Land Law: Covenants

Random-Facts-Free-to-PeeCovenants

A covenant is essentially a promise that is made by deed. Covenants have an incredibly wide span, which means they can cover a wide range of issue. Typical examples of covenants include:

  • Not to build on the land
  • Not to use property for Business purposes
  • To keep the boundary of a fence in good repair

Covenants can either be positive or negative. Negative covenants usually attach themselves to the land, which means that they will bind successors in title when the land is sold. There are two sets of rules for the passing of the benefit and the burden at law, which makes covenants exceptionally complex.

Restrictive Covenants – These types of covenants act to prevent or limit the way a land owner uses their land. Negative Covenants are usually dealt with under the EQUITABLE RULES.

Positive Covenants – These types of covenants will put an obligation on the landowner to do something in relation to their land. Examples of this kind of easement are most common in keeping a fence in good repair. Positive covenants are usually dealt with under the COMMON LAW RULES.

In a problem question it is important to not become confused between the two kinds of covenants. Often a question will word the covenant in a way that would sound negative, but is in fact a positive covenant. A good sign that the covenant is a positive one is if it requires the landowner to spend money.

Co-operative Retail Services Limited v Tesco Stores Limited (1998) 76 P&CR 328 – The “Hand in Pocket” rule comes from this case, which is essentially that a restrictive covenant is considered a burden on the landowners land, and not his pocket. The landowner can comply with inaction.

Enforceability

The original parties to the covenant are bound by the contract law doctrine of Privity, which applies regardless if the covenant is positive or negative.

Privity of Contract – This doctrine essentially works to prevent third parties and those not party to the contract from conferring any rights under it. In a nutshell if A and B make a contract that benefits C, C cannot sue to enforce it.  (Tweddle v Atkinson)

Passing the Benefit (Common Law)

There are three ways in which the benefit of a covenant can be passed at law:

  • Express Assignment – The original covenantee can assign the benefit of the covenant to their successor in title in writing (The law of Property Act 1925 S136)
  • Contract (Rights of Third Parties Act) 1999 – This provision is only effective to covenants created after 11th May 2000, and must have the covenant worded in a way that includes successors in title.
  • Common Law – At the common law, the benefit of any freehold covenant is allowed to pass to a successor in title of the original covenantee. However, there are four conditions that must be met, which the House of Lords set out in P&A Swift Investments v Combined English Stores Group Plc [1988]. It does not matter if the covenant is positive or negative.

P&A Swift Investments v Combined English Stores Group Plc [1988].

  • The covenant must touch and concern the land of the covenantee – This means that the benefit of the covenant will only pass to a third party if it confers a benefit on the land itself, it cannot be a purely personal benefit to the covenantee.
  • The parties should have intended that the benefit should pass – It must have been the intention of both original parties at the time of creation, that the benefit will pass with the land. Since 1925 this intention is automatically implied into the deed (The Law of Property Act 1902 S78(1))
  • The covenantee must have held the legal estate in land – Must hold the legal estate to benefit from the covenant. Those with equitable interests in the land cannot benefit from covenants on the land at common law.
  • The claimant must derive title – This means that the successor in title claiming the benefit of the covenant must have acquired the same estate as the original covenantee. This rule has been extended to include tenants and not just freehold owners. (Smith and Snipes Hall Farm Limited v River Douglas Catchment Board [1949]). This was done by the Law of Property Act 1925 S78(1).

Passing the Burden (Common Law)

The burden of a covenant does not pass at common law. If the original covenantor sells their land, the burden of the covenant will not pass to their successors in title. This rule comes from the case of Austerberry v Corporation of Oldham (1885), and was later confirmed in the more recent case of Rhone v Stephens [1994]. This means that if the original covenator has sold their land, that successor in title cannot have an action brought against them at common law. The reason for this is that they are not party to the contract. The original covenator would remain liable for all breaches of the covenant committed by either successors in title or themselves.(Earl of Sefton v Tophams Ltd [1966]).  Unless the contrary intention is expressed in the original covenant (LPA S79).

Passing the Benefit (Equity)

The rules for whether the benefit has been passed in Equity come from the case of Renals v Cowlishaw (1878):

  • The Covenant touches and concerns the land of the covenantee.
  • The benefit of the covenant was:
  • Annexed to the land of the covenantee
  • Expressly assigned to the successor in title
  • The land is part of a building scheme.

Annexation

Annexation means that when the covenant was made, it must have been annexed or permanently attached to the land itself, not just to the persons with the benefit of the covenant. Land can be annexed in three ways:

  1. Express Annexation
  2. Implied Annexation
  3. Statutory Annexation

Express Annexation

Express annexation happens when the language in the covenant shows that it was the intention of the original parties that the benefit of the covenant should run with the land. The requirements for expressly annexing the land are below:

  • Deed creating covenant clearly – Identifies the land benefitted and states that the covenant is for the benefit of the land E.g. “For the benefit of the land [edged red]”
  • The benefit is for the whole for the covenantee’s land and the whole of the and has been assigned to the successors in title.

Rodgers v Hosegood [1900] – A covenant expressly stated that it was made for the benefit of particular land, and this was held to be successfully annexed to the land because it demonstrated a clear intention that the benefit should run with the land itself.

Renals v Cowlishaw (1878) – The word assigns was not enough to link any successors in title to the benefited land. The covenant was not annexed to the land and the benefit did not pass.

Initially equity was reluctant to find that the benefit had been annexed to the whole of the land when the land was large and could potentially be split into smaller areas of land in the future (Re Ballard’s Conveyance [1932] Ch 473). To avoid this difficulty the covenant should be expressed to be annexed to ‘each and every part of the benefitting land’. This means that if the land is later split up, the benefit passes with any part of the land that it actually benefits, which means any land that would be affected by a breach of the covenant. for example, if I split a large piece of land the benefit would pass to all of these plots and then allow each plot to enforce the covenant if it is affected by a breach of the covenant.

Marquess of Zetland v Driver [1939] Ch 1 – A covenant was expressed to be for the benefit of the covenantee’s retained land and each and every part thereof, which was considered to be clear enough to show the original intention was that the covenant would run with the land. This illustrates the courts annexing the land to each and every part of the benefited land as discussed above.

After the above case, most covenants referenced every part of the land thereof, but every once in a while someone forgot to put that into the covenant. This is less likely to happen now after the decision in Federated Homes v Mill Lodge Properties – this case suggested that the LPA S78(1) meant that once the benefit of the covenant was held to be annexed to the land, it was assumed to be annexed to each and every part unless the contrary was expressed.

Implied Annexation

Implied annexation is very rare, and can only be done by the courts. Implied annexation is used if the courts find that circumstances indicate an intention to benefit the land.

Marten v Flight Refuelling Ltd [1962] Ch 115 – A covenant was entered into between the claimant predecessor in title and the air ministry, who compulsirarily purchased the land subject to a covenant that restricted the use of the land for anything other than agricultural land. The Air Ministry allowed a commercial flight company to occupy the land and the claimant sought a declaration that she had the benefit of a covenant, and that she could enforce it. The court held that the covenant had been intended to be for the benefit of the land, the circumstances and nature of the covenant showed that it was intended to be annexed to the land, despite there being no express words.

Statutory Annexation

In Federated Homes Ltd v Mill Lodge Properties Ltd [1980] it was held that the wording of The Law of Property Act 1925 S78(1) was sufficient to annex the benefit of a freehold covenant to each and every part of the covenantee’s land, but the covenant MUST touch and concern the land. This provision means that every covenant that touches and concerns the land will now be automatically annexed to the land by virtue of statute, meaning that the benefit of the covenant will pass in equity automatically. S78 makes express annexation obsolete.

The scope of S78 has been limited since used in Federation Homes:

  • S78 will not annex the benefit of a covenant if it’s expressed to be personal – Roake v Chadha [1984] In this case the covenant expressly stated to not pass to subsequent purchasers unless expressly assigned.

Assignment of the Benefit

Assignment essentially means the transfer of the benefit of a covenant by one person to another particular person, this happens at the time that the land is transferred to that person.

  • Assignment transfers the benefit to a person and not the land
  • Assignment happens at the time the land is transferred, and not when the covenant was entered into.
  • Assignment must be done each time the land is transferred, which can lead to the chain of covenants being broken and the benefit being lost.

There are three conditions that must be met for a an assignee to take the benefit of a restrictive covenant. These are found in the case of Miles v Easter [1933] aka Re Union of London and Smith’s Bank Ltd’s Conveyance:

  • The covenant must have been taken for the benefit of land owned by the covenantee at the date of the covenant.
  • It must be possible to identify the benefitted land.
  • The assignment must happen at the same time as the transfer of land.

Building Schemes

The third way in which a benefit is able to pass in equity is through the use of a Building Scheme. A Building Scheme is most easily described as a defined area of land that is sold by a single vendor in plots that are subject to restrictive covenants intended to benefit all of the land.

The conditions that that need to be met for a building scheme to exist have been set out by the case of Elliston v Reacher [1908]:

  1. Both the claimant and defendant derive title from a common vendor
  2. The vendor laid out the estate in plots prior to selling the properties
  3. The covenants were intended by the seller to continue for the benefit of all the plots in the scheme
  4. The claimants, defendants or their predecessors in title bought their land knowing abut the restrictive covenants, and knowing they were for the benefit of the whole scheme.

The first two requirements are not considered to be as important in modern law. In Re Dolphin’s Conveyance [1970] Ch 654 the land was not all purchased from one common vendor, but this did not matter because the intention to create a building scheme was clear. In Baxter v Four Oaks Properties [1965] the land wasn’t laid out in plots before sales began, but this didn’t prevent the court finding there was a building scheme.

In modern Land law, it is much more important that the land which is subject to the building scheme be clearly defined, and that all of the parties have agreed to them and know that they bind everyone in the building scheme. (Reid v Bickerstaff [1909])

Passing the Burden (Equity)

The common law fails to allow the burden to pass to successors in title, but equity will allow the passing of the burden. In order to pass the burden in equity it is imperative that the rules outlined from Tulk v Moxhay (1848) are followed. I will not explain the facts of this case because frankly they’re confusing, and don’t really give the rules for passing the Burden at a glance.

Tulk v Moxhay –

  • The covenant must be negative
  • The covenant accommodates the dominant tenement – To enforce a covnant against a successor in title to the Covenator, the claimant must show that: the covenant was one that touched and concerned t
  • he land. At the date of the covenant the covenantee must retain land that would benefit from the covenant and not have sold all the land at the time the covenant was entered into. (LCC v Allen [1914]
  • The original parties intended that the burden should bind successors in title
  • The person against whom the covenant is being enforced has notice of it – The interest are equitable, so rely on notice or registration. This means that the rules of Registered and Unregistered land are slightly different.

Unregistered Land –

  • Covenants entered into prior to 1925 rely on the doctrine of notice, so do not need to be registered to be effective
  • Covenants created since 1925 must be registered as a Class D(ii) land charge against the name of the owner of the land intended to be burdened. If properly registered it will be binding of future purchasers of the burdened land LPA S198.

Registered Land –

  • Must be protected by an entry of a notice on the title register of the burdened land

Positive Covenants (Passing Burden)

The law essentially doesn’t permit the burden to pass to successors in title, which means several artificial methods have been developed to try to facilitate in some in stances the passing of the burden.

Granting a Leasehold Estate

Instead of transferring the freehold, there is an option to grant a very long lease, which will ensure that the benefit and burden run with the land.

Doctrine of Mutual Benefit and Burden

The courts have recognised that sometimes a positive covenant can pass the burden by way of he who takes the benefit will be bound by the conditions of it. This is best illustrated in the case of Halsall v Brizell [1957] Ch 169 – In this case the terms of using a driveway were that a contribution was made to keep them in good repair. The court recognised that this was a positive covenant, so said that there was no obligation to pay as the burden cannot pass at law or equity. However, the judge also said that as they refused to contribute they would have to stop using the driveway. In reality this means that they were bound by the positive covenant, albeit artificially.

The case of Thamesmead Town v Allotey [1998] 3 EGLR 97 they court gave two conditions that must be met for the doctrine of mutual benefit and burden to operate in regards to positive covenants:

  1. The Benefit and Burden must be directly related – like in Halsall v Brizell
  2. It must be possible for a successor in title to the covenator to reject the burden as long as they do not take the benefit.

Davies v Jones [2009] took the conditions further and gave three conditions that should be met for the doctrine of mutual benefit and burden to operate:

  1. The benefit and burden must be conferred in or by the same transaction
  2. The benefit and burden must be directly linked (Halsall v Brizell) which can be decided upon the construction of deeds or other documents involved in the transaction.
  3. The person with the benefit must have had the right to reject the benefit, not just have a right to the benefit.

This means that this doctrine is very limited because it must be possible to link the benefit with the burden in the same transaction.

Chains of indemnity Covenants

A chain of indemnity is an incredibly risky way to recover damages from the covenator breaking a covenant with the covenantee.  An indemnity covenant is essentially a promise on behalf of successors in title to pay the original covenator damages that might be awarded against the original covenator if the successor in title breaches a covenant.

An example – A the covenator has a covenant with B the covenantee to maintain the boundary between their properties. A then transfers his land to C, his successor in title and they then sell the land to D their successor in title. When A transferred the land to C he obliges C to enter an indemnity covenant with A. This is in-case C breaches the covenant and B sues A. If this happens A will be able to recover the damages from C, and this process will be exactly the same with D. The issue arises when the successor in title cannot be found because it can leave the covenantee without a remedy at all.

Covenants Entered into by Successors in Title

This a relatively straight forward provision. Essentially a restriction is placed on the proprietorship register of the covenantor’s land under The Land Registration Act S40, which acts to forbid the covenator from transferring land unless the buyer enters into the same covenant with the covenantee.  This restriction must be registered to be effective.

Breach of Covenant

When answering a question of Covenants, it usually involves someone wanting to know if they can break a covenant or someone is threatening to do so. The way to work through a problem question is:

  1. Has the Burden of the covenant been passed?
  2. Who has the benefit been passed to, and has it been passed?
  3. Does the act/threat fall within the language of the covenant to break it?
  4. What Remedies are available?

Remedies for Breach of Covenant

The most usual remedy for breach of a covenant are damages, but it is also possible to have equitable remedies such as an injunction available. The case of Shelfer v City of London Electric Lighting Co Ltd (No. 1) [1895] laid down four principles where damages may be awarded instead of an injunction:

  1. The injury to the claimants legal rights is small.
  2. The injury is capable of being estimated in money.
  3. The injury is capable of being compensated by a small monetary payment.
  4. It would be oppressive to grant an injunction towards the defendant

Jaggard v Sawyer [1995] – The claimant sought an injunction that would render the defendants new building landlocked, this was considered to be oppressive to the defendant and so damages were sufficient as compensation.

The court has recognised that these principles from Shelfer are out of date and despite every part of it being met, it doesn’t mean that an injunction wont be granted (Coventry v Lawrence [2014 UKSC] 13)

To summarise remedies available:

  • A claimant who wants to get an injunction to stop a breach of covenant should act decisively and make it clear that a breach will be pursued, and damages will not be acceptable.
  • Until recently the Shaffer principles were followd, but since then the courts have said they have discretion and despite the test being met, they can depart from it and award an injunction.
  • If there is too long a delay the covenantee may have given permission for the breach, which means that no remedy will be available – Gafford v Graham
  • The courts have awarded injunctions against covenantor’s who continue with a breach of covenant despite clear objections – Mortimer v Bailey

Modification and Discharge of Covenant’s

A covenant can be modified or discharged under the grounds listed in the  LPA 1925 S84(1)

  • The covenant is Obsolete – LPA S84 (1)(a)
  • Covenant impedes reasonable public or private use of the land – LPA 1925 S84 (1)(aa)
  • Those entitled to the benefit consent to the covenant being modified or discharged – LPA 1925 S84 (1)(b)
  • The discharge will not injure those entitled to the benefit – LPA 1925 S84 (1)(c)

If you have read this far, I am impressed, flattered and overwhelmed! Thanks for reading 🙂

 

 

 

 

 

 

 

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