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Restrictive Covenants – Is there a Building Scheme?

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24th August 2016

It is a truth universally acknowledged that a house in possession of a large garden must be in want of development. However, even if planning permission can be obtained for the construction of a new cottage in the grounds, it is not uncommon to find a restrictive covenant registered against the title which prohibits the erection of more than one dwelling-house on the plot. “Nimby” neighbours can be all too keen to rely on such covenants to try and stop the proposed works.

The burden of a restrictive covenant runs with the land provided it is annexed to the land which it was intended to benefit and successors in title will be bound by it. However, the fact that there is a restrictive covenant recorded against the title does not necessarily mean that it will prevent the development.

The first question is whether what is proposed would be a breach at all. The exact meaning of the covenant has to be construed in the context of the whole conveyance. For example, in Martin v David Wilson Homes Ltd [2004] EWCA Civ 1029 a covenant “not to use…any buildings to be erected on [the land] or on any part thereof…for any purpose other than as a private dwellinghouse” was found to restrict the use of the individual buildings rather than the number of dwellinghouses on the land. By contrast in Crest Nicholson v McAllister [2004] EWCA Civ 419 a covenant providing that “the premises shall not be used for any purpose other than…. a private dwelling house” meant there could only be one house on the plot.

The second question is whether the complaining neighbour actually has the benefit of the covenant. This will be the case only if the covenant is annexed to the neighbour’s land and it has been assigned to him or the land forms part of a building scheme.In the former case, the date on which the covenant was granted will be all important because a vendor can only impose conditions to benefit land which he actually owns at the time of the conveyance.

For example, Mr Darcy owns a large estate (Pemberley) and in 1926 he sells off a plot to Mr and Mrs Bennett so that they can build a new house (Longbourn) in the grounds. In order to maintain his privacy, Mr Darcy includes a covenant in the conveyance which provides that the Bennetts may not erect more than one house on the plot. In 1927, Mr Darcy is strapped for cash again and sells off a second plot (Netherfield Park) to Mr Bingley imposing a restrictive covenant in identical terms. Many years later the new owners of Netherfield Park plan to build a bungalow in their garden. The new owners of Longbourn object and wish to rely on the restrictive covenant contained in the 1927 conveyance. They cannot do so because by 1927, Mr Darcy did not own Longbourn and the covenant imposed on Mr Bingley does not benefit land which had already been sold off.

One way round this timing problem is to create a building scheme. These arise where the developer sets up a comprehensive scheme of covenants imposing reciprocal obligations between the purchasers of the different plots on the scheme. The characteristics of such a scheme are:

1. it applies to a defined area and the owners in that area derive their title from a common vendor;
2. the common vendor laid out the estate to be sold in lots subject to restrictions which were intended to be imposed on all the lots, and which are consistent with some general scheme of development.
3. the common vendor intended these restrictions to benefit all the lots to be sold; and
4. the original purchasers purchased their lots on the footing that the restriction imposed would benefit all of the other lots in the scheme.

Building schemes are relatively rare and modern developments tend to exclude them. However, the question of whether a building scheme existed arose in two recent cases where, had there been no scheme, the restrictive covenant relied upon would have been unenforceable because of the timing problem referred to above.In Juan and others v Allen [2016] EWHC 1502 (Ch) each of the 36 plots on land known as Copperfield was disposed of by the same developer using a common form transfer. The Transfer included identical covenants restricting the user of each plot to that of a private dwelling house for the occupation of one family, the obligations were said to be for the benefit of all the other owners and the plan attached to the transfer showed the layout of the 36 plots. Master Clark had no hesitation in finding that this was a classic building scheme. There was also a common vendor in the case of Birdlip Ltd v Hunter [2016] EWCA Civ 603 but although the covenants in the two transfers were similar they were not identical. The court examined the conveyances for 20 plots on the alleged scheme and found that the conveyance plans only showed the property conveyed and there was no reference in the parcels clause to any estate of which the land was said to form part. The covenants in the various conveyances did not all benefit the same extent of land and there was no express provision that the covenants were to be mutually enforceable. In fact, the covenants included two covenants which required the vendor’s consent which is usually a pointer against the existence of a scheme of mutual covenants. As a result the Court of Appeal concluded that no building scheme had been established and the restrictive covenant was unenforceable.

Careful drafting is required if a building scheme is intended in order to leave successors in title in no doubt as to their rights.

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