Restrictive Covenants and the “clear words principle”

Restrictive Covenants and the “clear words principle”

Tim Brookes, Legal Director in our Property Litigation team, explains a recent High Court decision on the interpretation of restrictive covenants, where the judge applied the court’s approach to the interpretation of the words of restrictive covenants, according to the “clear words” principle.

Background

The case was brought by the owner, Karen Reeve, of a property in Poole called “Barnwood” which benefited from a sea-view. That view was to be jeopardised, and in fact obscured, by a proposed redevelopment of a property called Rose Cottage belonging to Mr and Mrs McDonagh. Mrs Reeves’ property benefited from a restrictive covenant which affected the McDonaghs’ property.

In Reeve -v- McDonagh (CH-2023-000165) The Honourable Mrs Justice Joanna Smith DBE gave useful guidance on the interpretation of restrictive covenants.

In 1958 Mr Gordon Saul sold the property known as Barnwood in Poole, to Mr Herbert Donaldson.  Mr Saul retained land to the south of Barnwood on which was constructed The Lodge (now called Rose Cottage).  Mr Saul (as transferor) entered into the following covenant (the “1958 Covenant”) with Mr Donaldson (as transferee):-

“…the Transferor for himself and his successors in title to benefit [Barnwood] and to bind [Rose Cottage] hereby covenants with the Transferee that no additional buildings whatsoever shall at any time be erected on [Rose Cottage]”.

In October 2021 Mr and Mrs McDonagh obtained planning permissions for the demolition and replacement of Rose Cottage with a development almost 3 times its size and Mrs Reeve could foresee losing her precious sea view and so began legal proceedings.

The Legal Arguments

Karen Reeve’s counsel argued that any building erected on the Rose Cottage site, whether in addition to or a replacement of Rose Cottage, constituted an additional building for the purposes the 1958 Covenant, because such a new building would be “additional” to the building which was on the land in 1958.

Mr and Mrs McDonagh contended that the 1958 Covenant did not restrict the erection of a building in substitution for Rose Cottage, and did not impose any limitations on the extent, size, or footprint of any replacement building.

Mrs Reeve’s counsel submitted that, in construing the 1958 Covenant, it was legitimate and important to seek to determine what the purpose of the restriction was (the preservation of sea views from the Appellant’s property).  Leading Counsel for the McDonaghs invited the judge to apply the “clear words principle”; that if a construction would produce an unfair result, the court will often require clear words to support that construction.  Counsel suggested that the principle was justified in the case of a restrictive covenant where there was obvious potential for unfairness or prejudice to the covenantor (now meaning the McDonaghs) if an overly generous interpretation was placed on the provision, which had the effect of widening the restrictions on what the covenantor could do with their land.

The Honourable Mrs Justice Joanna Smith DBE agreed with Deputy Master Bowles that the natural and ordinary meaning of the words of the 1958 Covenant, read in context, is that Mr Saul, by covenanting that “no additional buildings whatsoever” should “at any time be erected on” his retained land, provided no more than that no buildings in addition to, in the sense of “as well as”, the already existing dwelling (now called Rose Cottage) should be erected on the land.  “Additional buildings” meant “further” or “ancillary” structures, such as a new freestanding garage or a holiday cottage, and those words did not naturally or obviously convey an intention that Rose Cottage would itself be affected by the covenant.  To construe the words “additional buildings” to cover scenarios such as a replacement building or the building of an extension strained their natural and ordinary meaning.  The judge agreed with the Master that if the parties had intended to preclude any alteration or extension of Rose Cottage, one would have expected the covenant to make that clear.  Whilst one should not construe a covenant in an artificially narrow way, simply because it is restrictive of the use to which an owner can put his property, “a restrained rather than a generous interpretation of such a covenant is normally appropriate”.

Ms Reeve’s counsel further submitted that theoretically it would have been possible for Mr Saul to have knocked down Rose Cottage immediately after the 1958 Transfer and erected a block of flats anywhere on the plot.  This would mean that the purpose of the covenant was entirely undermined; the Respondents’ (the McDonaghs’) construction of the covenant offended commercial common sense.

The judge’s decision

The judge quoted Lord Neuberger in Arnold -v- Britten [2015] UKSC 36: saying that “…reliance…on commercial common sense and surrounding circumstances…should not be invoked to undervalue the importance of the language of the provision which is being construed”.  The judge did not consider the possible demolition of Rose Cottage a sufficient reason for departing from the natural language of the covenant, nor did it justify a conclusion that the purpose of the covenant was entirely undermined: “The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties, is not a reason for departing from the natural language (again per Lord Neuberger in Arnold -v- Britten).

The judge concluded that the consequence of departing from the natural and ordinary meaning on the words used would be to accept an absolute restriction on any replacement of Rose Cottage (if, perhaps, it were destroyed by fire) or its extension, which would be such an extreme outcome that “absent very clear words indeed, it cannot possibly have been intended”.

FSP Comment

This is a well-crafted judgment underlining the principle that, if the parties have used clear words, the Courts will interpret them accordingly, and will not be persuaded to strain their natural and ordinary meaning simply because one party pleads that the interpretation offends commercial common sense, merely to save it from an unsatisfactory result.

If a landowner wishes to protect a particular state of affairs by imposing a restrictive covenant, it is important to identify that goal clearly, to spend some time working through the potential future scenarios to defend against, and to get good quality legal advice on how best to ‘make that stick’.

If you are intending to do work on land which may infringe a restrictive covenant, or wish to stop work that may infringe, it is worth taking appropriate legal advice on whether there is scope for the proposed developer to work around or within the apparent restrictions.

Tim Brookes has gathered a wealth of experience advising clients on the interpretation and enforceability of many restrictive covenants.