2011 Q3 Conveyancing Periodical - Gazanging and Hopping

October 2011

by Paul Butt

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Well, we have had 'gazumping' (where a seller accepts a rival buyer's higher offer part way through a transaction) and 'gazundering' (where a buyer reduces the price offered) and now it appears we have 'gazanging'. This is the situation where a party - usually the seller - backs out of the transaction at the last minute, leaving everyone else in the chain 'hanging'.

On 19th September 2011, The Daily Telegraph reported the results of a recent survey which showed that an estimated 54,000 people were 'gazanged' in the first six months of this year. And the causes of gazanging - well, according to Phil Spencer, 'broadcaster and property expert', it's the fault of the poor conveyancer: "There are lots of reasons why gazanging has started to happen. One of the biggest frustrations is the drawn out conveyancing process and in particular the bad service often experienced. Ask the vast majority of buyers what it was like and they will tell you conveyancing took longer than expected, cost more than they planned and that they felt confused".

Bad service, of course, can never be justified, but conveyancers really ought to make clear to clients that buying a house is not as simple and straightforward as buying a tin of beans at the supermarket, whatever they may have been told by property experts.

So conveyancers are at fault in failing to explain the process to clients. And one of the issues that frequently causes problems and delay in a 'simple' house purchase is that of covenants.

Many properties are subject to covenants restricting the use to which the property may be put. These covenants are binding upon the present and future owners of the land and, if broken, can be enforced by actions for damages or for an injunction. So if a covenant says that the land can only be used for agricultural purposes and it now has a house erected on it, an injunction might be obtained against the present owner (or a purchaser) ordering the restoration of the site to agricultural use or the payment of compensation.

Also common are covenants not to build or make alterations without the consent of a named person. But what if that particular named person is now dead - or, if a company, has been wound up. What effect does that have on the covenant?

There are various possibilities:

  • Consent must now be obtained from the current owner(s) of the benefited land
  • The Covenant is now defunct as consent can no longer be obtained and so the work etc can be carried out without consent
  • The Covenant now becomes an absolute prohibition as consent is now impossible

Unfortunately it is a question of the construction of the covenant in each particular case as to which is the correct answer.

These covenant problems frequently cause disputes between seller and buyer in a conveyancing transaction. And a dispute often translates into a delay in the transaction.

In each case, the buyer (and buyer's lender's) conveyance will want to protect his/her client against any court action and will insist on an indemnity policy to protect against any possible claim. The seller's conveyancer may well think that he/she is protecting the seller's interests - and pocket - by refusing to pay for such a policy

A recent case - Churchill v Temple and others [2010] EWHC 3369 (Ch) - shows how difficult it can be for the courts to decide between the various options, let alone a poor conveyancer in the midst of a conveyancing transaction.

The facts

The claimant, (Mr Churchill) acquired a plot of land in Radlett in Hertfordshire that had originally been sold by Mr and Mrs S (the vendors) in 1967. At that time, the plot was described as a building plot and the plan accompanying the conveyance included the outline of a proposed house that was subsequently built.

The purchasers, on behalf of themselves and their successors, covenanted as follows:

"3. Not to erect or maintain on the land hereby conveyed any building other than a single private dwellinghouse with or without garages or other usual outbuildings and/or garden sheds and greenhouses

4. No dwellinghouse shall be erected or maintained upon any part of the land hereby conveyed which shall not be in accordance as to situation character elevation workmanship materials sewers drains and other sanitary works with plans elevations and specifications which previous to the erection of such dwellinghouse shall have been submitted to and approved in writing by the vendors or their surveyor such approval however not to be unreasonably withheld

5. Not to make any structural alteration or addition to a permitted dwellinghouse without the written consent of the vendors or their surveyor."

Later in 1967, the Vendors sold their property to a third party, who sold it on to the first and second defendants in 1995. The vendors died in 2002 and 1989 respectively.

Mr Churchill subsequently acquired the building plot and wanted to demolish the existing house and erect a new one. As is often the case, the defendants, his neighbours, objected to his plans. A dispute thus arose between Mr Churchill and the defendants who alleged that they now had the right to enforce the covenants. Mr Churchill applied to the court for declarations concerning the enforceability, meaning and effect of the restrictive covenants in the conveyance.

The court was asked to decide whether: (i) the requirement in the conveyance for the approval or written consent of the vendors or their surveyor should be construed as including their successors in title; and if not, (ii) whether the effect of the vendors' death was to free the purchasers from the need to obtain consent or whether it was to make it impossible for them to obtain such consent so that the prohibitions became absolute covenants prohibiting building or alterations of an existing building.

The judge, (Mr Nicholas Strauss QC, sitting as a deputy High Court judge) looked at numerous earlier decisions of the courts on similar facts. He said that in deciding whether the restrictive covenants were to be construed as requiring the vendors' successors in title consent, it was important to bear in mind that the issue of construction arose long after the contract was entered into and between parties who were not the original parties to the contract. It is then usually impossible to know what were all the facts known to the parties, which a court would normally have regard to, because the parties are not there to provide the evidence.

Further, it was always necessary to keep in mind the position of both parties. It was not sufficient just to consider what the vendor might have wanted to achieve. The resulting covenant may thus represent a compromise. It is therefore not surprising to find covenants which are not altogether logical from the point of view of either party, or do not entirely achieve the probable aims of either of them.

In this case, reading the covenants in accordance with their literal terms, restricting the right to withhold consent to the original vendors, made good sense. Thus construed, the covenants represented a reasonable balance between both parties' interests. Further, the structure of the provisions in question suggested that what the parties had in mind was control in the short term to prevent an inappropriate house being built or, once built, inappropriately altered to circumvent some earlier objection. In all the circumstances, the term "the vendors" in the relevant provisions meant only the original vendors and not their successors in title.

Equally, because the provisions were only intended to operate in the short term, the parties cannot sensibly be taken to have intended that the purchaser or his successors would be unable to make any structural alteration, at any time in the future.

Accordingly, the covenants were discharged by the deaths of the original vendors and so Mr Churchill was entitled to carry out the works he intended without the need for consent - but at what financial cost to all concerned?

But, as stated, each case depends upon its own facts and the wording of the particular covenant in question, so this decision cannot be relied upon in every case.

Don't Forget to HOPP!

In many cases, of course, taking out an appropriate indemnity policy will be sensible protection. For those buying a Home Owners' Protection Policy, for example, problem covenants can be added as a 'known risk', at no extra cost. And the benefit of this known risk cover will pass to successors.

If such policies were taken out in respect of every property, as well as their other benefits, maybe there would also be fewer complaints from property experts about delays in the conveyancing process!

Paul Butt LLB is a Solicitor and a Consultant with Rowlinsons Solicitors, Frodsham

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