Building Schemes Law Clarified
Published February 2017
The enforceability of restrictive covenants by and against successors in title of the original parties (‘transmissibility’) under a ‘building scheme’ (i.e. a scheme of mutually enforceable covenants covering a defined area) remains one of the more complicated areas of property law. The two familiar prerequisites for a scheme, derived from Jamaica Mutual Life Assurance Society v Hillsborough Ltd  1 WLR 1101, are simple enough to grasp: (i) the clear identification of the scheme area (ii) an acceptance by each purchaser of part of the lands from the common vendor that the benefit of the covenants will enure to the vendor and to others, and that the vendor will enjoy corresponding rights against the other purchasers. But the practical application of the criteria is often more difficult.
The first significant case on building schemes to reach the Court of Appeal for over 20 years Birdlip Ltd v Hunter and another  EWCA Civ 603 provides welcome clarification, particularly of the evidential requirements necessary for the establishment of a scheme.
The question of enforceability arose because Birdlip wished to build two extra houses on a plot on which a house had been built in about 1910 – shortly after a series of covenants had been imposed on the land. Birdlip’s neighbours, the Hunters, could not rely on annexation of the covenants. This left them with the possibility of establishing a building scheme – as to which, on an initial view, the evidence might have seemed promising for the Hunters.
The Hunters could point to:
- Contemporaneous plans showing the estate. Although the 1910 conveyance of Birdlip’s land did not show the defined area within which the scheme was intended to operate, nor did its words allow its identification from extrinsic evidence, nevertheless, two original agreements for sale (which preceded the conveyances of 2 of the other plots within the ‘estate’) were available. They were dated 1908 and 1914. The reverse of each of these agreements contained a plan and a prominent note on the face of the plan, which read ‘The Estate Boundaries are edged in red, and the sites as at present staked out for sale are colored (sic) pink’. The 1910 Birdlip conveyance land fell squarely within the estate boundaries as shown on these plans
- Clear evidence from these agreement plans, of the prior lotting of an apparently defined area (prior lotting being one of the badges of a building scheme and often considered to be cogent evidence of an intention for the covenant to be for the common benefit of purchasers)
- The fact that the covenants had been in existence for over 100 years and a local ‘Covenants Association’ had been successful in upholding the covenants – including in two cases in the 1970s and 1990s, in the Lands Tribunal.
However, an apparent obstacle for the Hunters was that the plan of the estate attached to the 1908 agreement differed significantly from the 1914 agreement plan; yet each was described unambiguously on its face as showing ‘the Estate Boundaries’.
One of Birdlip’s key points therefore was that it was now impossible for the Hunters to prove a defined geographical area in which the scheme was to operate. How could it be said that the 1910 conveyance would have been preceded by an agreement containing a version of the 1908 plan, as opposed to a version of the plan as attached to the 1914 agreement? And if it could not now be proved on the balance of probabilities which (if any) of the two available versions of the estate plan was attached to the agreement which must have preceded the 1910 conveyance, how could the Hunters satisfy the primary requirement of showing a known, defined area in which the scheme was to operate?
The Court of Appeal Judgment
The CA granted a declaration that Birdlip’s land was not burdened by a building scheme. Lewison LJ found that the major stumbling block to the existence of a scheme was the different definitions of the geographical areas of the ‘estate’ when comparing the 1908 agreement plan and the 1914 agreement plan. Lewison LJ concluded that the judge’s speculation as to the fact that a version of the 1908 plan would have been attached to the 1910 conveyance was ‘…no more than speculation which went far beyond permissible inference…’. Furthermore, the reason why mutuality could not be shown (i.e. whether the plan differences were the result of a mistake or not) was not relevant.
But the decision is not one which turns only on its own particular facts. One of the issues which, pre Birdlip, was unclear, was the extent to which intention could be proved from extrinsic evidence. In a passage which might be said to restrict significantly the possibility of relying on extrinsic evidence, Lewison LJ stated:
’25. One would have thought, a priori, that in the case of a scheme of mutual covenants designed to last potentially for ever, that that intention would be readily ascertainable without having to undertake laborious research in dusty archives searching for ephemera more than a century old. In almost all cases to which we were referred where a scheme of mutual covenants was found to exist, the area of land to which the scheme applied was ascertainable from the terms of the conveyance or other transactional documents in question. Conversely where the conveyance or other transactional documents gave no indication of the land to which the scheme applied, no scheme was found.’
He then reviewed a series of cases starting in 1878, up to the Jamaica Mutual case in 1989, and concluded:
’37. Thus far, the cases in which schemes of mutual covenants have been found to exist have been cases where there is something in the conveyance or other transactional documents to alert a purchaser to the existence of a scheme. However, there are undoubtedly statements in the cases that the existence of a scheme may be inferred purely from the circumstances surrounding the initial sales…’.
But as Lewison LJ pointed out, the cases in which the wider statements regarding inference had been made, tended to be cases such as auction sales, where the surrounding circumstances at the time of the first sale off, showed that there was ‘no point in …taking restrictive covenants (which he [i.e. the common vendor] will not be able to enforce) unless they were intended to be mutually enforceable by the purchasers…’ . He further doubted whether a scheme could ever be proved by extrinsic evidence alone.
The importance of Lewison LJ’s explanation is that it shows that the correct approach to determining the existence of a scheme is to focus primarily on the terms of the conveyance itself – particularly if no other contemporaneous transactional documents are in fact available in relation to the particular plot conveyed.
Thus whilst the textbooks may tell us that whether a scheme exists or not is: a question of fact to be determined from the terms of the titles and all the relevant circumstances surrounding the sales by the common vendor, Birdlip shows that this does not mean that a scheme can be proved by speculative or indirect evidence, nor by reliance on inference from vague surrounding circumstances and’ probably never from surrounding circumstances alone. This clarity is good news for those seeking certainty in this area of law.
The following key conclusions may be drawn from Birdlip
- The CA was anxious to point out the overriding need nowadays for purchasers of land potentially burdened by a scheme to be able easily to ascertain its existence and geographical extent from the conveyance itself or, other transactional documents. This in a sense chimes with the modern approach to annexation of restrictive covenants, exemplified in Crest Nicholson v McAllister  1 All ER 46, where Chadwick LJ set out the clear policy reasons of certainty which dictated that s78(1) of the LPA 1925 annexes the benefit of covenants only to such land as the conveyance has identified by express words or necessary implication.
- Statements in some earlier scheme cases suggesting that the intention of the common vendor to establish a scheme can involve a consideration of a wide range of evidence, must now be viewed with caution. The starting point is always the conveyance itself and the transactional documents – if available. Extrinsic evidence may have a role to play – but it is a secondary one and, it is certainly very doubtful that a scheme can ever be established from extrinsic evidence alone.
- In considering extrinsic evidence, there is a clear distinction between permissible inferences and impermissible speculation – which those of us who advise clients on enforceability questions should always keep in clear focus.
Martin Hutchings QC acted for the successful appellant in Birdlip v Hunter