The rest is history

The government has warned that a housing shortfall is looming ominously on the horizon, so the pressure is on developers. But with greenfield development discouraged, they are being forced to make use of brownfield sites. This often means acquiring sites consisting of several parcels of land on existing estates – and with these sites come the historic rights and obligations of the previous development.

A common scenario is the development of gardens of large houses in mature residential areas. Often, the key to unlocking the potential of such sites is securing the land on which to build the road (and services) linking the new site to the public highway. In many cases the solution has been simply to demolish the existing dwelling, creating space not only for the access road but also for one or more new units.

It sounds simple. However, a number of recent cases should remind developers that the re-use of back land can be limited by the rights and obligations – such as restrictive covenants – created by earlier developments.

Because restrictive covenants are creations of common law rather than statute, there is no single source of law on how to create and interpret them. Over the years, legislation has intervened to regulate how to record and register them, but essentially an assessment of their impact rests on interpretation of their wording in the light of established case law.

But isn’t insurance the easy solution; a single premium makes the problem go away doesn’t it? In a number of cases, the answer is yes. However, such insurance will commonly only be available after planning permission is granted and on the express condition that the planning publicity has not provoked any attacks on the project based on allegations of breaches of covenant. In the context of suburban development in particular, vocal, well-organised opponents are able to create enough of a furore to ensure that no insurer will touch the problem.

If an enforceable covenant exists, there is further uncertainty over whether a court would enforce the restriction by way of an injunction. Various rules of equity can intervene to encourage a judge to determine that, although a breach of covenant exists, no injunction should be imposed and the injured party should rely on damages only.

However it is a brave developer who takes the chance that an injunction will not be granted. In the Court of Appeal case of Mortimer vs Bailey [2004], a builder who decided to press ahead with a development despite a requirement to secure the consent of the beneficiary of a covenant found out that his gamble had backfired. In this case an injunction was upheld, despite the failure of the beneficiary of the covenant to secure an interim injunction at an earlier hearing.

In suburban developments, vocal, well-organised opponents are able to create enough of a furore to ensure that no insurer will touch the problem

In another 2004 case, Crest Nicholson Residential (South) Limited vs McAllister, the court re-examined the way in which restrictive covenants affecting land can be enforced. Until this case, it was understood that the right to enforce a restrictive covenant created since 1925 automatically passed to successive owners of land. Thus for a residential estate, the benefit of covenants entered into by a housebuyer with the developer would pass automatically to subsequent purchasers of properties on the rest of the estate. This has caused difficulty where back land development is planned. Rather than simply negotiating with the original developer, it had been thought necessary to obtain a release from all other purchasers on the estate who might have inherited the benefit of the covenant.

In the Crest case, Mrs McAllister tried to invoke various 1920s and 1930s covenants relating to an estate to prevent construction of a residential development on land forming part of the old estate. After examining the wording of the covenants, the court held that some could not be applied to any particular area of land at all and others could only be applied to those parts of the original estate that the original beneficiary of the covenant had retained in their ownership. Either way, she had not inherited the right to enforce the covenants.

Following the Crest case, developers are in a stronger position. It is now necessary to look at the original wording of the deed creating the covenant to find out whether it is possible to identify the land intended to benefit from it. If this cannot be identified, the benefit of the covenant will not automatically transfer either to successive purchasers or to land owned by the original beneficiary. This will make it easier for developers to conclude that such covenants are unenforcable. And in cases where a covenant remains alive, the beneficiaries will be more readily identifiable, making it easier to negotiate releases.

A potent example of the impact of a restrictive covenant is found in last year’s Court of Appeal case of Jarvis Homes Ltd v Marshall. Here the court enforced a restrictive covenant to prevent a developer constructing a road to serve a residential development on adjoining land. The covenant required the use of the property in question “as a private residence only” and the decision turned on the technical interpretation of this phrase. The court held that this restriction applied not only to the use of the building but to the whole of the land concerned, including the gardens and grounds.

The commercial and political pressures to re-use land mean it is no surprise that developers and neighbours are increasingly coming into conflict – and this is unlikely to diminish while the law relating to enforcement of covenants still has life in it. In the hands of well-organised protesters, the existence of restrictive covenants remains a potent weapon in the fight against development. For developers it means that, despite the Crest case, restrictive covenants must be taken as a potentially serious impediment to projects – one that insurance will not always solve.

Derek Ching is head of commercial property at Clarks. Contact: dching@clarkslegal.com or www.clarkslegal.com