Freehold Covenants - Lecture notes PDF

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Lecture notes for Freehold Covenants topic in Land Law...

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Freehold Covenants Lecture 1: A covenant refers to a promise Freehold covenants are much more important than leasehold covenants This forms the backdrop to neighbour disputes Covenants can promise to… Control the use of the land/ keep up appearance of property/ mend the fence or roof/ contribute towards the upkeep of shared road or path/ refrain from keeping animals/ not cause a nuisance There are 2 tiers of control: Modern public planning law – this covers any proposed development Private covenants C&G Homes Ltd v Secretary of State for Health [1991] – a reasonable use of freehold covenants? A new housing estate saw the Sec of State purchase 2 properties to use for the care and community programme – large hospitals that treated people with mental health difficulties closed so people could be cared for in a home environment Covenants were to not cause a nuisance, not carry on a business and to use the property as a private dwelling house Neighbours did not want this programme so close to them so tried to use the covenants to stop it from going ahead – CoA held no business, but second covenant was breached because it was public and not private purposes Covenator – person who grants the covenant (like a mortgagor); they make promises to you about the use of the land The have the burden of the promise Covenantee – receives the promise and agrees to uphold those promises They have the benefit of the promise Dominant land – benefited by the covenant; your land that you are keeping Servient land – limited or subject to the covenant; buying and developing some way Positive covenant – requires one to actually do something – i.e. mend a fence, contribute to a driveway, maintain a roof The law rarely allows this pass to subsequent owners Negative or restrictive covenant – stops covenator from doing something – i.e. not building, not keeping a business Look for a test of SUBSTANCE, not FORM Hayward v Brunswick – does covenator have to put their hand in their pocket? If it will cost them it will be a positive covenant Proposed land obligation – replace old rules with new land obligation is how we are going forward, as proposed by the Law Commission

4 different scenarios you could come across in a problem question: Original parties – still got the original parties that made the promise C’tor changes – land that is burdened is sold onto X – we have to deal with the situations where trying to enforce the promise against the subsequent owner C’tee changes - covenantee changes so they sell their land Both parties have changed hands Would you expect law and equity to respond in different ways to different types of covenants? Yes This is purely historical – equity chose to enforce certain types of covenants based on conscience and these were just the negative ones Contractual rights: Privity of Contract LPA 1925 s. 56 Contracts (Rights of Third Party) Act 1999 – most was speculative Both pieces of legislation tried to enlarge the pool of landowners that can benefit from the original contract The crucial issue… When and How can freehold covenants be enforced? In most situations look at no. 4 – when both parties change PROBLEM QUESTION APPROACH: a) Identify the covenant(s) in question. What sort of covenant(s) are they? b) Has the burden of the covenant(s) passed? i.e. Does the person who the covenant(s) is to be enforced against have the burden of the covenant(s)? c) Has the benefit of the covenant passed(s)? i.e. Does the person who wants to enforce the covenant(s) have the benefit of the covenant(s)? Both b) and c) must be established in order for the covenant(s) to be enforceable At the start decide if the covenants will be positive or negative Then focus on the burden and if this has passed because the question is ultimately that the one who it’s to be enforced against has the burden In deciding whether the burden and benefit are enforceable we have separate rules from common law and equity Passing the burden of a covenant: Look at common law then at equity C and C have entered into a promise to do with the use of the land and covenantor has sold on the land so need to see whether the new person will hold the burden of this Common law: The burden may NOT run at law so the burden cannot be passed at all Austerberry v Oldham (1885) – covenant to keep a road in good repair; covenator entered into convenant but then sold on the land and the successor did not have to have this enforced upon them. This was a policy decision so that land didn’t become too fettered with obligations If you are dealing with a positive covenant, they are practically unenforceable once you move past no. 1

As land is becoming closer used (flats and apartments) it is becoming very difficult to maintain land together and the UK has called for a change to the rules Rhone v Stephens [1994] – hoped that the rule would be abolished most important Original sale was in 1960 and owner of Warford House sold part of property off and this became known as Warford Cottage. The owners of the house covenanted that they would keep the part of the roof over the property in ‘wind and watertight condition’ – this makes it positive because it costs money to do so. The owners also reserved a right of support for themselves (easement). The cottage and the house both changed hands (no. 4) and when the roof started leaking the owners of the cottage wanted to enforce the covenant. CoA held this was not possible because the burden could not pass at common law and because it is positive equity would not help either. CoA hinted HoL may decide differently – not impossible they would be able to abolish or modify the rules. HoL failed to rise to the challenge because if they overruled Austerberry it would create difficulties for those who relied on the rule for over 100 years, and if there were to be a change it would have to be made by Parliament Lecture 2: There are 3 imperfect ways of getting around the rule that solicitors try to use in practice in conveyancing situations: Chains of indemnity clauses (used most in practice) – when you rely upon the original contract and when the land is sold on the solicitors asks new owner to indemnify for any breach; builds a chain of promises. A weakness if that you are stuck if you try to sue a chain Rights of re-entry – not used a lot Doctrine of mutual benefit and burden (most important conceptually) – if someone makes a promise in a situation and will get certain benefits because of that promise, they should not be allowed to go back on that later on Halsell v Brizell (1957) – developer developed area of land for houses but kept back the ownership of the road. He promised to let the people who bought the houses use the road to get to their housing as long as they contributed to the upkeep of it. Court held that one who did not want to contribute were bound to contribute to maintenance if they wanted access to the road Rhone v Stephens [1994] – burden has to be relevant to the burden of the benefit – a clear link between the two – and the successor in title must have had some choice about the transaction – able to renounce the benefit and burden if they wanted to When owners failed to get what they wanted they tried to use doctrine of burden but it failed because clause about repairing roof was independent of the clause about support and it also would have been impractical for the right to be denied You cannot pass the burden at common law (Austerberry), but there are ways around it sometimes, but you can pass the burden in equity Tulk v Moxhay hurdles for passing a burden in equity: sometimes allows it to pass This case allowed the square to be kept open and as a square. The square was sold to E and they promised that they would keep the pleasure ground open and unbuilt on, and E did not care about this as bound by contract (no. 1) but E sold the land onto

Moxhay who wanted to build on the central garden even though they were aware of the covenant when they built on the land. The court held that if someone buys a piece of land and pay a low price for it because of a covenant, it would be completely unfair if they next day they could sell it on at a higher price without the burden of a covenant. The covenatee was given an injunction to stop Moxhay from building and equity took this approach because they regarded the conduct as unconscionable You need all of the following: 1. The covenant must be negative/ restrictive in nature 2. It should be the common intention of both parties that the burden of the covenant should run with the land of the covenantor 3. The covenant must benefit the dominant tenant 4. Notice/ registration requirements must be met 1. This means you cannot do something – dump rubbish, cause nuisance. Equity will only enforce covenants that stops landowners from acting in a certain way 2. Common intention of both parties that the burden of the covenant should run with the land of the covenantor The original parties meant that the burden should run is what equity wants Statute helps here because for a covenant created post 1925, you can make an assumption under s. 79 of LPA – presume the common intention exists unless there is a contrary intention. Rhode v Stephens confirmed this Morrells v Oxford Utd Football Club – concerned the building of their new stadium. It opened in 2001 but the whole project was put in jeopardy by one small covenant. Oxford city council own land to the south east of the city and in 1960s they developed housing estate on part of this, during which they sold land to Morrell’s predecessors, which was going to be used as a pub. The council covenanted as part of this that they would not allow any land within ½ radius to be used as a brewery/ licensed premises. In 1990s Oxford Utd obtained planning permission for new stadium, on land owned by the council but within ½ radius of that pub. The council were going to transfer the land to the football club but also hold a financial interest in it. Morrell tried to enforce a covenant to say that there should not be licensed premises but it would not be wanted without a bar. Morrell lost and held that in this instance s. 79 could not be used to infer that common intention. The way in which the covenant was drafted indicated that the party did not have a common intention that it would bind subsequent owners. s. 79 normally infers the intention but if there is something to the contrary it cannot be relied on 3. The covenant must benefit the dominant land – you cannot have covenants just floating around; they must be attached to a certain piece of land When the original one is made, the parties must both hold states of land which are capable of being both dominant and servient pieces of land If the covenantee sells all the dominant land, they cannot enforce the covenant apart from under the original contract but if so they would only get nominal damages It must TOUCH and CONCERN the land too – cannot be personal i.e. someone who supports a certain political party lives next door to you Formby v Barker –

4. Registration if you get a covenant through 1, 2 and 3, for it to be binding against subsequent owners, it must be properly registered When subsequent owner buys property the burden of the covenant would come up on the land registry When you register it, it will be registered as a minor interest under LRA 2002 s. 32(1) s. 2(5) will be registered as a land charge, but today most land is registered Not often told if registered or not – assuming LR requirements are met, the burden would pass problem question Summary – passing the burden: As a general rule, it is not possible at common law (Austerberry – Rhode v Stephens tried to challenge but HoL said no) Methods of circumvention – do not work very well and not fit for the purpose It can pass in equity if Tulk v Moxhay hurdles are met Reform PROBLEM QUESTION example: Sam sells Harry part of his land. Harry covenants to keep the land well cultivated and not to keep any animals on it. Harry sells to Lucy. Lucy lets the land ‘return to its natural state’ and keeps chickens on it. Advise Sam. What to do: Identify covenants Identify potential breaches Who needs to be shown to have the burden? Who needs to show the benefit? Tulk v Moxhay rules apply 1. It fails at first hurdle because to keep land ‘well cultivated’ is positive as requires you to do something; once it fails that is it. BUT keeping animals is negative so would apply 2. S. 79 LPA Sam will be able to enforce covenant about the chickens but not about the cultivation of the land

Passing the benefit of a covenant: Need to show that they have the benefit and it is now allowed to enforce covenant – this is much easier than passing the burden There are different rules for common law and equity It is possible to pass the benefit at both common law and in equity There will not be such a huge difference in rules because common law rules were developed first, then equity aided in this It can be passed expressly, under s. 136 LPA 1925 – this will be written and notice will be given to the covenantor. The new covenantee owns all of the land held by the original covenantee – if sale in another part it will not work – must own it all It can also be expressed impliedly – looking at all circumstances of the case to show that the benefit will pass

4 requirements for impliedly at common law: 1. The covenant must touch and concern the land 2. The covenantee of the land must have a legal estate in the land benefited 3. The assignee (subsequent owner) must have a legal estate in the land benefited 4. The benefit of the covenant must be intended to run with the covenantee’s land 1. The covenant must benefit the covenantee for the time being, it must affect the nature, quality, mode of user of value of the land and the covenant must not be expressed to be personal – comes from PA Swift Investments v Combined English Stores [1989] 4. Must be an intention and LPA 1925 helps you infer this intention under s. 78 Smith v River Douglas Catchment Board [1949] Covenanted and maintained to do the work but it flooded and 2 separated plaintiffs wanted to sue and claim compensation – one was the new freehold owner and the other was a party who had leased the land. CoA held s. 78 LPA allowed both parties to bring a claim even though estate was not identical and Denning said the covenant was deemed to be made with the subsequent purchasers and tenants of the land If the benefit can be passed at common law and in equity, how do you know which rules will be used? You have to try and match the rules When do you have to use equity? ‘In practice, the equitable rules are more important than their common law counterparts because if a person is seeking to enforce a covenant, the burden of which has passed in equity, he must establish, if he is not the original covenantee, that the benefit of that covenant has passed to him under the equitable rules.’ – Modern LL Re Union of London and Smith’s Bank Ltd’s Conveyance, Miles v Easter [1993] PROBLEM QUESTION example: Eric owns Greenacre. Eric sells part of Greenacre to Helen. This land is renamed Redacre. Helen covenants with Eric that she will build no more than one house on Redacre and that she will paint it red each year. Helen sells to Tom. Eric sells to Sally. Eric fails to assign the covenants to Sally. Tom is about to start building a second house and intends to paint both houses purple. Advise Sally. 3 different ways to pass a benefit of a covenant in equity: 1. Assignment 2. Annexation – the most important, especially statutory annexation 3. Building scheme – housing estate is a particular circumstance

Lecture 3: Why is it important to pass the benefit of the covenant? It is possible at common law and it can be done expressly or impliedly There are requirements under common law for passing the benefit, but it is much more important at equity

In equity, you need to use the method of passing the benefit too Tom is Helen’s successor and if the covenants are binding on him as the new owner of land, the burden of the covenants need to be shown to be passed to Tom Eric sells land to Sally so there is a change in the covenantee and to enforce these covenants she needs to show that the benefits passed to her when the land was sold to her originally If sally shows she is entitled to benefit of covenant and Tom has burden of covenant, the court will enforce this if she wishes Burden of painting covenant red will not pass – it’s stuck with Helen With hurdle no.2 common intention look at xyz case Passing the benefit from Eric to sally – in equity there are three way to pass the benefit of a covenant in equity The question says expressly there was no assignment so this method cannot be relied up If it does not mention assignment – discuss it 1. Assignment 2. Annexation 3. Building scheme Covenant always has to touch and concern the land; can use PA Swift test Needs to be related to mode of user and quality of land and not something personal 1. Assignment Much less important in theory than it once was in the past but still used by conveyances in practice When original covenantee sells land, with the land the benefit of the covenant is also transferred or assigned If the benefit of covenant is passed in this way, it needs to be passed each time there is a sale There are 3 conditions for equitable assignment: Authority cases: Miles v Easter and Newton Abbot v Williamson Land involved must be capable of benefiting from the covenant – to do with the land Regarding the land itself, it must be ascertainable/ certain – clearly identified Assignment must take place as part of the transaction – when land is sold Gives benefit to the new owner 2. Annexation This can be express or automatic/statutory This involves attaching or nailing the covenant to the actual land, rather than a particular owner When covenant is attached, it links it to the land always and will always continue to benefit future owners – no need to do it again Will only cease to benefit land if parties agree themselves or if land changer modifies/ discharges it Subsequent owner who buys property might not be aware of the benefit of a covenant when they buy a property Sometimes the benefit of annexed covenant is referred to as ‘hidden treasure’

Lawrence v South County – ‘hidden treasure that may be discovered in the hour of need’ Can be expressly – using express words in the actual transfer of conveyance Automatic/ statutory – under s. 78 LPA 2915  

‘... to the benefit of the [vendors] ... their heirs and assigns and others claiming under them to all or any of their lands adjoining...’ (Rogers) ‘... with the vendors, their heirs ... and assigns...’ (Renals)

Only the first will be annexation because words need to link the covenant to the land (words expressly) or to a person in their capacity of the owner of that land Automatic/ statutory – the most important method of passing benefit of covenant in equity!!! Federated Homes v Mill Lodge (1980) - second key case in Freehold Covenants, along with Rhode v Stephens FH interprets s. 78 LPA 1925 as triggering automatic annexation; CoA decision Debate over FH still exists in a small way – this is because LL change is slow but this was so unexpected which is why it was so special Has been described as a ‘revolutionary case’ – D.J. Hayton (1980) because no time made over decision and left room for arguments Facts, controversy, what Law Commission said: Areas to be divided up were blue, green, red and pink man for the developed land. The owners of the land (colours) successfully applied for 1250 houses under planning permission over the whole lot. In 1971 the owners of the land sold the blue land to ML (Ds) and ML entered into covenant with them, promising they would not build more than 300 houses when they developed the blue land. This was a covenant because it would effect the value of the land – reduces land left for the remaining 1250 – could only use a certain amount of planning permission. Retained land (benefit of that covenant) was ‘any adjoining or adjacent land held by covenantee’. FH became owners of red and green land (ignore pink) and got them both from two different routes. Green was from someone who bought it from original covenantee and each conveyance contained an express assignme...