unlawful in principle for the respondents to require payment for release from the covenant:
The primary argument advanced by Mr Gore, for the applicant, is as follows. Covenant (b), [that is the covenant I have read] on its face, is valid and legitimate. However, it was inserted by the council for a purpose which was not allowed, namely to extract payment from the purchasers if, in the future they sought to develop their garden. Furthermore, during the period 1996 to 1998, the council have been using covenant (b) for a purpose which is not legitimate, namely seeking to extract payment from the applicant in return for consent to the proposed redevelopment. In these respects the council are defeating, or attempting to defeat, the purpose of paragraph 6 of Schedule 6 to the Housing Act 1985. Therefore, submits Mr Gore, the council’s demand for payment is unlawful and ultra vires.
In support of this argument Mr Gore relies upon Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997, Council of Civil Service Unions v Minister for the Home Civil Service [1985] AC 374 and Congreve v Secretary of State for the Home Office [1976] 1 QB 629.
I have come to the conclusion that this argument is unsound. I start from the proposition, which Mr Gore accepted in the course of his reply, that covenant (b) in the conveyance is valid. Therefore, the applicant is prohibited by contract from selling off part of his garden for redevelopment. The council are entitled to insist upon strict observance of that covenant. If the request contained in Stevens’ [that is the solicitors] letter dated 24th July 1996 had been met with a point blank refusal, the applicant would have had no ground for seeking judicial review. The council have not taken such an extreme position. They have said that they will permit redevelopment if, in return, they receive part of the profit realised. To adopt this stance is not contrary to the provisions of the Housing Act 1985. That Act does not prohibit the release of valid covenants in return for payment.
Mr Gore accepts that the council could require payment for releasing the applicant from covenant (b), if the council’s motive was to obtain compensation for damage to its retained estate. In my judgment, the fact that the council’s motive is simply commercial, namely a desire to share in the development gain, cannot convert a lawful demand for payment into an unlawful demand for payment.
Mr Gore submits that the council has carried out a device to circumvent paragraph 6 of Schedule 6 to the Act. Therefore, the council’s demand for payment is unlawful. In my judgment, the council’s requirement to receive a share of the profit, which it is enabling the applicant to realise, should not be characterised in this way. The council has a fiduciary duty owed to all rate payers and council tax payers to conserve its available financial resources. See Bromley London Borough Council v Greater London Council [1983] AC 768 per Lord Wilberforce, page 829G-H, per Lord Diplock, page 831C-H, per Lord Keith, and page 838H per Lord Scarman.
In my opinion, counsel’s abandonment of the assertion that the covenant was itself unlawful created a difficulty for the learned judge, and on this appeal Mr Andrew Arden QC, for the appellant, seeks to withdraw the concession that was made below. That concession, as I see it, implied that the first submission enshrined in the first head of relief sought in form 86A, namely that the covenant was illegal, was entirely separate and freestanding from the second submission, namely that a demand by the respondents for any money consideration as the price of releasing the appellant from the covenant was unlawful. The appellant’s real case was, and is, that the respondent council have acted unlawfully because they imposed the covenant for an improper purpose that they then sought to carry out. If the covenant was imposed for an improper purpose, then pro tanto it was certainly unlawful, or at least it would be unlawful for the respondents to rely upon it in order to make good the improper purpose. Thus, as it seems to me, the first and second arguments, relating respectively to the covenant and the demand, were inextricably linked. If it was unlawful for the respondents to demand money as the price of release from the covenant, that was because, and only because, the respondents had no business imposing the covenant for the purpose of collecting for themselves the bulk of any future development value; but then it was unlawful of them to impose the covenant for that purpose. It cannot be right, in my judgment, (despite Mr Singh’s elegant submissions to the contrary) that even if the local authority were not entitled to demand payment, the covenant itself in some way remains inviolate, even if imposed in order to enable the local authority unlawfully to exact a consideration.
One can see exactly how the judge was put into difficulty by the abandonment of the first argument or head of relief. It is plain from a passage I have read already. I repeat just a few lines:
I start from the proposition, which Mr Gore accepted in the course of his reply, that covenant (b) in the conveyance is valid. Therefore, the applicant is prohibited by contract from selling off part of his garden for redevelopment. The council are entitled to insist upon strict observance of this covenant.
So far as necessary, I, for my part, would allow Mr Arden to withdraw the concession made at first instance, simply in order that we can get at the real question in this case, which, to my mind, is whether or not this covenant was imposed for an improper and unlawful purpose that the authority then sought to make good by making the demand they did.
As to this, first of all, plainly it is necessary to identify what the council’s purpose was in putting this covenant into the conveyance. In my judgment, that is entirely clear. It was unequivocally stated in the letter of 1 October 1996:
to realise any future development value.
Mr Singh did not readily accept that the matter was as stark as that. He referred, for example, to the respondents’ offer notice of 6 November 1987 that, of course, preceded the conveyance. That included these words:
The document [that is the forthcoming conveyance] will impose and reserve such covenants, easements and rights over your property as are necessary to protect adjoining property, or have been applicable in the past. These will be as follows ––
You will be given the right to obtain such services as have been available through the pipes, cables, drains etc serving your property and passing through other properties. You will have to contribute towards the cost of the maintenance and renewal of these services as well as any party walls, chimneys and structures shared with adjoining premises of the council. There is a right for neighbouring properties to pass and receive services through your property. These rights reserved include rights of entry by the Landlord, adjoining occupiers and the public authorities (eg Electricity Board) to do repairs and install new services serving your property and others in the vicinity (but not trunk services).
The property shall be used as a single dwelling house and curtilage only. No trade or business shall be permitted.
It is certainly right that there is no reference there to the retention of any development value arising after the conveyance had been executed, but, in my judgment, the terms of this document are perfectly consistent with the letter of 1 October 1996. It is clear that the covenant in question here had been applied or imposed in the past. It is therefore a measure that, to use the words of the offer notice, had been applicable in the past. More important, to my mind, is the fact, and I have already adverted to it, that the material paragraph in the letter of 1 October 1996 was written expressly in reply to the solicitors’ request to be told what had been the original justification for imposing the restrictive covenant when the sale was first completed.
Now it would, in my judgment, make no difference to this case if it were to be shown that the respondents would, or might, have been entitled to impose the self-same covenant for some other or different reason. This is, I think, elementary in the presently developed state of our public law. It is very securely established that a public decision maker may only use statutory power conferred upon him to further the policy and objects of the Act. The leading case is perhaps the decision of their lordships’ House in Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997. The rule is not that the exercise of the power is only to be condemned if it is incapable of promoting the Act’s policy, rather the question always is: what was the decision maker’s purpose in the instant case and was it calculated to promote the policy of the Act? These considerations are of some modest practical significance in the present case, given Mr Singh’s suggestion in para 4.5 of his skeleton argument that, without the covenant in question, the value of any property being sold would have to be put higher, and that would discourage some tenants from exercising the right to buy. Mr Singh adverted to this argument in the course of his oral submissions and referred –– as he did in his skeleton argument –– to para 5 of the affidavit of Mr Andrew Epsom, a chartered surveyor and valuer employed by the respondents. Mr Epsom said:
The Council’s properties which are due for sale under the Right to Buy legislation are valued on the basis that they will be used as a single private dwelling house. This is confirmed by the correspondence with the District Valuer… The valuation does not therefore include any element for “hope” value as it otherwise could and would. If “hope” value were included the price payable by tenants exercising their right to buy would be higher and to that extent would tend to discourage at least some from exercising that right.
To my mind, this is of no assistance to Mr Singh. The covenant was not imposed to depress values in the interests of potential tenant buyers. It was imposed to retain for the council any future profit, or the bulk of it, arising out of development value. Moreover, the imposition of the covenant is defended on another quite different basis in the letter under challenge, that of 9 January 1998. It will be recalled that at (ii) that letter includes this sentence:
It is the Council’s contention that it is a reasonable covenant in as much as if it were not imposed any Council house on any estate could be used for whatever purpose (assuming of course that planning permission could be obtained).
I fear this is a little disingenuous given the letter of 1 October 1996. But whether that is so or not, it is certainly bad logic. Even if one accepts that some limitation on use could properly, or in principle, be imposed in addition to the constraints of the planning system, it by no means follows that this covenant would be justified on that ground.
I turn then to the crucial question: is the stated clear purpose of the imposition of this covenant one that promotes the policy and objects of the Housing Act, or one that travels outside them, and on that ground would fall to be condemned as illegitimate?
In my judgment, the policy of this legislation generally is to enable tenants exercising the right to buy to enjoy what might be called the ordinary fruits or advantages of homeownership, including a rise in the value of their property, whether that is because of the benefits of a later acquired planning permission or otherwise. This is not merely a vague impression or “spooky jurisprudence”, to use Lord Hoffmann’s encapsulation of what offends the common law’s common sense in Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1997] 3 WLR 1177. In any case, it seems Lord Hoffmann made it clear he was not referring to the public law field.
The view I take of the statute is, I think, a function of section 127, read with Schedule 6, paras 5 and 6. It will be recalled that section 127 states assumptions for the ascertainment of the value of the dwelling-house being sold under the right-to-buy scheme. Section 127(2)(c) builds paras 5 and 6 into those assumptions. Section 127(2)(a) and (b) require the assumptions to be made that the sale is for an estate in fee simple with vacant possession, conducted at arm’s length. The ordinary incidents of such a sale would not include the reservation of a right in the seller to keep the profits of any enhanced value arising from any potential development, and the terms of para 6 of Schedule 6, the prohibition upon charges for consents, gives an extremely clear steer against such a position.
In addition, as it seems to me, the provisions contained in sections 155 and 157 are important. They attach consequences to, and impose limitations upon, the buyer’s rights of later disposal of the property. If it were the legislature’s intention to allow the local authority to impose so great a restriction on such later disposal as has, in effect, been done here, for my part I would plainly expect to see it on the face of the statute. The respondents, moreover, are not helped, in my judgment, by para 5 of the schedule, providing that the conveyance may include such covenants and conditions as are reasonable in the circumstances. As a matter of strict construction, I would take the view that the words “reasonable in the circumstances” tend to demonstrate that this provision is concerned with what may reasonably be required on the facts in individual cases. It is far from justifying a general policy to put the profits of development value in the council’s hands. “Reasonable” must mean reasonable as between the parties. It would certainly permit the imposition of covenants for the protection of the council’s surrounding estate. One can readily imagine covenants as to noise and other matters in built-up areas, and perhaps for the protection of neighbours. But the suggestion that it justifies what has been done here is to make para 5 carry far too much weight. It cannot, in my judgment, justify a wholesale appropriation of future profit from development by the council vendor.
The course of events in this case has the appearance (as my lord, Evans LJ, put it in the course of argument) of a state of affairs in which, in truth and in effect, the local authority are exacting a price for the property under the right-to-buy scheme in two stages or tranches: first, the price fixed in the conveyance itself; and, second, through the mechanism of this covenant, a further price if the value of the property is enhanced by the potential for development. Such a state of affairs is entirely outwith the scheme of this statute, which, in general terms, as it seems to me, requires the local authority to convey to the tenant purchaser the property upon conditions that the tenant purchaser, and not the vendor council, has and retains the financial as well as any other benefits arising sooner or later from possession and ownership of the property. The tenant’s rights are constrained, certainly by sections 155 and 157. The provisions for valuation are tight and carefully set out. There is simply no room, as it seems to me, for what has been done here.
Mr Arden took a distinct point relating to para 6 of Schedule 6. He submitted that it referred, on its proper construction, to any provision that had the effect of enabling the landlord to charge for a consent. He submitted that the word purports means “has the effect” and referred to Joseph v Joseph [1967] Ch 78 and Allnatt London Properties Ltd v Newton [1984] 1 All ER 423*, in which Joseph v Joseph was followed. But, as it seems to me, the importance of para 6 is only that it casts light upon the policy and objects of the Act. It does not, in my judgment, provide a free-standing basis for Mr Arden’s case on this appeal. As Mr Singh submitted, any, or most, covenants in a conveyance of this kind might give rise to the possibility of later negotiation between the parties for release for a consideration. They are surely not all to be condemned because of that potential event.
* Editor’s note: Also reported at [1983] 1 EGLR 73
For all these reasons, then, it seems to me clear that the position taken in this case by the respondents, in imposing the covenant for the reason they did, was unlawful. I should say that if the covenant has been unlawfully imposed, as I would find, no appeal to the local authority’s fiduciary duty to local taxpayers can avail the respondents. The leading case in relation to such duty is, of course, the decision of their lordships’ House in Bromley London Borough Council v Greater London Council [1983] 1 AC 768. In my judgment, however, that case is simply not in point. I cannot see how, as Mr Singh submitted to us today, the general fiduciary duty can be said to inform the purpose and objects of the Housing Act. The statute creates obligations upon the local authority’s shoulders to their tenants. There can be no presumption or inference, or even flavour, to the effect that under the right-to-buy regime the local authority may take or clawback money, unless that is expressly forbidden.
I turn to consider what should logically have come first: Mr Singh’s argument as to alternative remedy, based upon sections 167 and 168 of the Act. The judge did not, of course, need to consider it, since he was in the respondents’ favour on the merits. Mr Singh says that Sheffield City Council v Jackson [1998] 1 WLR 1591 precludes the appellant from challenging the reasonableness of the covenant at this stage. The facts of that case involve the alleged unreasonableness of certain service charges, as one may see from the headnote at p1591E-G:
Held, allowing the appeal, that, since a covenant in a conveyance falling within paragraph 5 of Schedule 6 to the Housing Act 1985, especially one to pay service charges, created a burden which was specifically required by section 127 of that Act to be taken into account in assessing the value of a property and the price at which it was to be acquired by the tenant, it was not permissible, in the absence of a specific provision, to construe the Act so as to allow a tenant who had entered into the covenant by executing a conveyance to secure his release from it except by way of an application to the Secretary of State under sections 167 and 168 of the Act for its discharge; and that, accordingly, it was too late for the defendants to challenge the covenant on the ground of unreasonableness…
With deference to Mr Singh, I do not consider that Sheffield bites on the present case at all. I am of the opinion that the terms of section 167 indicate that the Secretary of State’s powers there conferred are concerned, in the context of para 5 of Schedule 6, with a question of whether the covenant in the case may be said to be unreasonable on the facts.
Nourse LJ said at p1596G:
Thus the combined effect of sections 167 and 168, so far as material, is that where a conveyance does not conform with Parts I and II of Schedule 6, for example because it includes a covenant which is in breach of paragraph 5 on the ground of unreasonableness, the Secretary of State has power to discharge the covenant.
However, in my judgment, where the issue is whether the covenant is, in principle, unlawful as being outwith the policy and objects of the statute, and so ultra vires the council, I have the gravest doubt whether section 167 has any application. If it does, it is at least the case that judicial review is a more convenient remedy, given that we are here dealing with a point of legal principle of potentially wide application.
I would, with respect, certainly reject Mr Singh’s submission that the judicial review jurisdiction is actually ousted by these provisions in relation to any challenge to a covenant for breach of para 5.
I have not forgotten the passage in Nourse LJ’s judgment, categorised –– and it may well be rightly –– by Mr Singh as the ratio of the case, where he said at p1599B:
I do not think it is permissible, in the absence of a specific provision to that effect, to construe the Act of 1985 as allowing a tenant who has entered into the covenant by executing a conveyance to secure his release from it except under the provisions of sections 167 and 168.
Sheffield was not a case in which the covenant’s legality was being assaulted on general public law grounds. I wholly accept –– indeed, with great deference, I am bound to do so –– that if the case being made is simply that the covenant is, on the particular facts of the case, unreasonable, that is not an assertion that can be made after execution of the conveyance, save through the statutory route. Here, however, the position seems to me to be entirely different.
The appellant has put in a supplementary skeleton argument relying upon Protocol 1 of the European Convention on Human Rights. Mr Arden has not developed this argument by way of oral submissions. I would only say this. Given such decisions as James v United Kingdom A/98 (1986) 8 EHRR 123, quite apart from the fact that, until October 2000, the Convention bites only where there are ambiguities in the common law or statute (and here there are none), I would not have allowed the appeal on this ground.
In all these circumstances, in my judgment, this appeal ought to be allowed. Subject, of course, to the views of my lords, I would think it appropriate, if they agree in the result, to hear submissions as to relief. It may very well be that a form of declaratory relief would be most convenient.
Agreeing, Evans LJ said: I agree for the reasons given by Laws LJ. I was impressed by Mr Singh’s submissions generally, and, in particular, by his argument that the covenant in question is in common form and is incapable of being regarded as unreasonable, let alone unlawful, by reason of its being contrary to the objects of the 1985 Act.
However, I agree with my lord that the council were not entitled to reserve a right to retain for themselves what their surveyor called the “future development value” of the property in question. Mr Singh submits that that was not, or is not proved to have been, the council’s object at the time. But when the council were asked what the object was, the surveyor replied that that had been the object then, and that is why the council now seek to rely upon the covenant in these proceedings. In my view, it remains an unlawful object, even if the claim is made under an otherwise benign term of the conveyance, and on a contractual rather than a statutory basis.
I agree that we should hear submissions as to the appropriate form of relief.
Parker J agreed and did not add anything
Appeal allowed
