We have a further example of how courts can interpret simple words like “use” and “a” in conflicting ways.

In the recent case of Parsons v Thatchers Wood Residential Company Ltd, the claimant (P) claimed a declaration as to the meaning of a restrictive covenant in the title deeds to their property, which was situated on a small residential estate. The defendant (T) was the management company for the estate; it owned and looked after the common parts of the estate and was a beneficiary of the restrictive covenant.

T’s articles of association provided that (1) each house-owner on the estate was issued a share in T, and that (2) shares could only be issued to home owners on the estate, who had to transfer their share when they sold their house. The articles were later amended to allow shares to be issued to purchasers of new houses added to the estate. The covenant was entitled “User” and provided that, unless T’s permission was given, the property was not to be used for any purpose other than “as a private dwelling-house in single family occupation”.

The issue was whether the “User” restrictive covenant prevented P from building a second house on their property without T’s permission.

In the absence of a contrary indication, the words of a heading could be taken into account. In this case, some guidance on the meaning could be gained from the heading, which indicated that the covenant was about the permitted and non-permitted “User” of the property. The subject matter was the whole of the property. There was no need for numbers to be used to limit the number of dwelling-houses, and use of the indefinite article, “a”, was not necessarily determinative. Two aspects of the covenant connoted that it was intended to limit numbers: the wording suggested that the draftsman had in mind that density was a purpose, and the covenant was applicable to the whole property.

The Court considered the 2004 ruling in Martin v David Wilson Homes Ltd. This case stated that the words “use as a private dwelling house” meant that the word “use” was definitive, not the word “a”. Therefore, more than one house could be built.

However, the High Court determined in Parsons v Thatchers Wood Residential Company that the context of the restriction on use was materially different to that in Martin v David Wilson Homes. The covenant prevented the building of a second house on the property, without T’s consent. That conclusion was supported by T’s articles of association which, in unamended form, appeared to provide that only purchasers of the houses originally built could be issued shares.

All cases are judged on their own particular facts and it is difficult to draw conclusions from this case alone. However, this case adds uncertainty to the interpretation of restrictive covenants, and developers and landowners need to consider the effect of covenants carefully before committing to a development.

What conclusions can you draw from cases such as this?  Simply do not assume that your understanding of the “law” is correct.  It might have changed.  Please check with us.

When a buyer purchases a business, it usually wishes to ensure that the seller cannot compete with the business of the target post-sale. We therefore recommend that restrictive covenants are included in any sale and purchase agreement.

Facts of the case

In this case the restrictive covenants in the sale and purchase agreement included a non-solicitation clause which prohibited the defendant from soliciting, canvassing or enticing away the customers of the target business for three years following completion. Before that three year period ended, the claimant noticed that some of its clients were moving to the firm where the defendant now worked. Clients had never moved to that firm before and the claimant issued proceedings for breach of restrictive covenant by the defendant.

Decision

The High Court ruled that the restrictive covenant had been breached due to the defendant’s actions and intentions on the following ground that the evidence showed that:

- there was a secret intention between the defendant and his new employer of an intention to acquire the claimant’s client base and a clear intention of the defendant to solicit the claimant’s clients for his new employer; and

- there were a number of clear actions by the defendant which solicited the clients for his new employer, including calling and meeting clients and encouraging them to follow his move.

The High Court considered that no client could have been guaranteed to stay with the claimant firm for more than one year but ruled that damages should be payable to reflect that one year’s revenue, such that the defendant was liable to pay damages of £31,875.

Comment

This case shows the importance of putting restrictive covenants into a sale and purchase agreement. Restrictive covenants must be very carefully drafted so as to be reasonable when considering their length, geographical effect and scope, and are interpreted on a case-by-case basis by the court, but this case highlights that time spent drafting such provisions can be time well spent.

Baldwins (Ashby) Ltd v Maidstone

The covenant stated that:

“….for the benefit of the adjoining land of the vendor on the west and south sides of the land conveyed, that no building shall be erected on the [land]….”

In October 2006, the Local Authority granted detailed planning permission for residential development in the area. Wimpey commenced works on the land and in May 2007. Wimpey received a letter from the solicitor acting for various people claiming the benefit of the covenant, asking them to stop works on the land on the basis of the covenant.

Proceedings were commenced in 2008 on various grounds, including loss of value and privacy  to properties, risk of flooding, the proposed use was not reasonable even though planning permission had been granted, and it would set a precedent for further modification of the covenant. Wimpey claimed that the practical benefits of the covenant were not of substantial value and that money would be an adequate compensation for the loss and any disadvantage suffered by those with the benefit of the covenants. In addition, Wimpey claimed that the character of the area would not change as a result of the development.

Decision:

The Lands Tribunal decided that it had no power to modify the covenant as Wimpey had failed to make out the grounds in section 84(1)(aa) LPA 1925 (i.e. the covenant impedes some reasonable use of the land and either does not secure any practical benefit of substantial value or advantage, or is contrary to public interest, and money would not be adequate compensation to anyone suffering loss or disadvantage from the discharge or modification of the restriction.)

The Lands Tribunal said:

1. The proposed development was reasonable since the proposed density of the development was only slightly more than the local authority planning inspector’s report;

2. The practical benefits to the objectors were of substantial value and advantage, as their properties were currently overlooked only in a limited way and now enjoy outstanding views over open land to hills in the distance. If the development proceeded  the properties would become suburban in character with the attendant loss of views and privacy;

3. Wimpey had failed to show that increased flooding was not due to their other developments in the area; and

4. the objectors were justified in objecting on the basis that the proposed modification would prove to be a precedent for further modification of the covenant and would allow further development

As such, the covenant was of practical benefit to the objectors by allaying their reasonable fears about increased flooding and high density development. Such benefits were of substantial value.

Comment:

Developers should note this decision, since even though the Land Tribunal’s power to modify a covenant is discretionary, the developer in this instance failed to show that the covenant impeded a reasonable use of the property. Indeed the Lands Tribunal made it clear that they would not have exercised their discretion even if the developer had successfully claimed under section 84(1)(aa) LPA 1925. The developer had ignored the covenant and the objections of the locals in the hope that by altering the character of the land, the Lands Tribunal would allow the development, and it would have been unreasonable for the developer to benefit from ignoring their legal obligations.