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A restrictive covenant is an agreement between two landowners restricting the use of one owner's land for the benefit of another's. Restrictive covenants are an important tool to preserve the value or amenity of land, but landowners must ensure that the covenant genuinely benefits its land, or risk the covenant being unenforceable.
With landowners increasingly using overage (or 'anti-embarrassment') provisions in transactions to obtain a share in any uplift in the value of land, Cosmichome Ltd v Southampton City Council  served as a timely reminder that courts will generally not enforce a restrictive covenant where the principal aim is to obtain a payment.
The BBC acquired land from Southampton City Council in 1989. The transfer contained a covenant from the BBC (and its successors in title) that the land would be solely used by the BBC for the purposes of a broadcasting centre.
The restriction could be released if the BBC gave an additional covenant to pay overage in respect of any enhanced value. Cosmichome acquired the site in 2004 and sought a declaration from the High Court that the restrictive covenant was not binding on it as the BBC's successors in title.
The High Court held that the restrictive covenant was a pure money payment obligation and did not protect or preserve the value of the benefitting land. It therefore held that Southampton City Council could not enforce the restrictive covenant against Cosmichome. Effectively, the overage provisions were meaningless as they did not bind Cosmichome.
It is 12 months since the Cosmichome case, but have the two key lessons been learnt? All landowners and developers should now be aware of the following:
An obligation to pay monies (eg overage) is a personal promise and only binds the original parties to the covenants.
The Cosmichome case showed us that courts will not generally enforce a restrictive covenant where the principal aim is to obtain a payment in return for a consent or release of a covenant.
An attempt to use a restrictive covenant to protect overage provisions (by only releasing the covenant upon payment of the overage) exposes the landowner to the risk that it will not be able to recover its overage entitlement against a subsequent owner.
We can provide advice on the appropriate structure to secure overage arrangements, which will differ depending on the circumstances and the particular nature of the transaction.
If a restrictive covenant is intended to benefit future phases of land, which are yet to be acquired, then the land with the benefit of the restrictive covenant must be identifiable.
The land intended to benefit from the restrictive covenant must be identifiable and this requires a precise description when relating to future phases of land.
Otherwise, following the purchase of the future phases of land, the owner of the land subject to the restrictive covenant may be able to argue that the new owner does not have the benefit of the restrictive covenant.
By failing to create an enforceable covenant, a landowner could find itself unable to enforce obligations that it requires for its future development.
When using restrictive covenants to secure an obligation against another party's land, care and attention must be taken to establish the principal aim of the covenant and whether that aim genuinely benefits the land receiving the covenant - it can be a costly mistake to incorrectly secure obligations supposedly binding another party's land.
 Cosmichome Ltd v Southampton County Council  EWHC 1378 (Ch) - 23 May 2013
This article was written by Fiona Maslin.
For more information please contact Fiona on +44 (0)20 7427 6526 or firstname.lastname@example.org