When a landowner sells part of their land, they will obviously want to protect the value and amenity of their retained land. Restrictive covenants are frequently imposed to limit the use and development of the land being sold.
A properly-drafted restrictive covenant will not just bind the immediate buyer, but will run with the land being sold (the servient land) and bind all future owners. Similarly, the benefit will attach to the land retained by the seller (the dominant land), so that the covenant can be enforced by future owners.
Consent
An absolute prohibition is often considered too draconian. A common compromise is to prohibit particular uses or types of development without the seller’s consent, usually with the proviso that the seller may not unreasonably withhold or delay its consent.
For so long as the original seller still owns the dominant land, the buyer knows exactly who he needs to ask for consent. But what happens after the original seller has sold the dominant land? Does the buyer still have to ask the original covenantee, or should they instead be asking the
new owner?
Since a restrictive covenant runs with the land, it is enforceable by and against the current owners of the dominant land and the servient land. It would therefore seem sensible that consent should be required from the person who is entitled to enforce the covenant, but that is not always the case.
If the covenant specifically requires consent from “the transferor or its successors in title”, the position is clear. Similarly, where the document contains a definition of “transferor” which includes successors. But whose consent is required where successors are not specifically mentioned?
Successors?
In Mahon v Sims [2005] 3 EGLR 67, the High Court recognised that a literal reading of the transfer would require consent from the original covenantee. However, keen to avoid consent being required from a party who now held no interest in the property, the court invoked section 78 of the Law of Property Act 1925.
Section 78 provides that covenants relating to land are deemed to be made with the covenantee and his successors in title. This annexes the benefit of the covenant to the seller’s retained land, allowing the seller’s successors to enforce the covenant even if it does not refer to them.
Section 78 does not explicitly bring successors into play for the purposes of granting consent. However, in the absence of specific reference to successors anywhere in the transfer, the judge felt able to give “transferor” its extended meaning throughout, thereby making “far better sense of
this covenant than the literal meaning”.
If consent must be obtained from the current owners, what happens if the dominant land has been subdivided? In Howard Pryor v Christopher Wren Ltd (unreported, 24 October 1995), the benefit of the covenant was limited to the reducing part of the original covenantee’s estate remaining unsold. This avoided the “contradiction and disorder” that would result from needing to obtain consent from multiple purchasers of part.
Or the original covenantee?
It may therefore seem surprising that a succession of subsequent cases have declined to follow Mahon.
In City Inn (Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156; [2008] PLSC57 the Court of Appeal ruled that references to successors elsewhere in the transfer precluded section 78 from applying and instead suggested that a requirement for consent from “the transferor” meant just that, even though the original transferor (the Port of London Authority) no longer owned any of the dominant land. Reference in one covenant to a specific office holder of the transferor reinforced this conclusion.
A similar result was reached in Margerison v Bates [2008] EWHC 1211 (Ch); [2008] 3 EGLR 165. The High Court considered it “quite clear that the draftsman was more than well aware of the distinction between [the seller] and [the buyer] personally, on the one hand, and their successors in title, on the other”.
Accordingly, the absence of reference to successors in the consent provision was assumed to be deliberate, so that consent was required from the original covenantee.
In the other cases mentioned below under “Impossibility”, the courts again preferred to follow the literal meaning of the covenant and concluded in each case that consent was required from the original covenantee rather than from the current owners of the dominant land.
Presumed intention
The covenant cannot be read in isolation. It must also be construed in the context of the known circumstances of the transaction. In Mahon, the judge appreciated that he was dealing with “a private treaty relating to a single property”, where the original covenantee had no obvious reason for wanting to preserve a continuing interest in the covenant.
In contrast, the status of the Port of London Authority made it far more likely that it intended to retain an element some control over the City Inn (Jersey) covenant, even if it disposed of some of the dominant land.
Impossibility
Where consent is required from the original covenantee, what happens when they inevitably die? Once again, the courts have failed to adopt a consistent approach.
A series of older cases, from Bell v Norman C Ashton Ltd (1956) 7 P&CR 359 to Re Beechwood Homes Ltd [1994] 2 EGLR 178 and Briggs v McCusker [1996] 2 EGLR 197, suggested that the death of the original covenantee – and the impossibility of obtaining their consent – effectively converted the consent covenant into an absolute prohibition. Only eight years ago, the Upper Tribunal (Lands Chamber) took this position in Re Woodhouse [2010] UKUT 235 (LC), although it made a distinction between covenants prohibiting change of user and covenants requiring approval of building plans.
This is a harsh outcome, placing the owner of the servient land in a far worse position once the original covenantee dies. Recent cases have largely tempered that approach.
The judge in Churchill v Temple [2010] EWHC 3369 (Ch); [2011] 1 EGLR 73 considered the most likely intention was that the original covenantee only required control during her lifetime, so that the covenant was discharged by her death. A similar outcome was reached by the High Court in Margerison and Seymour Road (Southampton) Ltd v Williams [2010] EWHC 111 (Ch), by the Upper Tribunal in Re Cook [2014] UKUT 0528 (LC); [2015] PLSCS 16 and by Leeds County Court in Tupholme v Firth (unreported, 17 September 2015).
Companies too may cease to exist. In Crest Nicholson Residential (South) Ltd v McAllister [2002] EWHC 2443 (Ch); [2002] PLSCS 250 the High Court found that the dissolution of the company with the benefit operated to discharge the relevant covenants rather than to make them absolute.
Concerns
The main problem with consent covenants is that it is often impossible to establish with any certainty whose consent is required and what happens if they are not available to grant it. This is illustrated by the volume of conflicting case law.
The willingness of the courts to find that consent is required from the original covenantee rather than the current owner of the dominant land is also potentially worrying. Is it really desirable to divorce the right to grant consent from the ability to enforce the covenant? The owner of the dominant land may find themselves unable to prevent a previous owner from granting consent.
Interestingly, in the quite different context of marine insurance, Flaux J noted in Starlight Shipping Company v Allianz Marine and Aviation Versicherungs AG [2014] EWHC 3068 (Comm) that the “rigid” approach to interpretation in City Inn (Jersey) was the “antithesis” of the holistic approach propounded by the Supreme Court in Rainy Sky v Kookmin Bank [2011] UKSC 50 and he doubted whether City Inn (Jersey) can still be regarded as good law.
The compelling story of consent covenants rumbles on.
Bill Chandler is a professional support lawyer at Hill Dickinson LLP
Practical points
■ When imposing new covenants, anticipate that the dominant land may be sold (and possibly subdivided) and make sure there is no room for doubt as to whose consent is required.
■ When interpreting existing covenants, the language used and the presumed intention of the parties are crucial.
■ A buyer of the dominant land from the original covenantee should seek a covenant that the original covenantee will not grant consent without the new owner’s approval.
Example of a typical consent covenant
“Not without the previous written consent of the Transferor such consent not to be unreasonably withheld to use or permit the use of any building or erection now or hereafter upon the land hereby transferred for any purpose other than as commercial and professional offices and basement car park.”
From City Inn (Jersey) Ltd v Ten Trinity Square Ltd [2008] EWCA Civ 156; [2008] PLSC57
