Schemes of development (aka building schemes or estate schemes) conjure up images of Edwardian ladies in long dresses and parasols in the Home Counties sipping lemonade while their children play in leafy surroundings, all secure from threat of overdevelopment. And it is fair to say that the authorities concerning such schemes do tend to concern places like St George’s Hill and Gerrards Cross, where fragmented old estates abound.
But schemes should not be regarded as old-fashioned tools that have outlived their worth. Re Hussain’s Application [2016] UKUT 297 (LC); [2016] PLSCS 205 concerned a housing development of 34 properties in London that were constructed between 1987 and 1989. The parties to the case agreed that the covenants restricting further development were binding, because they had been imposed as part of an enforceable scheme. The scheme drafting was straightforward; the law easy of application; the outcome fairly easy to predict.
Cunning plans
But why bother with schemes? Do they not add another layer of complexity to restrictive covenants – already a pretty arcane part of the law? Well, two reasons stand out.
First, schemes deal with the chronology problem inherent in the no-scheme world. Suppose A sells some land to B, who covenants in traditional restrictive covenant terms with A not to build more than one house on that land; A sells more land to C, subject to a similar covenant. Both A, and C as A’s successor in title, will be able to enforce the covenant against B. However, B will not be able to enforce the covenant against C, because B bought before C, and does not own any land benefited by C’s covenant to A. In the scheme world, by contrast, all covenants are mutually enforceable, regardless of the order in which the properties have been sold.
Second, the existence of a scheme is a contextual matter to which the Upper Tribunal (Lands Chamber) (“the UT”) is required to have regard under section 84(1B) of the Law of Property Act 1925, and is a matter on which it is entitled to place weight when considering an application to modify or discharge a restrictive covenant: see Dobbin v Redpath and another [2007] EWCA Civ 570; [2007] PLSCS 92. Recent decisions by the UT (including Re Hussain itself) show that this factor is given significant weight.
Hatching the scheme
What about the complexity, then? Here, fortunately, we have been blessed with recent authority, which has stripped the essentials of a successful scheme down to simple principles of easy application.
In Birdlip Ltd v Hunter and another [2016] EWCA Civ 603; [2016] PLSCS 187, the Court of Appeal had to consider whether a scheme existed in – yes – Gerrards Cross. The starting point for the court’s analysis was their approval of the two critical ingredients for the existence of a successful scheme laid down by the Privy Council in Jamaica Mutual Life Assurance Society v Hillsborough Ltd [1989] 1 WLR 1101. First, the land to which the scheme relates must be identified; and secondly, the purchasers of each of the parts of that land must accept that the benefit of the covenants into which they enter will enure to the vendor and its successors in title, and that they correspondingly will enjoy the benefit of covenants entered into by other purchasers of part of the land.
The issue in the case concerned the first ingredient – as these cases nearly all do. The reason for the court’s insistence on there being proper definition of the area to be affected by the scheme is that reciprocity is the foundation of the idea of a scheme. A purchaser of a piece of land cannot be subject to an implied obligation to purchasers of an undefined and unknown area. The purchaser “must know both the extent of his burden and the extent of his benefit” (in the words of Sir Herbert Cozens-Hardy MR in Reid v Bickerstaff [1909] 2 Ch 305).
The easy case is where the sale of each property is made by reference to an estate plan, which shows the division of the estate into its intended lots. The hopeless case is where no such plan can be found, and the court is invited to embark on a voyage of discovery through extrinsic material. Deprecating that approach, Lewison LJ said: “One would have thought that in the case of a scheme of mutual covenants designed to last potentially forever, that that intention would be readily ascertainable without having to undertake laborious research in dusty archives searching for ephemera more than a century old.”
The pragmatic approach
The court was concerned with the more difficult middle ground, where a quantity of evidence existed, but was ultimately inconclusive. The court’s treatment of that evidence, and in particular its principled and pragmatic approach in reviewing the evidence, will henceforth be required reading in alleged scheme cases. The relevant factors may be summarised as follows.
First, in almost all the cases where a scheme of mutual covenants was found to exist, the area of land to which the scheme applied was ascertainable from the terms of the conveyance or other transactional documents. Conversely, where there was no indication of the land to which the scheme applied, no scheme was found. Accordingly, a party who comes to court alleging the existence of a scheme which has no support in the transactional documents is on a sticky wicket.
Second, (and as a qualification to the first point), the fact that there is no map or plan in the conveyance itself of the area to be affected is not necessarily fatal to the existence of a scheme of mutual covenants if the verbal description of the area to which it applies can be identified by extrinsic evidence.
Third, if (as to which the court was sceptical) the existence of a scheme is capable of being inferred only from the circumstances surrounding the initial sales, the party alleging the scheme must adduce very cogent evidence.
So – schemes are good things. They are simple to set up, with rules of simple application – but they must be properly set up if they are to survive.
Guy Fetherstonhaugh QC is a barrister at Falcon Chambers
