Bedford Square Properties (Pty) Ltd v Erf 179 Bedfordview (Pty) Ltd

Bedford Square Properties (the appellant) applied to the Ekurhuleni Metropolitan Municipality to remove restrictions and rezone its properties for mixed use development including a shopping centre. Erf 179 Bedfordview (the respondent) and Liberty Properties Ltd (owners of nearby shopping centres Bedfordview and Eastgate) appealed to the Gauteng Townships Board. The parties settled the appeal, and as part of the settlement agreement, servitudes were registered on 21 June 2004 over Bedford Square's properties. These servitudes prohibited Bedford Square from letting retail space to Woolworths or Mica Hardware for eleven years from 4 November 2003, in favour of the dominant tenements (Eastgate and Bedfordview properties). Bedford Square subsequently sought a declaratory order that enforcement of the servitudes was contrary to public policy and requested their cancellation.

• Whether the principles applicable to contractual restraints of trade apply to servitutal restraints of trade
• Whether praedial servitudes in restraint of trade can become invalid due to changed circumstances
• Whether a court has jurisdiction to cancel registered servitudes on public policy grounds
• Whether the validity of a servitutal restraint must be determined at inception or at the time of enforcement
• Whether rules regarding contracts in restraint of trade can be applied to praedial servitudes

The appeal was dismissed with costs, including the costs of two counsel.

The rules applicable to contracts in restraint of trade cannot be applied without modification to praedial servitudes. The essence of a contractual restraint of trade is that it restrains the trading activity of a particular person, whereas a servitutal restraint restricts the use of a particular piece of property, not the activity of a particular person. Where a servitutal restraint of trade was initially valid, a party seeking to have it declared invalid on public policy grounds bears the onus of proving changed circumstances that render the servitude contra bonos mores. A purchaser of property subject to a registered servitude acquires diminished ownership rights and cannot escape the consequences merely by alleging that enforcement is contrary to public policy without proving material changed circumstances.

The court observed that if the case had been brought in the wrong forum (as initially contended), questions regarding whether the restraint conflicted with the Competition Act 89 of 1998 could not be considered by the High Court or Supreme Court of Appeal. The court commented that such compartmentalization of legal doctrines and divided jurisdiction "cannot do the rule of law any good if different results may follow depending on which court system has to deal with the matter." The court also stated (obiter) that it would have thought that something contra bonos mores and against public policy is by definition unlawful, and assumed for argument's sake that it might be possible to envisage cases where a real right could in the course of time become invalid because its enforcement would be against public policy, though none was conceived by counsel.

This case establishes important principles regarding the distinction between contractual and servitutal restraints of trade in South African property law. It clarifies that the flexible approach to contractual restraints of trade (which permits assessment at the time of enforcement) does not automatically apply to praedial servitudes. The case reinforces the proprietary nature of servitudes as real rights that bind property rather than persons, and establishes that different legal principles govern their validity. It also confirms that servitudes in restraint of trade protecting commercial interests such as anchor tenants are recognized as legitimate commercial arrangements. The judgment has significant implications for shopping centre development and commercial property transactions involving restrictive servitudes.