Freehold Covenants

•What are freehold covenants?

•Enforcement – original parties

•Enforcement – successors in title

•Positive covenants

•Discharge/modification

What are Freehold Covenants?

• A covenant is a promise in a deed.• Covenants may be:

– Restrictive– positive

• A potential buyer of land will need to know whether there are any covenants relating to the land that could be enforced against him/her if they buy the land.

Enforcement – Original Parties

• A sells part of his land to B• In the transfer B promises not to carry on any

trade or business on the land.• A (the original covenantee) has the benefit of

the covenant and can enforce the covenant against B

• B (the original covenantor) has the burden of the covenant and is liable to A for any breach of covenant.

Enforcement – Original Parties

• The original covenatee can always enforce the covenant against the original covenantor as a matter of contract.

• What is the position if the covenantee no longer owns the land to which the covenant relates?

• What is the position if the covenantor no longer owns the burdened land?

Enforcement – Original Parties

• Note that the class of original covenantees can be extended to person who were not parties to the original deed.– S.56 Law of Property Act 1925– Re Ecclesiastical Comms for England’s

Conveyance [1936] Ch 430– White v Bijou Mansions Ltd [1937] Ch 610– Amsprop Trading Ltd v Harris Distribution Ltd

[1997] 1 WLR 1025– Contracts (Rights of Third Parties) Act 1999

S.56 LPA 1925

PLOT 1

(Mr Green)

PLOT 2

(Mr White)

PLOT 3

(Mr Pink)

PLOT 4

Contracts (Rights of Third Parties) Act 1999

• S.1(1): A third party may enforce a term of a contract if:– The contract expressly provides that s/he may, or – The term purports to confer a benefit on him/her.

• S.1(3): The third party may be expressly identified in the contract but need not be in existence when the contract is entered into

Enforcement – Successors in Title

• If A sells his retained land to X, can X then enforce the covenant not to carry on any trade or business on the land against B?– Does the benefit of the covenant pass to X?

• If B sells the burdened land to Y, does Y have to comply with the covenant?– Does the burden of the covenant pass to Y?

Enforcement – Successors in Title

• Different rules apply at common law and in equity

• Different rules apply for the running of the benefit and the burden

• Different rules apply for restrictive and positive covenants

• Adopt a clear structure!

Common Law:1. The Benefit

• The benefit of both restrictive and positive covenants runs at common law if:– The covenant touches and concerns the land of

the original covenantee• P&A Swift Investments v Combined English Stores

Group [1989] AC 632

– At the time the covenant was made it was intended to benefit the covenantee’s land

• S.78(1) Law of Property Act 1925

Common Law:1. The Benefit

• At the time the covenant was made the covenantee held a legal estate in the benefited land.

• The claimant must derive their title from or under the original covenantee but does not need to hold the same legal estate as the original covenantee.– Smith & Snipes Hall Farm Ltd v River Douglas

Catchment Board [1949] 2 K.B. 500

Common Law:2. The Burden

• The burden of a covenant does not run at common law.– Austerberry v Oldham Corporation (1885)

29 ChD 750

– Rhone v Stephens [1994] 2 AC 310

Common Law:2. The Burden

• The effect of this is that a covenant can be enforced at common law only where a remedy is sought against the original covenantor.

• The claimant must consider the rules in equity where:– He seeks to enforce the covenant against a

successor in title to the original covenantor, or– He requires an equitable remedy (i.e. an

injunction)

Equity:1. The Burden

• Tulk v Moxhay (1848) 2 Ph 774

The burden runs in equity provided:– The covenant is negative in substance

• Haywood v Brunswick Permanent Building Society (1881)8 QBD 403

– At the date of the covenant the covenantee must have owned benefited land

• London County Council v Allen [1914] 3 KB 642• The covenant ‘touches and concerns’ the land of the

covenantee

Equity:1. The Burden

• The burden is intended to run:– S.79 Law of Property Act 1925

• The rules for registration or notice are satisfied:– Doctrine of notice (if created pre 1.1.1926)– D(ii) Land Charge (if created on/after

1.1.1926)– Notice on the Register

Equity:2. The Benefit

• If the burden of the covenant has run in equity, the benefit must also run in equity to enable the claimant to obtain a remedy.

• The benefit may run by:1. Express annexation

• Rogers v Hosegood [1900] 2 Ch 388• Renals v Cowlishaw (1878) 9ChD 125• Re Ballard’s Conveyance [1937] Ch 473

Express Annexation

The buyer with the intent and so as to bind the Property into whosoever hands the same may come and to benefit and protect the land retained by the Seller (hereinafter called ‘the Retained Land’) or any part thereof hereby covenants with the Seller to observe and perform the following stipulations and restrictions in relation to the Property…

Equity:2. The Benefit

2. Statutory annexation– S.78(1) Law of Property Act 1925:

A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and his successors in title and the persons deriving title under him or them, and shall have effect as if such successors and other persons were expressed.

Statutory Annexation

• Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594

Held: Provided the condition precedent of s.78 is satisifed, i.e. provided there is a covenant which touches and concern’s the covenantee’s land, the benefit of the covenant is annexed to and runs with every part of the land.– Roake v Chaddha [1984] 1 WLR 40

Equity:2. The Benefit

3. Express Assignment

– Unbroken chain of assignments

– Assignment to purchaser must be made at time of conveyance/transfer to them

Equity:2. The Benefit

4. Building Scheme– Derive title from a common seller– Land must be laid out in plots before sale– Same restrictions imposed on each sale &

clear that for benefit of all plots– Purchasers acquire plot on understanding

that covenants intended to benefit all other plots in scheme

• Elliston v Reacher [1908] 2 Ch 374

Equity:2. The Benefit

• How strict are the requirements?

– Re Dolphin’s Conveynace [1970] Ch 654

– Baxter v Four Oak Properties Ltd [1965] Ch 816

– Emile Elias v Pine Groves Ltd [1993] 1 WLR 305

Positive Covenants

• The burden of covenants (positive or negative) does not run in law.

• The burden of a positive covenant does not run in equity.

• There are a number of indirect methods of ensuring that a positive covenant can be enforced against the owner of the burdened land

Positive Covenants

• Mutual benefit & burden:– Halsall v Brizell [1957] Ch 169– Rhone v Stephenson [1994] 2 AC 310

• A chain of indemnity covenants

Discharge & Modification

• Burdened & benefited land in same ownership

• Discharge/modification – s.84 LPA 1925:– Obsolete due to changes in the character of

property/neighbourhood– Impedes a reasonable user and provides no

practical benefit/value to any person or is against public policy

– Agree/implied discharge – Discharge cause no loss to the person entitled to

the benefit