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Original vendor can unilaterally modify restrictive covenants: Cheung v Mackenzie

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23rd February 2023

Annie Higgo looks at the recent decision in Cheung v Mackenzie [2023] EWHC 220 (Ch).

Carl Fain represented the successful appellant in Cheung v Mackenzie. The defendants appealed to the High Court against a decision that a restrictive covenant affecting 444 Selsdon Road, Croydon could not be unilaterally varied by the original transferor in line with the wording of the conveyance.

No. 444 was part of the Fox Farm Estate owned by the Whitgift Educational Foundation. It was originally conveyed by the Foundation’s Governors in 1947, and was subject to a number of restrictive covenants detailed in the Third Schedule. Paragraph 7 stated that: “No building shall be erected on the said land except one detached dwelling house and the stables or garage offices and outbuildings thereto, which said property shall not be used at any time otherwise than as a private residence”.

The Third Schedule also provided, at paragraph 11:  “The Governors reserve the right to deal with any of the plots situated upon this estate or any of their adjoining or neighbouring land without reference to and independently of these stipulations and also reserve the right to allow a departure from them in any one or more cases”.

By way of the Whitgift Charities Act 1969, the Whitgift Foundation for intents and purposes have replaced the Governors.

Planning permission had been obtained to demolish the house on No 444 and replace it with a block of 9 flats.

Mr Mackenzie the owner of No 432 issued a claim for an injunction asserting that such a development would be in breach of the restrictive covenant. Ms Cheung and Infinity Homes & Developments Ltd defended the claim on the basis that the Foundation had agreed the form of a Deed of Modification that permitted the development and sought a declaration that if that Deed was executed then the development would not be a breach of the restrictive covenant.

At first instance, it was held that paragraph 11 did not allow the Foundation to vary or modify the obligations of the owner of No. 444. The paragraph was intended to prevent creation of a building scheme and retain the Governors’ freedom in relation to unsold parts of the estate, rather than reserve the right to vary existing covenants retrospectively. The paragraph was concerned solely with future dealings, and the word “departure” was more appropriate to describe the entitlement to depart in new transactions from restrictions imposed in previous conveyances. Commercial common sense did not require the meaning urged by the Defendants.

On appeal, the Appellants argued that two separate rights were reserved by paragraph 11. The first part was prospective, allowing the Governors to deal with unsold plots independently of existing stipulations. The second part related to the land conveyed at No. 444, and reserved the right to depart from the covenants in that conveyance. The wording used was apt to allow a release from the restrictions, and was not torrential drafting. Further, this interpretation accorded with commercial common sense, as the Foundation retained control of the estate’s development, and the owner of No. 444 would only have to reach agreement with the Governors when looking to be released from a covenant rather than negotiating with every plot owner on the estate.

Mr Justice Miles agreed that as a matter of language the two parts of paragraph 11 had different purposes; the second half could not be read as a clarification of the first. The Court needed to seek to give effect to each of the distinct parts of paragraph 11, if possible. The words of the second half could only be concerned with the stipulations relating to No. 444.

The more natural reading of the material words referred to the Governors’ right to allow departures from the stipulations, and “the right to allow a departure” was broad enough to encompass a waiver. Other stipulations in the Third Schedule gave the Governors a continuing supervisory function, which made practical sense, as the owners of plots needed only seek consent from one body; the same commercial and practical sense applied to a request by No. 444 to waive a covenant. There was every reason for the Governors to wish to maintain control over the estate and its development, which also conceivably provided a stream of income. The question did not turn on their subjective intentions at the time, but the extent to which the rival contentions conformed with commercial sense.

It was held that the Appellants were correct about the way that the words of the contract would have been understood by “a reasonable reader having the background knowledge available to the parties”.   Accordingly, the appeal was allowed and a declaration was granted that if the deed of modification was completed, the development would not be in breach of the restrictive covenant.

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