Mackenzie v Cheung & Anor: Empowering Grantors to Modify Covenants

Introduction

Mackenzie v Cheung & Anor ([2024] EWCA Civ 13) is a pivotal Court of Appeal case in England and Wales that deals with the enforceability of restrictive covenants and the authority of grantors to modify such covenants post-sale. The case involves Mr. Neil Mackenzie, the owner of property at 432 Selsdon Road, Croydon, and Ms. Sharon Cheung, along with Infinity Homes & Developments Limited, owners of 444 Selsdon Road. The central issue revolves around whether the Whitgift Foundation, the original grantor of the land, can authorize the development of Number 444 in a manner that breaches existing covenants.

Summary of the Judgment

The Court of Appeal dismissed Mr. Mackenzie's appeal, upholding the lower court's decision. The judgment affirmed that the Whitgift Foundation possessed the authority to release or waive the restrictive covenants originally imposed in the 1947 Conveyance. Consequently, the proposed development of Number 444 into nine flats, facilitated by the Deed of Modification, does not constitute a breach of covenant or a derogation from grant. The Court emphasized the correct interpretation of paragraph 11 of the Third Schedule to the 1947 Conveyance, which grants the Foundation the power to allow departures from existing stipulations.

Analysis

Precedents Cited

The judgment extensively referenced key precedents to support its stance on covenant modification and the rights of grantors:

Whitgift Homes Ltd v Stocks [2001] EWCA Civ 1732: Established that in the absence of a building scheme, restrictive covenants are enforceable by current property owners within the estate.
Crest Nicholson Residential (South) Ltd v McAllister [2004] EWCA Civ 410: Highlighted the developer's desire to retain control over covenant modifications without needing consent from multiple parties.
Mayner v Payne [1914] 2 Ch 555: Demonstrated the interpretation of reservation clauses allowing grantors to modify stipulations.
Wood v Capita Insurance Services Ltd [2017] UKSC 24: Emphasized the importance of objective language in contract interpretation.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896: Discussed the ascertainment of document meaning based on objective understanding.

Legal Reasoning

The Court's legal reasoning centered on the interpretation of paragraph 11 of the Third Schedule to the 1947 Conveyance. The key points include:

Objective Interpretation: Following principles from Wood v Capita and Investors Compensation Scheme Ltd v West Bromwich, the Court focused on the objective meaning of the language used in the conveyance.
Distinct Functions: The judgment distinguished between the two parts of paragraph 11, interpreting the second part as granting the Foundation the ability to waive or release existing covenants, separate from its dealings with future plots.
Avoiding Redundancy: It was reasoned that the second part of paragraph 11 serves an additional purpose and does not merely reiterate the first part, preventing redundancy in granting the Foundation additional powers.
Consistency with Precedents: Aligning with cases like Crest Nicholson and Mayner v Payne, the Court upheld the notion that developers retain the authority to manage and modify covenants to maintain control over estate development.
Doctrine of Derogation from Grant: The Court dismissed concerns that the Deed of Modification constituted a derogation from grant, citing that the reserved power to modify covenants was inherent and did not violate existing legal principles.

Impact

The judgment has significant implications for property development and covenant enforcement:

Empowerment of Grantors: Establishes that grantors can retain and exercise the power to modify restrictive covenants, providing flexibility in managing estate development.
Clarity in Covenant Modification: Offers clarity on how specific clauses within conveyances can be interpreted to allow or restrict flexibility in covenant enforcement.
Influence on Future Cases: Sets a precedent for courts to uphold the reserved powers of grantors in similar contexts, potentially affecting how developers negotiate and structure covenants in property sales.
Balance Between Restriction and Development: Strikes a balance between maintaining the intended character of estates through covenants and allowing necessary modifications for practical development needs.

Complex Concepts Simplified

The judgment involves several complex legal concepts. Here's a simplified explanation:

Restrictive Covenant: A legal agreement that imposes certain restrictions on the use of land. In this case, the covenant originally prohibited building flats on the land.
Deed of Modification: A legal document that modifies the terms of an existing agreement. Here, it attempts to alter the original covenant to allow the development of nine flats.
Paragraph 11 of the Third Schedule: A specific clause in the original land sale agreement that gives the Whitgift Foundation the authority to permit deviations from the established covenants.
Derogation from Grant: A legal principle preventing a party from taking away a benefit that was granted to another party. The Court determined that modifying the covenant does not violate this principle.
Building Scheme: A set of covenants applicable uniformly across multiple properties in a development. If such a scheme exists, all property owners within that scheme can enforce each other's covenants.

Conclusion

The Court of Appeal's decision in Mackenzie v Cheung & Anor underscores the authority granted to original landowners or their successors to modify restrictive covenants as necessary. By upholding the interpretation that allows the Whitgift Foundation to waive existing restrictions, the judgment provides a clear framework for future property developments where similar covenant modifications may be required. This balance ensures that while the intended use and character of estates are maintained, there remains sufficient flexibility to accommodate evolving development needs.