Education Charity Overcomes Restrictive Covenant in College's Title Deeds

Restrictions on the use to which properties can be put are often to be found in their title deeds and, in some cases, can have a dramatic impact on their value. A High Court case on point concerned the future of a further education college that was already struggling financially when it closed at the height of the COVID-19 pandemic.

The college's owner, a charity, was bound by a restrictive covenant which required it to use the property for no purpose other than that of a further education college. That embargo could, however, be overcome if the local council provided confirmation in writing that it was satisfied that the Learning and Skills Council (LSC), or any successor to that body's functions, had properly determined that there was no longer a functional need for a college in the relevant town.

The council's refusal to provide such written confirmation had left the charity with a vacant building of very limited value in that it could be sold only for use as a further education college. It launched proceedings with a view to selling the property free from the covenant and using the proceeds to further its wider educational objectives.

Ruling on the matter, the Court noted that the LSC had ceased to exist. The charity had, however, received confirmation from the Education and Skills Funding Agency (ESFA) that there was no functional need for a college in the town to serve students aged between 16 and 19. It was unable to provide such confirmation in respect of leisure provision for older students because that fell outside its funding remit.

The Court was satisfied that, for the purposes of the covenant, the ESFA was the functional successor to the LSC. Whilst the confirmation that the ESFA had provided to the charity was incomplete, in that it did not embrace older students, it was nevertheless a determination that satisfied the requirement of the covenant.

The council could not rationally conclude that the ESFA's determination was itself irrational or otherwise unsatisfactory. It was required to accept that it should be satisfied that the determination was properly made and covered the issue of functional need for a college in the town.

The power conferred on the council by the covenant was one of review only and it had neither an absolute discretion to withhold the written confirmation required nor an absolute veto over the proposed sale. On the basis that the ESFA's determination had been properly made, the council was obliged to provide such confirmation.

The Court noted that the college's history of significant financial losses, even prior to the pandemic, rendered it beyond doubt that its continuation in its current form was not a viable option. Simply put, the users of the college had themselves decided that its services were no longer necessary in that they were not prepared to pay enough for their courses to cover its operating costs.