Cosmichome Ltd v Southampton City Council

A restrictive covenant binds successors in title only where, when imposed, it was intended to benefit and was capable of benefiting the covenantee’s land, and it continues to benefit that land when enforcement is sought. A covenant whose substance is to secure an overage or other money payment, rather than protect the amenity or value of retained land, is not enforceable as a restrictive covenant against successors.

A right of pre-emption does not become an option for the purposes of the Perpetuities and Accumulations Act 1964 until it becomes exercisable. The 21-year period then runs from the date on which the option arises, not from the creation of the pre-emption right.

The claimant owned the freehold of a former BBC broadcasting centre acquired from the BBC in 2004. The defendant local authority had conveyed the site to the BBC in 1989, subject to a restrictive covenant limiting use to a broadcasting centre and a right of pre-emption exercisable if the property became surplus or ceased to be required for the permitted use.

The claimant sought declarations that neither provision was enforceable against it or its successors. The issues were whether the restrictive covenant benefited the authority’s adjoining land, whether the authority’s inaction after the 2004 sale and leaseback exhausted the pre-emption right, whether the right was void for remoteness under section 9(2) of the Perpetuities and Accumulations Act 1964, and whether it bound the claimant despite being unprotected as a third-party right.

1. Restrictive covenant. The court applied the established test that the burden of a restrictive covenant is enforceable against successors only if, at the date of imposition, it was intended to benefit and was capable of benefiting the covenantee’s land, and it continues to do so when enforcement is sought. The wording of the transfer created an initial assumption that the covenant was capable of benefiting the authority’s retained land, but the claimant discharged the burden of rebutting that assumption.
2. The evidence showed that restricting the site to BBC broadcasting use had no material effect on the nature, quality, amenity or value of the authority’s adjoining land. The covenant’s true purposes were to encourage the BBC to remain on the site and to provide leverage for extracting an overage payment if the restriction was removed. It was therefore a money-payment obligation rather than a restrictive covenant properly so called, and did not bind successors in title. The first declaration was granted.
3. 2004 sale and leaseback. The BBC’s letter of 8 July 2004 did not trigger the pre-emption right. The sale and leaseback did not make the property surplus, end the permitted use, or change the BBC’s occupation. The authority therefore did not lose the right by failing to serve notice.
4. Perpetuity. Following the distinction explained in Pritchard v Briggs [1980] 1 Ch 338, a right of pre-emption initially creates only a contractual expectancy. It matures into an option, and gives rise to an equitable interest, only when it becomes exercisable. Section 9(2) did not apply before that point. Once the right matured, the 21-year period would run from the date the option arose, not from the earlier date of the transfer. The authority’s right was therefore not void under the 1964 Act.
5. Successors and registration. A purchaser of registered land is not bound by an unprotected personal right or obligation entered into by the vendor, even if the purchaser knew of it. A constructive trust is imposed only in rare and clear circumstances. The late, unpleaded constructive-trust argument was unsupported by sufficient evidence and could not be determined in these proceedings. The claimant was not bound by the pre-emption right, and the second declaration was granted on that basis.