The Appellant company was successful in establishing that the Respondents had not provided sufficient evidence of the existence of a building scheme. Consequently, the Respondents could not enforce a restrictive covenant preventing the Appellants from building two additional properties on their plot, which adjoined the Respondents' land.
The appellant company and the Defendants were the owners of adjoining plots of land. These plots were originally sold by the same vendor as part of several lot sales over a century ago, subject to restrictive covenants not to construct more than "one or two detached residences" on each plot. The Claimant's plot already had one house on it and the Claimant obtained planning permission to construct two more.
The Claimant sought a declaration that it was not bound by the restrictive covenant.
Whether the Respondents had established that the properties on the parties’ adjoining plots formed part of a scheme of development subject to mutually enforceable restrictive covenants, so as to entitle them to enforce the restrictive covenants against the Appellant by preventing the Appellant from building two additional properties on its plot.
The Judge held that “for there to be an enforceable scheme it is necessary for the extent of the estate to be defined at the date of the crystallisation of the scheme.” Although the original conveyances of the Claimant and Defendants’ plots did not define the estate, plans which defined the boundaries of the estate had been attached to contracts for sale for other lots. Although these plans were not always consistent in defining the boundaries of the estate, the Judge concluded that the differences were immaterial and the estate could still be defined. Furthermore, it could be inferred that a plan of the estate would have been attached to the agreement of sale for the parties’ plots, and therefore there was a defined estate.
The Judge found that the “estate has many of the classic features of a building scheme”. In particular, there was a defined estate and it was laid out in lots, which is “cogent evidence of an intention that the covenant shall be for the common benefit of purchasers”. Furthermore, there were substantially common covenants (any variations between the covenants were immaterial), which had existed for over 100 years and had been successfully upheld in previous litigious disputes. These covenants also provided value to the purchasers of the plots, not merely to the vendor.
Accordingly, on the balance of probabilities, the Judge concluded there was an intention that the covenants should be for the common benefit of the purchasers and therefore a building scheme had been established. The restrictive covenants therefore bound the Claimant and the claim failed.
Decision on appeal
The Court of Appeal, unanimously overturning the decision at first instance, held that the Appellant company’s land did not form part of an established building scheme and so was not burdened by the restrictive covenants.
Lewison LJ set out the characteristics of a building scheme as follows: ‘‘(i) It applies to a defined area; (ii) Owners of properties within that area have purchased their properties from a common owner; (iii) Each of the properties is burdened by covenants which were intended to be mutually enforceable as between the several owners; (iv) The limits of that defined area are known to each of the purchasers; (v) The common owner is himself bound by the scheme, which crystallises on the occasion of the first sale a plot within the defined area, with the consequence that he is not entitled to dispose of plots within that area otherwise than on the terms of the scheme; (vi) The effect of the scheme will bind future purchasers of land falling within the area, potentially forever.’’
Lewison LJ confirmed that there are two pre-requisites for a scheme of mutual covenants: ‘‘(1) the identification of the land to which the scheme relates, and (2) an acceptance by each purchaser of part of the lands from the common vendor that the benefit of the covenants will ensure to the vendor and to others and that he correspondingly will enjoy the covenants entered into by other purchasers.’’
Considering whether the parties had intended to enter into a scheme of mutual covenants, observed, Lewison LJ observed that ‘‘One would have thought …. that in the case of a scheme of mutual covenants designed to last potentially forever, that that intention would be readily ascertainable without having to undertake laborious research in dusty archives searching for ephemera more than a century old’’ (as the Judge had done at first instance).
The fact that the original conveyances of the Appellant and Respondents’ plots did not define the estate and the plans which defined the boundaries of the estate were inconsistent suggested that there was no intention to create a scheme and the Judge’s speculation about what may have happened at first instance ‘‘went far beyond permissible inference’’.
Consequently, the Respondents’ evidence ‘‘fell far short of what was required to prove the existence of a scheme of mutual covenants’’.