Superyacht Builders Successfully Challenge Dockyard Restrictive Covenant

Covenants that restrict the use of land are commonly encountered in a domestic context – to maintain scenic views, rights of way and the like – but can also be used to protect business interests. In one case, a tribunal analysed a covenant that banned boat building in part of a dockyard.

The dockyard was subject to an array of leasehold and freehold interests and was shared by a company that specialised in building and repairing superyachts and other pleasure craft, and various shipbuilders whose stock-in-trade was the construction of commercial and military vessels.

As part of its expansion, the company had invested £8 million in creating a 2.3-acre sheltered basin in which vessels could be berthed as they were worked on. The basin was, however, subject to a restrictive covenant that banned boat building in the area. The covenant had been put in place to protect the shipbuilders’ interests.

The company was concerned that the covenant meant that it could not use the basin for constructing new vessels, but only for repairing or restoring old ones. The problem was pressing as it had recently signed a £10 million contract for a brand new yacht and intended to use the basin for the final stages of the project.

The company asked the Upper Tribunal (UT) to exercise its powers under the Law of Property Act 1925 to modify the covenant, but encountered stiff resistance from the shipbuilders. They were concerned that, if the company or any future occupier of the basin diversified into commercial or military shipbuilding, they would lose customers.

Ruling on the dispute, the UT had no doubt that the covenant needed to be modified to take account of changing circumstances in the dockyard. It was rewritten so as to enable the company to build or repair yachts or pleasure craft of any size in the basin. However, a restriction on the basin being used for commercial or military shipbuilding was kept in place on the basis that it secured practical benefits of substantial value to the shipbuilders.

Pendennis Shipyard (Holdings) Limited & Anr v A&P Falmouth Limited & Ors.