Birdlip –v- Hunter and Another  EWHC 808 (Ch)
Plotting and Scheming
Restrictive covenants concerning the number of houses that can be built on a plot of land dating back over 100 years have been found by the High Court to be enforceable because they form part of a "building scheme".
The Court's decision was made despite the fact that the plans between the two key agreements for sale contained some significant differences and that, given the age of the covenants, there was very little in the way of contemporaneous evidence about the circumstances in which they were made.
The consequence is that the Claimant is bound by the restrictive covenants and is therefore prevented from constructing a further two houses on its plot of land.
A building scheme requires the development on land within the area of the scheme to be carried out in accordance with the scheme's requirements. The buyer of each individual plot will enter into a covenant with the seller. It should be noted that the buyers do not enter into covenants with each another.
If a party can establish that a building scheme exists, this will mean that the restrictive covenants affecting the various plots contained within the scheme will remain mutually enforceable by and against the owner of each plot. This is the case regardless of when each party bought his property or the order in which the properties were sold.
The key requirements for a building scheme are as follows:
- The original titles for both Claimant and Defendant must have been derived from the same common seller;
- Before selling the plots, the seller must have laid out the land to be sold in plots subject to restrictive covenants intended to be imposed on all of the lots. These restrictions might vary in the fine details, but overall must be consistent with a general scheme of development;
- The restrictions must be intended by the seller to be for the benefit of all the plots; and
- Both the Claimant and Defendant, or their predecessors, must have purchased the plot from the common seller on the basis that the restrictions were to benefit the other lots included in the general scheme.
This case concerns a classic example of the type of restrictive covenant found in a building scheme, namely to restrict the number of houses that could be built on each plot. It was referred to the Court as a preliminary issue, to determine whether those covenants were binding.
The Claimant was the owner of a plot of land known as "Little Orchards" in Gerrards Cross, Buckinghamshire. "Little Orchards" already contained one house, and the Claimant obtained planning permission to build two further houses. The Defendants, who were the owners of the adjoining property, objected to the construction of the additional houses.
The properties belonging to the parties had originally been sold by the same common seller in 1909 and 1910. At the time the plots were sold, a road had been laid out, but there were no buildings on the plots. "Little Orchards" was sold to the Claimant's predecessor subject to a restrictive covenant not to build more than "one or two detached residences" on it.
In total, eighteen plots sold by the seller were bound by similar covenants. The covenants were expressed to bind the "heirs and assigns" of buyers and sellers alike. However, as part of the contract, the seller reserved a right to vary the covenants "in so far as regards the other parts of their Estate". To complicate matters, "Estate" was not defined in the contracts for sale. Instead, it was marked out on two plans, the first dated 1908 and the second dated 1914. To complicate matters further, the two plans were not identical, but contained a number of significant differences.
When the Defendants objected to the construction works, the Claimant issued an application in the Upper Tribunal to modify or discharge the restrictive covenants under Section 84(1) Law of Property Act 1925. This is a statutory provision that allows parties who are bound by a restrictive covenant to have it removed or its impact lessened. However, it can only be used in certain circumstances, for example where the covenant is obsolete.
In this case, the Claimant's application was transferred to the Court, which was asked to decide whether the covenants could be enforced under a building scheme for the benefit of the other properties on the "Estate".
The Claimant argued that there was no defined estate and that to try and establish an estate would be conjecture. Further, it argued that "Little Orchards" did not have the benefit of the scheme. Finally, it argued that there was no proof that the restrictive covenants should survive to benefit the current owners and other purchasers as opposed to having been solely for the benefit of the original seller.
The Defendants argued that the restrictive covenants fit the criteria established by the authorities for building schemes. It argued that the covenants were "classically" of the type that was intended to provide mutual benefits for all the parties who owned plots on the estate.
The Court was therefore asked to consider the following key question:
Were the covenants enforceable under a building scheme for the benefit of the other properties on the estate? To drill this question down further:
- Was there was a defined estate?
- Were the covenants for the benefit of other purchasers or just the original seller?
The Court found in favour of the Defendants for the following reasons:
- In order for an enforceable building scheme to exist, the "estate" must be defined at the date on which the scheme crystallised. In this case, the first sale took place in 1906.
Although there was no estate plan in the contracts for sale of the Claimant and Defendants' plots, the Court found nonetheless that the 1908 plan had been attached to a contract for a lot sold in that year. This plan identified the lots that the original seller was selling and also purported to define the boundaries of the "estate".
Consequently the judge disagreed with the Claimant that it was mere speculation to say that there must have been a plan which defined the boundaries of the estate in 1906, because the sale in 1908 showed plots that were consistent with the sale contract of 1906. This meant that the scheme had crystallised.
By the time "Little Orchards" and the Defendants' properties were sold in 1909 and 1910, there would have been plans attached to the contracts for sale. Admittedly these plans were probably not identical to the 1908 plan and the shape/size of some of the lots might have altered. However, as it was still so near the beginning of the development, the Court felt that they would still have contained the boundaries set out in the 1908 plan.
The Court acknowledged that there were differences in the 1914 plan. However, these differences did not persuade the Court that the 1908 plan did not show the "Estate". Rather, the Court felt that it was still very near to the beginning of the development and therefore that it would still have contained the boundaries laid out in the 1908 plan.
- Secondly, the Court found that the "Estate" had many of the classic features of a building scheme, as follows:
- There was a defined estate
- The estate was laid out in plots, even though the plotting of one part took place significantly after the initial plotting
- Laying out plots was evidence of a clear intention that the restrictive covenants should be for the common benefit of all purchasers
- The covenants attached to each plot were substantially the same and appeared to derive from a standard form of contract
- Any variations in the covenants were not material
- The covenants had been created over 100 years ago, and had been upheld in previous cases
- The power of the seller to vary the covenant was ambiguous, and was just one matter to be considered in the context of the whole in deciding whether a scheme existed
Taking all the above into account, the Court found that it was intended for the covenants to be for the common benefit of all future purchasers of the various plots on the estate as well as the original seller. Consequently it found that the Claimant was bound by the restrictive covenant, meaning that it was prohibited from carrying out its development.
It remains to be seen whether the Claimant will appeal the decision. There is also an ongoing application by the Claimant in the Upper Tribunal for an order to modify or discharge the restrictive covenant, which may well be pursued to its conclusion.
In the current climate, where constructing additional properties on plots is a frequent occurrence, this case demonstrates some issues facing developers and neighbours.
The case demonstrates the difficulty of proving the surrounding circumstances and the intentions of the parties where the restrictive covenants are historic. In some respects, the decision that an estate exists does not accord with previous case law, given the significant differences between the 1908 and 1914 plans. This seems to conflict somewhat with the requirement in previous cases that the buyer of a plot of land must know the full extent of both his benefits and his burdens. It is certainly clear that every case will turn on its own facts and documents.
The case also demonstrates the importance to developers and neighbours of restrictive covenants. It is essential to establish whether or not they are binding before spending money on the development. Early advice should be sought in this regard before resources are committed.