Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594

A developer divided a larger development site into coloured areas. Federated Homes acquired the green and red land, while Mill Lodge acquired the blue land under a transfer containing a restrictive covenant that no more than 300 dwellings would be built there. The covenant was expressed to benefit the green and red land. When Mill Lodge proposed 32 further homes, Federated Homes sought an injunction to enforce the restriction. Mill Lodge argued that Federated Homes did not have the benefit because there had been no effective annexation or assignment. The dispute required the Court of Appeal to decide whether section 78 of the Law of Property Act 1925 merely supplied statutory wording or itself attached the covenant's benefit to identifiable land.

Does section 78 of the Law of Property Act 1925 automatically annex the benefit of a restrictive covenant to identifiable benefited land unless the instrument shows a contrary intention?

The Court of Appeal dismissed Mill Lodge's appeal and held that Federated Homes could enforce the covenant. Brightman LJ explained that section 78 is capable of annexing the benefit of a covenant to each and every part of the land intended to be benefited, rather than merely repeating words that conveyancers might otherwise insert. The benefited land was sufficiently identified by the transfer and the covenant was expressed for its benefit. No separate chain of express assignments was therefore needed when Federated Homes acquired that land. Statutory annexation remained subject to the wording of the instrument: section 78 could not attach the benefit where no benefited land was identified or where a contrary intention displaced its operation.

Section 78 of the Law of Property Act 1925 may automatically annex the benefit of a restrictive covenant to land that the covenant is intended to benefit. The benefited land must be ascertainable, and the deed may exclude or qualify statutory annexation through a contrary intention.

The decision simplified transmission of the benefit of restrictive covenants and reduced dependence on repeated assignments. It is normally analysed with Tulk v Moxhay on the equitable running of the burden and Crest Nicholson v McAllister on the need to identify benefited land. Annexation concerns the benefit, not the burden, and does not make positive covenants run with freehold land. The result also differs from a building scheme, for which cases such as Elliston v Reacher impose separate conditions. In problem questions, students should identify the benefited land from the original covenant rather than from later assertions by a successor.