Coastal Partnerships Ltd v Beddy & Ors

Restrictive covenants must be construed in their context and by reference to their apparent purpose. A covenant prohibiting construction of more than one “house” does not necessarily require a private dwelling with single occupation. The meaning may be informed by the wording of the covenant, related user restrictions, the proposed building’s internal configuration, practical consequences and its similarity to the existing structure.

A covenant prohibiting trade or business upon land does not necessarily prevent the grant of long leases. The relevant question is whether the activity falls within the commercial mischief addressed by the covenant and is carried on upon the property. Management arrangements may produce different results, depending on their structure and the use made of the units.

Coastal Partnerships Ltd, the freehold owner of Preston House Hotel in Devon, sought declarations under Law of Property Act 1925, s. 84(2), concerning two restrictive covenants in a 1971 conveyance.

The building covenant restricted construction to one single house with specified outbuildings. The user covenant prohibited trade or business on the property other than an hotel or furnished holiday flats. Planning permission had been granted for demolition of the existing hotel and construction of a building containing 16 apartments and common facilities. The claimant might retain the freehold and grant short holiday lets, or grant long leases of the apartments.

The central issues were whether the proposed development would breach the building covenant and whether the proposed lettings or management of the common parts would breach the user covenant.

1. Building covenant. The word “house” was not confined to a privately occupied dwelling. Its meaning depended on context. Relevant considerations included associated words such as “private” or “detached”, any related user covenant, the internal configuration of the proposed building, the practical consequences of competing interpretations and the similarity between the existing and proposed structures.
2. The related user covenant permitted use as an hotel or furnished holiday flats. That context supported a broad construction of “house”. The proposed building had one entrance, internal access to the apartments and an appearance closely similar to the existing structure. The suggested narrow construction would produce an illogical result because the same commercial outcome could be achieved indirectly by constructing a dwelling and later converting it. The development would therefore not breach the building covenant.
3. User covenant. The grant of long leases would not itself amount to carrying on a prohibited trade or business upon the property. The covenant was directed at preventing the property being used as commercial premises, and the grant of leases did not fall within that mischief or constitute carrying on business upon the property. The approach in Rolls v Miller (1883) 27 ChD, 71 at 87–89 was applied.
4. Management of the common parts after long leases might, depending on the arrangements, constitute a prohibited business. If all units were used by long-lessees as holiday accommodation and the claimant provided management services for a fee, that would probably fall outside the covenant. Other arrangements, including partial subletting, use of a management company as agent, or not-for-profit management by residents, might produce a different result.
5. The court declined to determine every hypothetical arrangement. Declarations were to be drawn in amended form so as to refer specifically to the act of disposing of the apartments and associated car-parking spaces. No order for costs was made.