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Restrictive covenants and building schemes: Who can restrict your development?

26 May 2015

What is a building scheme?

On the development of an estate, the creation of a ‘building scheme’ allows restrictive covenants entered into by all of the owners of properties to be mutually enforceable by and against the owners of the other plots on the estate and their successors in title, regardless of when the covenants were entered into or when the plots were sold.

 To establish that a building scheme exists, the criteria are: 

  • a defined area: the area covered by the scheme must be clearly defined and known to all plot owners; and
  • reciprocity of obligation: there must be an intention to impose a scheme of mutually enforceable restrictions which is known to all the parties and must be in the interests of all the parties and their successors.

Applying the criteria in the High Court

In the recent High Court case of Birdlip v Pennington [1] it was determined that property purchased by a developer formed part of a building scheme established more than 100 years before. As a result, the owners of the surrounding plots were able to restrain the developer from carrying out plans to build additional houses on the property. This was despite some notable evidential issues in establishing the extent of the area over which the building scheme was said to operate. Given the time that had elapsed since the sale of the plots, there were some difficulties in finding evidence on the circumstances in which the restrictive covenants were imposed; unsurprisingly no oral evidence was available. The Court considered the title documents to the developer’s property, conveyances of a number of other properties in the area (which contained similar restrictive covenants), two agreements for sale from 1908 and 1914 for nearby plots with plans attached and historical evidence. No overall estate plan appeared to have ever been produced.

The plans attached to the agreements for sale showed a variation of the boundary of the estate between 1908 and 1914 which the developer argued cast doubt over whether the extent of the estate had ever been defined. However, the Court explained away any uncertainties by deciding that these could result from either a mistake or possibly an agreement to vary the extent of the estate.

After finding that a defined estate existed, it was a relatively straight forward matter to show that the restrictions were for the benefit of the purchasers on the grounds that the estate was laid out for sale in lots and the covenants were substantially the same; any differences could be accounted for by the size of the plots. The Court also took into account two previous unsuccessful applications to the Lands Tribunal to vary the restrictive covenants by owners of other sites in the area. As a result, the restrictive covenants were upheld.

Final thoughts

The Court’s willingness to find the existence of a building scheme in this case, despite the clear difficulties in defining the area over which the building scheme was intended to operate, will cause concerns to developers in similar situations. It does not sit easily with well-established law that a purchaser cannot be subject to implied obligations to owners of an unknown and undefined area of land. In the circumstances, it is likely that this decision will be appealed and the results will be followed closely by the industry.

[1] Birdlip Limited v Pennington Harvard Hunter and Michelle Hunter (2015)

This article was written by Lauren Fraser.

For more information please contact Lauren on +44 (0)20 7427 6418 or lauren.fraser@crsblaw.com.