A developer entered into a planning agreement with Eastleigh Borough Council in 1987. As part of that agreement, in 1990 the developer transferred a piece of land free of charge to the council. However, the transfer reserved the right to the developer and its successors in title to the retained land to construct and use a road on the transferred land.

The right was subject to two provisos. First, the exercise of the right had to be in accordance with a development brief for that area (the "1986 Brief"). Secondly, the approval of the council's director of planning had to be obtained to the new road.

In 2001 the developer's retained land was transferred to the claimant. In due course, the claimant sought permission from the council to build the new road. It also applied for planning permission for residential development of the retained land. Planning permission was initially refused but an appeal was lodged and permission was eventually granted by the Secretary of State in 2006.

However, the council refused permission to build the new road. It argued that neither of the two provisos to the exercise of the right was satisfied. The council stated that the first proviso meant that the nature of the development on the site for which the road was to be used as access, as well as the construction of the road itself, had to be in accordance with the provisions in the 1986 Brief. The development for which planning permission on the retained land had ultimately been granted did not accord with the 1986 Brief in a number of ways. For example, the density of residential units for accommodation greatly exceeded that in the Brief. In relation to the second proviso, the council did not consent to the exercise of the reserved rights. This was because of the high level of residential objection, in particular to the increased traffic density that the new road would generate if built to serve the development for which planning permission had been obtained. The council further contended that, in any event, its reasons for refusing consent were immaterial because there was no implied term that consent should not be unreasonably withheld.

The High Court held that the first part of the proviso was satisfied. The reservation in the transfer was for the exercise of the right during a perpetuity period of 80 years. It would have been obvious at the time of the transfer that the 1986 Brief would remain relevant for only a small part of that period.

At the time the right was reserved, the retained land had planning permission for industrial purposes. The land surrounding the retained land was earmarked in the 1986 Brief for residential development. The council could not bring about this residential development without the land transferred. The developer provided the land for free, presumably because it saw its own interests being advanced by the development of the surrounding area. However, the developer was aware that it would need to reserve a right to build a road on that land if it was not to be held to ransom in the future, when such a road might be of use to the retained land. The court held that the commercial context to the transaction made it improbable that either the developer or the council intended that the reserved right would be limited, for 80 years following the transfer, by the use of the retained land for its purposes at the date of the transfer or by the principles in the 1986 Brief for residential development of the surrounding land.

The court further found that the language of the reservation was not directed to the use and nature of the development on the retained land, but rather the manner in which the road was to be constructed and used. The 1986 Brief contained some provisions regulating this. For example, the Brief required a road system which minimised pedestrian and vehicle conflict and provided for satisfactory access, parking and servicing. Road design had to comply with certain specified standards.

In relation to the second proviso, the claimant argued that a qualification should be implied that consent could not be unreasonably withheld. A term will only usually be implied into a contract if it is so obvious that "it goes without saying", or where it is necessary to give the document business efficacy. In Cryer v Scott Brothers (Sunbury) Ltd [1986], the issue was whether a restrictive covenant by the transferee that all building plans were to be submitted to the transferors for their approval before building work commenced was subject to an implied provision that approval would not be unreasonably refused. The Court of Appeal in that case held that it was necessary to imply such a provision in order to give business efficacy to the covenant.

The council sought to distinguish Cryer on the ground that whereas that case concerned a covenant which was restrictive of the use of the covenantor's own land, the present case concerned the grant of permission to do something on another person's land. The council argued that it was more likely, in such a case, that the landowner would wish to maintain absolute and unrestricted control over the scope and nature of the work. The council also pointed to other provisions in the planning agreement which had provided that consent to other matters could not be unreasonably withheld by the council. In the council's opinion this showed that these words had been deliberately omitted from the reservation relating to the building of the road.

Nonetheless, the court found that the council was under a duty not to unreasonably withhold its consent. If this were not the case, the council could negate the reserved right by a refusal which might have nothing whatever to do with planning and related grounds. A right arbitrarily to refuse consent for any reason would also make the express requirement to comply with the 1986 Brief redundant. On the council's interpretation, the transfer would, notwithstanding the reservation, have given the council a ransom strip.

The court then went on to consider whether it thought the council had in fact withheld its consent unreasonably. It concluded that it had. The council argued that it was not bound by the decision of the Secretary of State in relation to the grant of planning permission, since its power to dispense consent was as landowner not as local planning authority. The court disagreed. The council's reasons for refusing consent were all matters which had been considered at the planning inquiry. In any event, the issue of reasonableness had to be considered in the context of the rest of the reservation. The requirement to comply with the 1986 Brief and the assignment of the granting or refusal of consent to the director of planning showed that the parties had in mind that consent could only be refused on objectively verifiable grounds reasonably held by the council relating to planning.

Things to consider

The principle in this case is not new. The 2005 case of Rickman v Brudenel-Bruce reached a similar result as the Cryer case. The court in Rickman emphasised that the test is always whether the implied term that consent is not to be unreasonably withheld is necessary in order to give business efficacy to the contract. On that basis, it seems likely that each case will turn on its own facts. The court in the present case seemed to be saying in essence that the landowner could not give with one hand but take with the other; by granting a right but then retaining absolute discretion as to whether the right could be exercised.

The decision may be helpful to developers faced with covenants and easements which require the consent of a third party landowner in order for development to proceed.

Unfortunately the case introduces a degree of uncertainty for those negotiating documents. Landowners who have the benefit of such provisions must bear in mind that they may not have an absolute discretion as to whether or not to grant consent. For example, restrictive covenants are sometimes imposed on land sold for development as a means of securing overage payments. The efficacy of such arrangements would clearly be undermined were a court were to find that such a covenant was impliedly subject to a proviso that consent could not be unreasonably withheld.

Different considerations apply to covenants in leases, which are in part governed by statute.

(Town Quay Developments Ltd v Eastleigh Borough Council)