Property Litigation Update: interpreting restrictive covenants over registered land

The recent decision in the case of Bryant Homes Southern Limited v Stein Management Limited gives guidance on the interpretation of restrictive covenants over registered land.  The Court held that a separate unregistered agreement did not displace the literal meaning of a restrictive covenant.

What was the dispute about?

In 1993, a Mr Boggis transferred two parcels of agricultural land to the Claimants by a conveyance which was subject to a right of way over a farm track on land retained by Mr Boggis. The conveyance contained a covenant in favour of Mr Boggis, his successors in title and the owners or occupiers of part of the retained land. The covenant prevented the land from being used for any purpose other than agricultural. The conveyance was registered at the Land Registry.

At the same time, the Claimants also entered into a side-agreement with Mr Boggis, by which if planning permission was obtained by the Claimants, they agreed to pay Mr Boggis overage, and in return Mr Boggis agreed to release the covenant. This agreement was not registered at the Land Registry.

In June 2013, the Defendants bought a small strip of the retained land. As the covenant had not been expressly assigned to the Defendant, the Claimants obtained a release of the covenant. The Defendants claimed that as successors in title to Mr Boggis, they were entitled to enforce the covenant.

The parties agreed that in order for the covenant to be enforceable it must ‘touch and concern’, and therefore ‘benefit’ or ‘accommodate’ the retained land. If the covenant satisfied this requirement, it would run automatically with the land (under s78 of the Law of Property Act 1925), rather than being a personal right which would have needed to be expressly assigned.

The Claimants submitted that the purpose of the covenant was to secure overage and it therefore did not ‘touch and concern’ the retained land. As such, the benefit of the covenant had not passed to the Defendants, since it had not been expressly assigned.

What did the court decide?

The court held in favour of the Defendants, finding that the covenant created a restrictive covenant which ‘touched and concerned’ the retained land, and was therefore capable of benefitting Mr Boggis’ successors in title. As the covenant was capable of benefitting the farm track, it was capable of benefitting the retained land. Therefore, the covenant was capable of transmission without assignment.

As the side-agreement had not been registered at the Land Registry, future owners had no means of discovering the release mechanism. The court found that this was relevant to the effect (or, rather, the lack of it) that the side-agreement had on the interpretation of the covenant. The court therefore held that the covenant was clear in its meaning and the side-agreement did not overturn this meaning of the covenant.

The covenant therefore remained enforceable, notwithstanding that Mr Boggis had entered into a personal obligation to release it in certain circumstances. As such, the Defendants could enforce the covenant. The Claimants have applied for permission to appeal.

What does this mean for land owners?

• Be wary where a restrictive covenant is proposed as a means of securing overage, as this is an imprecise tool, the effect of which can be unpredictable. It is preferable to use a restriction and deed of release.
• In general, when structuring a deal, it is dangerous for the registered appearance to not accurately reflect the commercial reality of the deal.
• In the recent housing white paper the government announced plans to simplify the current restrictive covenant regime in line with the recommendations made by a recent Law Commission Report.

This article was prepared with the assistance of Sarah Wilson, trainee solicitor at Osborne Clarke.