Property Litigation Case Law Update – June 2017

Sutton and East Surrey Water Plc -v- Kilby [2017] UK UT 248 [LC]

This recent decision from the Upper Tribunal (Lands Chamber) is a reminder to land owners that restrictive covenants are not always enforceable and those seeking to enforce a covenant must have the standing to do so. An objectors’ failure to prove that they are entitled to the benefit of the covenant means they have no grounds to enforce it and no standing to bring an objection to its removal or modification.

Facts

In this case Sutton and East Surrey Water owned Woodcote Reservoir in Purley, Surrey. The land was subject to a restriction dating back to July 1910 which prohibited the land being used for any trade or business (other than the construction of the reservoir) and further prohibited any building upon the land apart from a recorder house (which was to be in accordance with elevations previously approved by a William Webb). In addition, the reservoir was subject to a covenant preventing anything being carried out on the land which would become a nuisance or annoyance to Mr Webb or the adjoining owners.

Sutton and East Surrey wanted to develop the site by constructing two blocks of flats, which would clearly be a breach of the restrictive covenants. Given the age of the covenant, it made an application to the Upper Tribunal (Lands Chamber) to modify or discharge the covenants. A number of local residents objected to the application on the basis that the proposed development would have an adverse effect on their properties.

The Law

In order to have standing to object to the application, the local residents had to establish that they were entitled to the benefit of the covenants and, only upon being satisfied that they were, could the Tribunal consider their objections. Each resident’s standing had to be considered on a property by property basis.

In order for subsequent owners to benefit from a restrictive covenant, it is necessary to show that the benefit of the covenant has been passed to them as successor either by assignment of the benefit, by a building scheme (which is effectively a scheme of mutually enforceable restrictive covenants most typically on an estate), or by the benefit annexing to the land owned by the objector.

It is easier to prove annexation for covenants imposed on or after 1 January 1926 because section 78 of the Law Property Act 1925 provided that the benefit of all restrictive covenants granted on or after that date would automatically annex to the land.

The Findings

It was clear that the first two potential arguments for the benefit passing did not apply as there was no evidence of either and, therefore, in order to demonstrate that they were entitled to enforce the covenants the residents needed to show annexation and the test they needed to satisfy was that the benefiting land could be readily identified. This is typically evidence by the wording in the document reserving the covenants, for example by use of the words “for the benefit of the adjoining land edged red on the attached plan”. Any wording which clearly demonstrates that the benefit attaches to a particular piece of land would normally be sufficient.

The difficulty in this case was that the 1910 conveyance was not available, nor had the Land Registry retained a copy as it had simply noted the burden of the covenants on Sutton and East Surrey’s title. The extract used by the Land Registry on the title did not set out the identity of the parties to the 1910 conveyance, nor did it include the wording which would have come before the restrictive covenants.

Based on the extract, the Tribunal concluded that it was William Webb who conveyed the land in 1910 and further concluded that he owned other land in the vicinity at that time. However, it was impossible for the Tribunal to conclude what land he owned and, based on the evidence it had, it could certainly not readily ascertain the benefitting land.

Further, the Tribunal concluded that at least part of the restrictive covenants benefitted William Webb personally (there was reference specifically to him) and this would suggest the covenants were intended to be enforceable by him, rather than annexed to the land.

The residents argued that the covenants should be considered more broadly because the covenant concerning nuisance specifically referenced adjoining owners. However, the Tribunal found that in fact this made it more likely that Mr Webb’s intention was not to annex the benefit to an identifiable area of land, because he could have done so expressly if he was so minded. The Tribunal considered that Mr Webb could have imposed this restriction to protect himself from complaints by adjoining owners and the reference could not be concluded as giving an indication that the adjoining owners should have the benefit of the covenant in their own right.

It follows that the Tribunal concluded that the owners were not able to show that they enjoyed the benefit of the covenant and, therefore, had not standing to object to Sutton and East Surrey’s application, which was successful.

Going forward

Whilst this case simply confirms the current position as regards the enforcement of restrictive covenants, it is a useful reminder to land owners that just because a restrictive covenant binds the land, it does not necessarily mean that it is still enforceable. A thorough investigation should be carried out into enforceability, and subsequently, the potential to apply for modification or discharge before entering into any negotiations concerning a potential breach of that covenant. Land owners should also be aware that if negotiations are entered into with potential benefitees, this may well preclude the ability to obtain indemnity insurance (which, in circumstances where it can be demonstrated that there is nobody, or nobody identifiable, that has the benefit of the covenant, may be a cheap solution to enable development despite a restrictive covenant on the title). It should also be considered whether, particularly in the context of residential development, indemnity insurance will be adequate to enable properties to be sold following development and whether this will impact upon value. If there are concerns about the impact on value, or marketability of the properties, the cost of an application to the Tribunal may well be justified.

If you have any questions about the issues raised in this update please contact Charlotte Curtis on 01392 829221 or by email to charlotte.curtis@otbeveling.com. Charlotte is an experienced property litigator who regularly deals with restrictive covenant issues and can advise both at the early stages of proposed developments, or in connection with applications to the Tribunal.

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