Property Development: Whether an agreed restriction on title can be removed, permitting a development to proceed

Where parties have entered into a development agreement subject to a restriction, can the court order removal of the restriction by way of interim remedy to permit the development to proceed?

The background

In Quay House Admirals Way Land Ltd and another v Rockwell Properties Ltd [2022], the parties entered into a development agreement over a valuable site. The defendant’s interest was protected by way of a restriction on the claimant’s registered title and the parties covenanted to act in good faith, to use reasonable endeavours to obtain development funding and to assist each other in completing the funding arrangements.

Following a dispute, the claimant wished to terminate the development agreement on the basis of the developer defendant’s purported breach of covenant. The restriction on the register prevented the claimant from continuing with the development, as lenders could have been prevented by the Defendant to receive good title following completion. The defendant denied having breached the terms of the agreement, argued that it had not been terminated and refused to remove the restriction on the basis that the agreement did not contain express provisions to do so.

On application to the court for removal of the restriction, a trial date was set for 18 months later. Such a delay may have, in the view of the claimant, caused the project to collapse entirely, and a further application was therefore made for an interim removal of the restriction pending the later trial.

The decision

The High Court concluded that it had jurisdiction to order the removal of the restriction, and granted the interim remedy requested.

Looking at the practicalities, the court found that waiting until the trial date could result in the collapse of the project as no lender would consider starting due diligence until the restriction was dealt with.

With no express provision contained in the agreement, the court addressed whether a term could be implied to remove the restriction and permit lending to proceed.  This was rejected by the court on the basis that the ‘officious bystander’ test laid down in Southern Foundries (1926) Ltd v Shirlaw [1940], addressing when a term could be implied into a contract, could not be satisfied.

The court did, however, agree that the covenant to act in good faith applied and obliged the defendant to remove the restriction on title. Having concluded that it had jurisdiction to do so, removal of the restriction was ordered by the court.

Advice and action for landlords

This decision addresses a number of issues of interest to developers and landlords, in particular that interim remedies may be available to parties in dispute in order to assist in a commercial objective and, further, that the court did possess jurisdiction to remove restrictions from the title register.

The application of the ‘good faith’ provision in the agreement provides useful guidance on how these obligations may work in practice, supporting the court’s interpretation or implication of a term which, without the good faith provision, it may reject.