Non-derogation from grant: relevance of the circumstances at the time of the transaction

In Harmer v Jumbil (Nigeria) Tin Areas Ltd ([1921] 1 Ch 200, CA (Eng)) L granted T a lease of certain land for the purpose of storing explosives. L owned nearby land which had been used for tin mining but it was assumed that the mines had been worked out. T needed a Government licence to store explosives and it was a condition of the licence that there would be no buildings within prescribed distances. L’s successor granted a lease of the nearby land and the tenant of that land started to work the mines and proposed to erect buildings so close to the explosives store as to breach the terms of the explosives licence. T sought and was granted an injunction to prevent the building work during the term of the current licence on the basis that this would be a breach of the covenant not to derogate from grant.

Younger L.J. explained that the principle ‘merely embodies in a legal maxim a rule of common honesty.’ (p. 225). He continued:

‘The obligation … must in every case be construed fairly, even strictly, if not narrowly. It must be such as, in view of the surrounding circumstances, was within the reasonable contemplation of the parties at the time when the transaction was entered into, and was at that time within the grantor’s power to fulfil.’ (p. 226).

The act complained of did not need to involve any physical interference with the demised property.

Here both parties knew that the lease was of property to be used to store explosives. T knew the precise terms of the licence while L could at least be taken to have known that a licence was needed and that it would impose some restriction on proximity to other buildings. In these circumstances, the scope of the implied covenant was such as to prevent the use of L’s retained land for building works during the term of the current licence.

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