Federated Homes Ltd v Mill Lodge Properties Ltd

Section 78(1) of the Law of Property Act 1925 does more than shorten conveyancing language. A covenant relating to the covenantee’s land is statutorily annexed to that land and runs for the benefit of successors in title, derivative owners and occupiers. Unless a contrary intention clearly appears, annexation to land is prima facie annexation to each part of it.

A restrictive covenant is ordinarily assignable unless it is personal in nature. When construing such a covenant, words explaining its commercial purpose need not impose a condition upon its continued operation. A beneficiary is generally entitled to an injunction unless the injury is small, readily measurable and adequately compensable by a small payment, and an injunction would be oppressive.

The plaintiff owned two parts of a development site. The defendant owned another part, whose conveyance contained a covenant limiting development to 300 dwellings so as to protect the development capacity of land retained by the original vendor. The defendant obtained permission for 32 additional dwellings after the original planning permission mentioned in the covenant had lapsed.

A deputy High Court judge held that the covenant was assignable and remained effective. He found an unbroken chain of express assignments for one part of the plaintiff’s land and relied on section 62 of the Law of Property Act 1925 for the other part. He granted an injunction restraining the additional development.

The defendant appealed. The principal questions were whether the covenant was personal or spent, whether its benefit had passed to the plaintiff through statutory annexation under section 78, and whether an injunction was the appropriate remedy.

1. Appeal dismissed. Brightman LJ delivered the leading judgment. Browne LJ agreed, and Megaw LJ agreed while adding observations on annexation to severed parts. The injunction restraining construction beyond 300 dwellings was upheld.

2. The covenant was not personal to the original vendor. Commercial contractual benefits are generally assignable unless the contract is personal in nature. The restrictive covenant protected retained land rather than personal performance by the vendor. The conveyance and related phasing agreement also contemplated that the development land might be transferred. Section 78 of the Law of Property Act 1925 reinforced that conclusion by deeming a covenant relating to the covenantee’s land to have been made with successors in title.

3. The covenant did not expire when the original planning permission lapsed. The reference to development under the existing permission explained the commercial purpose of the density restriction. It did not control the covenant’s duration. Treating the permission and covenant as standing or falling together would have produced an artificial and commercially ineffective result.

4. Section 78(1) is not merely a drafting shorthand. Where a covenant touches and concerns identified land of the covenantee, the subsection causes its benefit to run with that land for successors in title, persons deriving title through them, and the land’s owners and occupiers. The present covenant expressly protected the vendor’s adjoining or adjacent retained land and therefore satisfied that condition. Its benefit passed automatically without an express assignment.

5. Where a covenant is annexed to land, it is prima facie annexed to every part unless a contrary intention clearly appears. Accordingly, the benefit ran with both the red and green land notwithstanding their severance. Megaw LJ agreed that neither principle nor practical sense supported annexation to the whole while excluding its constituent parts.

6. Under Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287, the beneficiary of a restrictive covenant is generally entitled to an injunction unless the injury is small, measurable in money and adequately compensable by a small payment, and an injunction would be oppressive. The first, third and fourth conditions were not established. The appeal was dismissed with costs, and leave to appeal to the House of Lords was refused.

1. Court of Appeal: The defendant’s appeal was dismissed with costs. The injunction was upheld, and leave to appeal to the House of Lords was refused.

2. High Court, Chancery Division: J W Mills QC, sitting as a deputy High Court judge, held that the covenant was assignable and had not expired. He held that its benefit had reached the plaintiff through express assignments and section 62 of the Law of Property Act 1925, and granted an injunction.