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8.1.2 Freehold and Restrictive Covenants Lecture

With leasehold covenants, a covenant regulates the use of land in some way.

This raises questions as to whether the new owners of the land are bound by the promises made by the previous owners.

The burden of a covenant

The ‘burden’ of a covenant refers to the land which has the obligation to do, or not to do in the case of restrictive covenants, something. For example, for a covenant to keep the grass short, the owner of that land has the ‘burden’. The ‘running’ of the burden refers to whether a new owner of the land has to abide by the covenant.

The general rule at common law

The basic rule is that the burden of a covenant in relation to land does not run with the land at common law (Austerberry v Corporation of Oldham(1995)). This follows the basic rules of privity of contract.

Case in focus:Rhone v Stephens [1994]

Circumventing the general rule

As you can see, the fact that positive covenants cannot be enforced leaves covenantees without a remedy. Here are some quick examples of ways which this may be circumvented:

  • A chain of indemnity covenants.
  • To lease the land instead of selling it, and replicate the covenants in the tenancy agreement.

The best way of enforcing a positive covenant is through equity.

The general rule at equity

The leading case of Tulk v Moxhay [1848] created a certain set of circumstances which would result in the burden of a covenant running.

Case in focus: Tulk v Moxhay [1848]

When using the case of Tulk v Moxhay, four requirements must be satisfied.

The covenant must be negative

The test for whether a covenant is negative or not is whether they will have to pay anything to comply with the covenant (Haywood v Brunswick Permanent Benefit Building Society(1881)).

At the date of the covenant, it must be made to benefit the dominant land

Case in focus: London County Council v Mrs Allen[1914]

The best way to understand this rule is by reference to the London County Council case.

The covenant must touch and concern the dominant land

The covenant must benefit the dominant land. Usually, this test falls down to how far away the dominant land is from the servient land (Kelly v Barrett [1924]).

Case in focus: Newton Abbot Co-operative Society Ltd v Williamson and Treadgold(1952)

The covenant must be made with the intention to burden the servient land

There is a distinction to be had between covenants that are intended to bind only the covenantor, and those which are intended to bind the land itself and subsequent owners.

The operation of privity of contract in covenants – binding the original parties

It is important to know that the original parties to a covenant will be bound by the covenant, regardless of any sale of the land. This follows the principles of privity of contract.

Furthermore, S56 of the LPA 1925 explains that any person can take the benefit of a covenant despite not being named as a party to the conveyance or other instrument.

Similar to the above exploration of S79, this presumption under S56 can be rebutted (Re Ecclesiastical Commissioners for England’s Conveyance [1936]).

A covenant is not only restricted to owners or successors in land. A generic class of persons can be referred to, such as ‘the owners of all of the houses on this street’. However, the rule is that only those persons who are identifiable and in existence at the date of the covenant can claim under S56.

Changes implemented by the Contracts (Rights of Third Parties) Act 1999

Essentially, this piece of legislation removes the requirement that the third party wishing to enforce the benefit of a covenant must be in existence at the time of the covenant.

This only applies to covenants made after 11 May 2000. If so, and one of these requirements are met, a third party may enforce the covenant:

  1. The covenant expressly states the third party
  2. The third party is identified by name, a member of a class or a particular description (they do not need to be in existence).

The benefit of a covenant

Benefit of a covenant at common Law

Similar to the burden of covenants, there are four clear requirements:

The covenant must ‘touch and concern’ the land

Similar to the rule on the burden of a covenant, there must be some benefit to the dominant land. The test for whether the covenant touches and concerns the land was formed in P & A Swift Investments v Combined English Stores Group [1989] AC 632.

The covenantee must hold a legal estate in the land on the date of the covenant

This requirement is fairly straightforward. Simply, the covenantee must hold a recognised legal estate in the land. This can either be through fee simple absolute in possession or a term of years absolute under S1(1) of the LPA 1925.

The buyer of the land must derive their title from the original covenantee

This test changes dependant on whether the covenant is pre-1926 or post-1926.

The benefit must have been intended to run with the land at the date of the covenant

Again, this requirement is different dependant on whether the covenant is pre or post 1926.

Following these four requirements being met, the benefit of the covenant has passed at common law, meaning the current owner can sue for breach of covenant. If any one of the requirements have not been met, the test fails and the covenantee must look to equity for a remedy.

Benefit of a covenant at equity

There are four different ways in which the benefit of a covenant may run in equity. The first of those is extremely simple, and it is that the covenant must ‘touch and concern’ the land. The other three ways are:

  1. Annexation
  2. Assignment
  3. A building scheme.

Annexation

Annexation is where the benefit of a restrictive covenant is clearly applicable to a defined area of land in such a way that the benefit of the covenant will pass on any transfer of the land. This can be a confusing principle and case law has attempted to clarify it (Federated Homes Ltd v Mill Lodge Properties Ltd [1980]).

Express annexation

In express annexation, the document conferring the covenant will be drafted in such a way that it is clear that the covenant is made the benefit the land and not the covenantee. The covenantee may be mentioned in the document, but as long as the drafting is clearly focussed on the actual land, it will be considered express annexation.

Cases in focus: Renals v Cowlishaw (1879) &Rogers v Hosegood [1900]

The above cases show two covenants with very similar wording, but highlight the importance of identifying a dominant land.

Annexation of large pieces of land

When annexing a large piece of land, you wish to place a covenant over, you can either choose to annex the covenant to only the whole of the dominant land, or to annex the covenant to each and every part of the dominant land.

Disadvantages of annexing to the whole of the dominant land

Re Ballard’s Conveyance [1937] Ch 473 highlights the disadvantage very well. In situations where the servient land is small and the dominant land is large in comparison, there may be an issue in proving that every part of the dominant land benefits from the covenant.

Subdivision of dominant land

Where there has been a successful annexation to a dominant land, then the dominant land is subdivided and sold on, the owners of the subdivided land cannot enforce any covenants attached to the original dominant land (Russell v Archdale [1964] Ch 38).

Disadvantages of annexing to each and every part of the dominant land

After we have discussed the disadvantages of annexing as a whole, it would seem that the obvious choice would be to annex to each and every part. However, as you can imagine, the number of dominant owners could end up being extremely large, which may create problems in itself.

Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 meant that any restrictive covenant entered into after 1925 resulted in an automatic annexation to each and every part of land owned by the covenantee at that point. Crest Nicholson v McAllister [2004] 1 WLR 2409 rejected the Federated Homes reading and held that the dominant land must be mentioned in the conveyance, or identifiable from the surrounding circumstances. It was held that any annexation would be to the whole of the dominant land unless there was an express mention of the covenant being for each and every part.

Assignment of the benefit

The rules of assignment are relevant and helpful where annexation has failed, either through a failure of valid annexation, or where the dominant land has been subdivided where the annexation was only to the whole of the dominant land.

If some kind of assignment seems to have taken place, the requirements of Miles v Easter [1933] Ch 611 need to be met:

The covenant is for the benefit of some identifiable land

This is satisfied if the document conveying the covenant expressly mentions the dominant land, or as per Newton Abbot Co-operative Society, if you can identify the dominant land from the surrounding circumstances

The identifiable land must be benefitted

Earl of Leicester v Wells-next-the-Sea [1972] 3 All Er 77 ruled that the whole of the identifiable land must be benefitted.

The assignee must acquire some of the identifiable land

The assignee need not acquire the whole of the land, but some will be sufficient (Stilwell v Blackman [1967] 3 All ER 514).

The assignment of the restrictive covenant must be simultaneous with the conveyance of the land

This requires that when the piece of land is transferred, there should be an express clause in the transfer document that assigns the benefit of the covenant. However, there are some exceptions to this requirement.

Building schemes

A building scheme is where land is sold or leased in lots/plots, and these pieces of land are subject to benefits and burdens of covenants which the purchasers are subject to and will be mutually enforceable between the current owners. When validly created, all properties are servient and dominant.

The requirements for a building scheme were set out in Elliston v Reacher [1908], and a fifth was added in Reid v Bickerstaff [1909].

Remedies

Contractual remedies

If a covenant is broken, the regular remedies for breach of contract of damages for breach and an injunction preventing breach can be sought under most circumstances. However, a claim for damages cannot be brought against a successor in title because there is no privity of contract (Rhone v Stephens [1994]).

Avoidance of delay

If an individual is seeking an equitable remedy, there must not be any delay when making a claim. Silence to a breach can be considered acquiescence and the right to any remedies under a breach may be lost. Gafford v Graham(1998) 77 P&CR 73.

The LPA 1925 S84(2) declaration

A declaration under S84(2) will establish whether or not a covenant is binding on a person, or the person seeking to enforce it is able to enforce it.

Reform of the law

Issues with the current law

  • The burden of a restrictive covenant does not run at law, but does in equity
  • The rules under equity are complicated
  • The benefit of a covenant runs at law and equity but under different rules
  • The rules are more complicated than the burden rules
  • The annexation and building scheme rules are technical and difficult to apply sometimes

The potential solution

‘Land obligations’ have been suggested as a new type of interest in the land. These obligations may be positive or negative, and they will be registrable interests. This would make them more akin to easements, meaning they will pass with the property and there would be less complications when ascertaining whether they are enforceable or not.


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