Meaning and Construction of Certain Restrictive Covenants which Impact on the Development and Commercial Use of Land

AuthorWilliam Webster/Robert Weatherley
Chapter 28

Meaning and Construction of Certain Restrictive Covenants which Impact on the Development and Commercial Use of Land


28.1 The starting point in the modern law in relation to the interpretation of contracts is the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society,1where he summarised the principles as follows:2

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used

1[1998] 1 WLR 896.

2[1998] 1 WLR 896 at 912–913. Applied by Lord Bingham in Bank of Credit and Commerce

International SA v Ali and Others [2001] UKHL 8, [2002] 1 AC 251 and by Moore-Bick LJ in Reilly v National Insurance & Guarantee Corporation Ltd [2008] EWCA Civ 1460, [2009] 1 All ER (Comm) 1166.

276 Restrictions on the Use of Land

the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] AC 191, 201:

‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must yield to business commonsense.’

28.2 Accordingly, in construing a contract, the overriding requirement is to gather the intention of the parties from the words used in light of the overall purpose of the document and the facts known or assumed by the parties at the time that the document was executed, but ignoring subjective evidence of the parties’ intentions.3What one cannot do is to rewrite the contract to make it conform to business common sense, although if the contract is capable of more than one construction, one chooses that which seems most likely to give effect to the commercial purpose of the agreement.4The court will, of course, be loath to find a restrictive covenant void for uncertainty and will normally strive to give it meaning where this is necessary in order to preserve the value and amenities of the benefited land.


28.3 Sometimes, of course, terms may have to be implied (and the burden of showing this is always a heavy one) in order to give business efficacy to the terms of the covenant.5The question for the court is, in substance, whether such a provision, if implied, spelled out what the contract would reasonably be understood to mean. The question might be reformulated in various ways. For instance, the implied term had to be so obvious as to ‘go without saying’ or be necessary for ‘business efficacy’ of the contract.6It is, however, plain that the test for implying a term into a contract is still very high.7

3Marley v Rawlings [2014] UKSC 2, [2014] 2 WLR 213; Honda Motor Europe Ltd v Powell [2014] EWCA Civ 437; Martin v David Wilson Homes Ltd [2004] EWCA Civ 1027 at [14].

4Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [23].

5Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 (Privy

Council) at [16]–[27] (Lord Hoffmann), applied in Fitzhugh v Fitzhugh [2012] 2 P & CR 14.

6See also Equitable Life Assurance Society v Hyman [2000] UKHL 39, [2002] 1 AC 408; Trollope

& Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601; BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266; The Moorcock (1889) 14 PD 64.

7Marks & Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015]

UKSC 72.


Covenants involving the submission of plans and not building without consent

28.4 A covenant requiring the covenantor to submit plans is negative in nature and means that no building may be erected until plans have been submitted to, and approved by, the covenantee. A failure to submit plans (without more) would only give rise to nominal damages.

28.5 Where a building is erected in breach of such covenant it is broken at that time (i.e. it is not a continuing breach).8A limitation period of 12 years (rather than 6 years for an action based on a simple contract) applies to actions on a speciality (or where the action is derived from statute).9

28.6 It has also been held that where a developer built a number of properties in breach of covenant, those purchasers who aided and abetted the developers’ breach by paying their deposits and entering into contracts to purchase and building contracts while the development was still in progress, were also liable to the covenantee for damages since they now owned the houses built in breach of covenant.10It is, however, plain that where building work goes ahead in circumstances where any requisite consent to building work has not been obtained or where there is a debate as to the reasonableness of any refusal of consent or as to the terms of such consent, the covenantor will be taking an exceptional risk as there can be no guarantee that an injunction would not be granted which requires the offending building to be demolished. In such a case, a judicial remedy (namely declaratory relief or an order seeking the discharge or modification of the restriction under section 84 of the Law of Property Act 1925) or some form of alternative dispute resolution should be sought at an early stage.11

28.7 It is important to appreciate from whom consent is required. In Mahon v Sims,12the covenant prevented the covenantors from building otherwise than ‘in accordance with plans which have been approved previously by the Transferors in writing’. Consistently with the provisions dealing with the passing of the benefit of covenants relating to land in section 78 of the Law of Property Act 1925, it was held that this obligation extended to the transferors’ successors in title and not just to the transferors identified in the transfer. In City Inn (Jersey)

8Powell v Hemsley [1909] 1 Ch 680 at 687–688; affirmed at [1909] 2 Ch 252.

9Limitation Act 1980, s 8. A specialty is an action based on a contract under seal such as a covenant contained in a conveyance or lease: Corke & Brandon Ry v Goode (1853) 13 CB 826; Aylott v West Ham Corporation [1927] 1 Ch 30; Collin v Duke of Westminster [1985] QB 581 at 601.

10Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 at 812.

11Mortimer v Bailey [2004] EWCA Civ 1514, where an injunction was granted requiring the removal of an extension in circumstances where the covenantors had built in full knowledge of the covenant (not to build without the covenantees’ consent, such consent not to be unreasonably withheld) and of the covenantees’ objections and intention to commence proceedings. See Jacob LJ at [41], who said that in a case where a covenantor takes a chance ‘it will require very strong circumstances where, if the chance having been taken and lost, an injunction will be withheld’.

12[2005] 39 EG 138.

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Ltd v Ten Trinity Square Ltd,13the court found that a covenant by the transferee of land not to develop without the consent of the transferor (which was the Port of London Authority – there was no reference to its successors in title in the transfer) extended only to that party and not to their successors in title. The view taken was that the original parties never contemplated a situation in which the PLA would move away and there would be a successor. They simply did not cater for it and, accordingly, it was found that the word ‘transferor’ meant the original owner alone. It followed from this that the transferee’s successor in title was entitled to develop the property without the consent of the transferor’s...

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