9 May 2022

Restrictive Covenants and their “Knock On” Effect on Development!

By Rudi Hare, Associate Director – Legal Indemnities, SPF Insurance Services

The case of Bath Rugby Limited v Greenwood and others [2020] EWHC 2662 (Ch) is well documented, so I won’t go into too much detail but essentially the matter was centred around the annexation of covenants, based on the Law of Property Act 1925.

In this instance, the covenants are pre 1926 as the land was conveyed by the Bathwick Estate to The Bath and County Recreation Ground Company Limited in 1922. The conveyance contained a covenant by the purchaser for themselves their successors and assigns that:

“Nothing shall be hereafter erected placed built or done [on the land] which may be or grow to be a nuisance and annoyance or disturbance or otherwise prejudicially affect the adjoining premises or the neighbourhood”.

The Bathwick Estate subsequently sold off other parts of their estate, which included a property at 77 Great Pulteney Street (“77GPS”). A Mr Godfrey White owned a flat in 77GPS and was also a shareholder of the freehold company owning 77GPS.

Bath Rugby Club has a long lease of part of the land known as the ‘Rec’ and wished to redevelop the site to create a larger stadium for the club alongside retail and commercial outlets. A dispute arose between Bath Rugby and Mr White (plus others) over the enforceability of the Restrictive Covenant. This, in turn, led to Bath Rugby applying to the High Court seeking declarations and including as Defendants all parties who sought to rely on its enforceability.

At the High Court hearing, the judge noted that whilst there was no plan attached to the 1922 Conveyance to identify the ‘adjoining premises or the neighbourhood’, there was reference to the Bathwick Estate’s other land adjoining the Rec (in another clause). In October 2020 the judge therefore concluded that the reference to ‘adjoining premises or the neighbourhood’ concerning the Restrictive Covenant included The Bathwick Estate’s other land as owned at the time. As 77GPS was part of the said Bathwick Estate, it was consequently included in the land which enjoyed the benefit of the Restrictive Covenant and could enforce it, ultimately awarding in favour of Mr White and the freehold company.

This would have been the end of the story, and could have scuppered all plans for developing the site but Bath Rugby appealed on several grounds, fundamentally arguing that the Judge was wrong to hold:

a) That the covenant benefitted the adjoining land or neighbourhood; and/or
b) That the adjoining land or premises was the same as that set out in the other clause as meaning other land in the ownership of the seller.

The Court of Appeal agreed, and a final decision was awarded in Bath’s favour on the basis that the phrase ‘adjoining premises or the neighbourhood’ was too uncertain and a plan could not be drawn up as to what land would be included within ‘the neighbourhood’

Whilst Bath Rugby obtained a favourable result on this occasion, it was not without tribulation and this matter certainly highlights that when it comes to covenants, you cannot necessarily rely on a pre-1926 date making them “less risky” (especially as this case shows legal experts cannot agree on whether these covenants were annexed to the claimant’s land or not!) It also shows that when reviewing titles, conveyances, and transfers, it is key to read the whole document when investigating whether land is subject to any restrictive covenants or other adverse interests.

So, how does insurance fit into the equation? I must point out that insurance will not make a covenant disappear nor prevent a third party from attempting to enforce their interest and potentially hindering a development. What it will do is provide you with certainty that you will not be out of pocket when hiccups occur. In the above case, cover for pre-planning Restrictive Covenant Indemnity Insurance would have been inexpensive (by some margin) compared to the expense Bath Rugby have incurred as a result of financing the litigation (it is not known whether they took out a policy, but one would hope so!)

Whether covenants are restricting height, use or intensification indemnity insurance could be used as a solution to de-risk or simply provide peace of mind. Insurers are becoming ever more innovative with available covers and situations you may have found previously uninsurable can potentially now be covered. As SPF (like many brokers) offer a full advice and recommendation service at no cost to you (or your client), there is nothing to lose in exploring the options available. At the very least we can assist you in presenting a full due diligence report on the risk, allowing your client to make an informed decision as to how best to proceed.