Restrictive Covenants - are leaseholders’ property interests relevant?
15th September 2020
15th September 2020
The Court of Appeal has recently decided the case of 89 Holland Park Management Limited -v- Hicks  EWCA Civ 758, a long-standing (and ongoing) dispute between the owners of 89 Holland Park (“the Building”) and an award winning architect who intends to develop a plot of land at the rear of the Building (“the Site”). Specifically, the case looks at whether the interests of the leaseholders, as distinct from the freehold owner of the Building, could be taken into consideration, as well as other matters, when considering a request for consent for works pursuant to a restrictive covenant affecting the Site.
89 Holland Park is a large detached Victorian building divided into five flats, each held on long leases. The freehold is owned by 89 Holland Park Management Limited (“the Company”), and each of the leaseholders own a share in the Company. The Company retains ownership of the common parts and external structure of the Building, otherwise its only interest in the Building is as reversioner.
Originally both the Building and the Site were in common ownership. In 1965, Brigadier W.B. Radford transferred the Site into separate ownership, to Ms De Froberville (“the 1965 Transfer”). At that time, each of the flats in the Building were let out on short contractual or statutory tenancies. By the 1965 Transfer, Ms De Froberville agreed within 2 years to build on the Site a building for which Brigadier Radford had obtained planning permission. The 1965 Transfer also contained a number of other covenants, said to be for the benefit of “the Vendor’s property known as 89 Holland Park...”.
Ms De Froberville did not comply with the 1965 Transfer and in 1968 the obligations were varied to give Ms De Froberville a further 18 months to complete the development. Ms De Froberville entered into further agreements taking effect as restrictive covenants not to :-
Make any applications for any other planning permissions unless the plans, drawings or specifications have previously been approved by the owner of the Building; and
Commence any work on the Site until the plans, drawings and specifications have first been approved by the owner of the Building.
Ms Hicks acquired the Site at auction in December 2011. By that time, the Building had become vested in the Company and the long leases had been created.
Ms Hicks’ request for consent
The first dispute between the parties concerned the enforceability of the above covenants, and the question of whether consent by the Company could be unreasonably withheld. In 2013, the High Court decided that both the Company and the leaseholders were able to enforce the covenants, but that it was necessary to imply a proviso that consent could not be unreasonably withheld.
In October 2013, Ms Hicks applied to the Company for consent for proposals which were refused by the Company. In 2016, she applied for consent a second time based on revised proposals for a new building, which included a single storey entrance glass pavilion.
The Company refused consent under four headings : (1) Architectural design, aesthetics and heritage; (2) Trees; (3) Loss of amenity during the works; and (4) Construction issues.
Under the first heading, the Company said that the proposals were out of keeping with the Building and the Radford Estate, and that the “glazed dome” pavilion was not an attractive choice (being described by the Planning Inspector as “a somewhat alien feature”). The Company’s letter of refusal went on to explain its reasons under each heading in more detail.
Ms Hicks applied to Court and, at first instance, the Court decided that the Company should only be concerned with what affected its revisionary interest as freeholder. Therefore, if what was proposed had no impact on the Company’s property interests, then generally it was not able to refuse consent. As the Company’s only interest was in the common parts and external structure of the Building, it was not able to refuse consent on the grounds of aesthetics or other grounds put forward by the Company, as those grounds had nothing to do with the protection of the Company’s property. As such, the Company was not entitled to take into account the interests of the leaseholders, when considering the request for consent.
The Court of Appeal’s decision
The Court of Appeal disagreed. The Court of Appeal said it was necessary to identify the land that the covenant was said to benefit. In this instance, the covenants given by Ms De Froberville in 1965 (and in 1968) was “the Vendor’s property known as 89 Holland Park...”. In 1965, the Building as a whole was owned by Brigadier Radford. The covenant was not limited to the Vendor’s property interests, but the Building as a whole. Accordingly, the Court of Appeal held that the Company was entitled to take into account the interests of the leaseholders, when deciding whether or not to grant consent.
Further, the Court held that, contrary to the High Court’s decision, aesthetic objections may be valid grounds to withhold consent. The Court said that a broad view had to be taken of what amounts to a practical benefit secured by a restrictive covenant, and this is not necessarily limited to any diminution in value of the land with the benefit of the covenant.
Although the Court of Appeal found that the Company’s letter of refusal presented a rational case, the question was whether or not the grounds for refusal were reasonable. That was a question to be decided by the High Court and the case was remitted back to the High Court to decide. Therefore, sadly for the Company and for Ms Hicks, the saga (and costly litigation) continues.
If you have any queries on this update, please contact Faye Didcote at Faye.Didcote@kdllaw.com or on 01435 897297.
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