M was the owner of a bungalow. The plot on which the bungalow stood had been sold off from the adjoining property in 1966 by the then owner of that property, Mrs Horn. B now owned the adjoining property.

M wanted to replace the flat roof on the bungalow with a pitched roof. Planning permission was duly obtained. However, M's land was burdened by a covenant "Not to make any addition or enlargement or alteration to the bungalow without plans having been first approved by the Vendor … such consent not to be unreasonably withheld". The "Vendor" was defined as Mrs Horn and the definition did not extend to successors in title.

The issue before the High Court was who was entitled to approve the plans under the terms of the covenant: the original vendor, or B, as the current owners of the adjoining property. B argued that the commercial reality of the situation meant that consent should be sought from them, as the current owners of the adjoining land.

The court held that the power to dispense consent under the covenant rested with the original covenantee; Mrs Horn. Strong and cogent reasons would be needed to interpret a defined term in a professionally drafted document in a way which departed from the definition. The document expressly referred to successors in title where these were intended to be included, and the covenant referred later to "her" consent; signifying that particular vendor.

The court acknowledged that the greater commercial merit lay in extending the definition of the person who could give consent to include successors in title. However, it was not for the court to re-write the terms of the contract. That said, the court pointed out that the situation where consent is to be given by a person who no longer retains an interest in the benefitting land was not without commercial purpose. For example, it prevents a multiplicity of consents being required in the event that the benefited land is sold off in parts.

Mrs Horn had died in 1977. The court then had to consider the effect of her death on the covenant. Did the covenant become absolute, so that no alterations could be made to the bungalow at all, or was it discharged completely?

Construing the particular covenant, the court found that the covenant was discharged by the death of Mrs Horn. It could not have been the intention of the parties that, after Mrs Horn's death, no alterations to the bungalow could be undertaken. For example, the premises could have damaged, e.g. by a storm or by fire, with the result that works of repair were required. The covenant was "regulatory" in the sense that it did not prohibit alterations themselves; it merely required plans for the alterations to be approved before they could go ahead.

Furthermore, the covenant provided that Mrs Horn's consent could not be unreasonably withheld. The court said that it would be "astounding" if, following her death, alterations were absolutely prohibited. B would be in a better position on Mrs Horn's death than they were prior to it. The exception containing the power to dispense consent was so fundamental to the restriction that if the exception was discharged then the prohibition was discharged with it. The prohibition and the exception were bound together so that if one went, then so did the other.

Things to consider

Section 78 of the Law of Property Act 1925 provides that a covenant relating to land of the covenantee shall be deemed to be made with the covenantee and its successors in title. In Mahon v Sims (2005) the High Court applied section 78 to find that the right to dispense consent under the covenant had also passed to successors in title of the original covenantee. However, the covenant in Mahon v Sims contained no references to successors in title. In the present case and in the similar case of City Inn (Jersey) Ltd v Ten Trinity Square Ltd (2007), the drafting of the documents clearly distinguished between the vendor on the one hand and the vendor's successors in title on the other.

The effect of the decisions in Margerison and City Inn is that the power to enforce the covenant, and the power to dispense consent under it, can become vested in two different people. In Margerison the court expressed the view that, in these circumstances, the third party would not be able to act arbitrarily or capriciously in refusing consent, or refuse consent for reasons which bore no relation to the benefitted land.

The contrast with Mahon illustrates that how a particular covenant is interpreted will always depend on its precise terms. This is reinforced by the fact that a separate covenant in the present case prohibited anything being built on the property save for one bungalow, the plans for which had to be approved by Mrs Horn. The court found that, a bungalow having already been built on the property, the death of Mrs Horn did not discharge the main prohibition against building.

Margerison v Bates