Using restrictive covenant to support overage
Cosmichome Limited v Southampton City Council
 EWHC 1378 (Ch)
A restrictive covenant imposed to protect a former landowner’s right to receive overage was not enforceable against a successor in title of the covenantor. A restrictive covenant is only enforceable against a successor in title of the covenantor if it was intended to benefit the land of the covenantee when it was imposed and it continues to benefit that land at the time that its enforcement is sought.
(It was also held that s9(2) of the Perpetuities and Accumulations Act 1964 does not apply to a right of pre-emption unless and until the right becomes exercisable - see Perpetuities.)
Some years ago a purchaser, B, bought land from a seller, S. B constructed a building on the land. The transfer to B contained a covenant that the site would be only occupied by B and any subsidiary or certain franchisees. This covenant could be removed if discharged by S and if B gave a further covenant that, following grant of planning permission for any use other than radio or television studio with ancillary offices, it would pay to S a “Development Charge”, being 50% of any resulting enhanced value accruing on the site.
There was also a pre-emption right so that if B no longer required the site for the permitted use, it would notify S. S would then have 3 months in which to call for the transfer of the freehold at open market value. If this right was not exercised, B could dispose of the site to a third party who would be subjected to similar obligations and the payment of the Development Charge.
Subsequently B notified S that it intended to enter into a sale and lease back of the property. As B intended to remain in occupation, it pointed out to S that the right of pre-emption would not become exercisable. S failed to respond, and B went ahead with the transaction with C.
C sought a declaration that neither the restrictive covenant nor the right of pre-emption was enforceable against it as a successor in title to B, nor against its successors in title.
The main issue for the High Court in relation to the covenant, was whether this was unenforceable against C because its true purpose was to obtain payment in the event of a change of use, rather than to benefit the covenantee’s adjacent land?
The High court (Sir William Blackburne) found for C.
The restrictive covenant did not benefit S’s adjoining or adjacent land when it was imposed and nor did it do so now. The reason for its imposition was to maintain B at the site and to seek payment if it sought to leave. Therefore, it was more in the nature of a money payment obligation rather than a restrictive covenant. It was not intended to protect or preserve the amenity or value of S’s adjacent land. Accordingly the covenant did not bind the C as successor in title to B.
This case illustrates that a restrictive covenant should not be used to protect an overage payment, as a covenant that is incapable of benefiting the nature, quality or amenity of the covenantee’s land will not bind the covenantor’s successors in title.
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