Owning land that is subject to restrictive or positive covenants can be frustrating, particularly if they have the potential to affect resale value or development opportunities.
Freeing yourself from such covenants is not always possible but as demonstrated by a recent case handled by our commercial property litigation expert in London, Sanjay Chandarana, it can be done where the circumstances are right and you have an experienced legal team behind you.
Questpit Ltd v Arnold White Estates Ltd (2020)
Our client, Questpit Ltd, owned a piece of land in Houghton Conquest, Bedfordshire, which was subject to a number of covenants effectively limiting the use of the land. They were also obliged to ensure that anyone who purchased the land (or any part of it) entered into a deed agreeing to continue to observe and perform various covenants.
For added measure a restriction had been placed on the title documents at the Land Registry to prevent a change in ownership being registered until a certificate of compliance had been obtained.
Freeing yourself from such covenants is not always possible but it can be done where the circumstances are right and you have an experienced legal team behind you.
The covenants had been put in place in 2010 by the previous owner of the land, British Agricultural Services Ltd (BASL), in order to benefit an area of adjoining land that they intended to retain and a further area owned by a separate business which, like them, was part of the Hanson Group.
The wording of the covenants suggested that they were personal in nature and enforceable only for as long as BASL or another Hanson Group company was interested in the land that the covenants were designed to protect. Therefore, when all of the land in question was sold off to non-Hanson companies between 2015 and 2017, an issue arose as to whether the covenants had been rendered redundant or whether they were capable of transfer to the new owners, one of whom was Arnold White Estates Ltd (AWEL).
Opposing views
Our client’s view was that a transfer was not possible because there was nothing within the documentation in which the covenants were originally imposed to suggest that the covenants were intended to benefit anyone other than BASL or some other Hanson Group company. Further, the type of Land Registry restriction chosen was designed to ensure that only BASL or their nominated conveyancer could provide a certificate of compliance, rather than anyone else to whom the land they had retained might be sold.
The view of AWEL was that a transfer was possible because:
- the documentation in which the covenants were originally imposed referred throughout to BASL and their successors in title; and
- the provisions of section 78 of the Law of Property Act 1925 provide that covenants relating to land shall be deemed to be made not just with those who own the land at the time the covenants are created but also with those to whom the land is transferred.
Outcome of dispute
To resolve the matter, Sanjay advised the client to seek a determination from the High Court and subsequently the First-Tier Tribunal of the Property Chamber. He was confident that his view was correct and that section 78 was of no application in this case, because of how the covenants had been drafted – namely in a way which made it clear that it was only BASL and other companies within the Hanson Group that could enforce the covenants.
In the event, the presiding judges in the Court and Tribunal agreed, ruling that there was no basis on which AWEL could insist on the covenants continuing to be observed and performed because:
- the only entities entitled to insist on the execution of a deed guaranteeing this were BASL or another company within the Hanson Group, and even then ONLY where at the time of a proposed sale they retained an interest in the land that the covenants benefitted; and
- the only entity entitled to block the formalisation of a sale agreement relating to the land now owned by Questpit Ltd was BASL or their conveyancer, as evidenced by the fact that they had chosen to register a Form L Land Registry restriction rather than a Form M restriction which would have allowed the certificate to be issued by someone else.
However, the road to victory was not easy, as Sanjay explains:
‘Despite being invited to do so, AWEL Ltd elected not take to part in the High Court proceedings in which a declaration of no continuing relevance in respect of the covenants was sought and instead chose to focus their efforts on trying to block our application to give effect to the Judgment we had obtained by securing the removal of the certificate restriction.’
‘This made what should have been a relatively straightforward application a very difficult one, which required a one-and-a-half-day hearing and very careful and thorough preparation. Indeed, it took a real team effort to understand and defeat, through legal and factual argument, the grounds on which AWEL claimed that the benefit of the covenants had been transferred and thus removal of the restriction could be resisted.’
But the effort to which Sanjay and instructed barrister (Wayne Clark, of Falcon Chambers) went was well worth it given that, as a result of their combined knowledge and experience in this highly specialist area, Questpit Ltd have now managed to free themselves from a number of commercially problematic covenants, and without being out of pocket to any great extent given that AWEL were ordered to cover a large chunk of their costs.
Do you need help with a commercial property dispute?
If you or your company are involved in a commercial property dispute, call Sanjay Chandarana on 020 7845 7447 for a confidential discussion.
You can also contact Sanjay for advice on landlord and tenant disputes, contentious insolvency matters, acrimonious partnership dissolutions, disagreements arising in the context of a joint venture, professional negligence claims and indeed any other commercial dispute matter.