Restrictive covenants – who has the benefit?

Our recent article “Top Ten Tips – dealing with Restrictive Covenants” referred to the Upper Tribunal case of Livett & Anor v. Hennings & Anor [2022] and set out our top ten tips for ensuring the enforceability of a restrictive covenant or how to argue that a covenant is not enforceable.  Below, we look in greater detail at the circumstances in which a covenant will be enforceable.

When is a covenant enforceable?

In order for a covenant to be enforceable by a successor in title, certain requirements must be satisfied. These include the following:

1. The covenant must be negative or restrictive in nature.
2. The covenant was entered into for the benefit of retained land owned by the person seeking to enforce it and the extent of that land is ascertainable.
3. The benefit and burden of the covenant must have been intended to bind successors in title. There are statutory presumptions in respect of covenants entered into on or after 1 January 1926.
4. In the case of a covenant created before 1 January 1926 the successor in title had notice of the covenant and in the case of a covenant created after 1 January 1926 the necessary registration formalities have been complied with.

Has the benefit of the covenant passed to the person seeking to enforce it?

Generally, if a covenant was imposed post-1926 then there is no need to consider the transmission of its benefit because there is a statutory presumption.  Under section 78 of the Law of Property Act 1925 the benefit of a covenant entered into on or after 1 January 1926, relating to any land of the covenantee, is deemed to be made with the covenantee, its successors in title (which includes owners and occupiers) and those deriving title under either. The effect is that the benefit of the covenant is automatically annexed to the covenantee's land, but only if:

• the covenant “touches and concerns” the land intended to be benefited;
• the land intended to be benefited is easily identifiable from the terms of the transfer and/or admissible extrinsic evidence and is capable of being benefited by the covenant at the time it is imposed, and
• there is no express contrary intention.

However, that is not the end of the story because even if the above criteria cannot be established it still may be possible for someone to argue that they benefit from the covenant.

Other ways of establishing the benefit: Building Schemes

For example, in Livett v Henning, Mr and Mrs Henning and others wished to object to their neighbour’s application to modify or discharge restrictive covenants so as to allow them to implement planning permission to demolish a house and build two new ones. The restrictive covenants required the applicant not to build more than one dwelling house on their land and not to cause a nuisance to their neighbours.

The neighbours, however, did not have standing to object to the application on the basis of the deeming provisions in the 1925 Act set out above.  Their land had been sold off two to three years prior to the conveyance of the application land when the covenants were created (in 1931).  Therefore, at the time the covenants were imposed their properties no longer formed part of the “residue of the Estate of the Vendors” for whom the benefit of the covenants were made.  This meant that there was an express intention that that land would not benefit from the covenant.

Accordingly, unless the neighbours could demonstrate that there was a building scheme they did not have standing to object to the application.  As the Judge observed, the legal requirements for a building scheme are strict and its characteristics are that:

1. It applies to a defined area.
2. Owners of properties within that area have purchased their properties from a common owner.
3. Each of the properties is burdened by covenants which were intended to be mutually enforceable as between the several owners.
4. The limits of that defined area are known to each of the purchasers.
5. The common owner is themselves bound by the scheme, which crystallises on the occasion of the first sale of a plot within the defined area, with the consequence that they are not entitled to dispose of plots within that area otherwise than on the terms of the scheme.
6. The effect of the building scheme will bind future purchasers of land falling within the area, potentially forever. (Birdlip v. Hunter [2016] EWCA Civ 603)

The neighbours Livett failed to establish characteristics (1) and (4) above, (defined area), because whilst there was an Estate Plan referred to in the conveyance, it was not known which plan that was and so there was no way to understand what was the defined area to which the building scheme was supposed to apply. The neighbours were also unable to establish (3), (intention of mutual enforceability).  The neighbours were therefore unable to establish that they had the benefit of the covenants and could therefore object to the application.  This meant that they did not have legal standing to object to the application.

Key takeaways

Whether as a developer or objector to a potential development, it is always important to consider the enforceability or otherwise of the restrictive covenants.  The position is not always straightforward and once proceedings have been issued, timescales are usually relatively tight.  For example, when making an application to modify or discharge a covenant, an applicant has just 14 days from any notice of objection to set out why it does not accept the objector is entitled to the benefit of it.