Freehold Covenants PDF

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Freehold Covenants...

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L4 Prep Freehold Covenants: Introduction and terminology  What is a covenant? Quite simply, a promise relating to land. Covenants are usually contained in a transfer deed when someone sells part of their land and wants to control what happens on the land sold of.  The seller makes it part of the sale deal that the buyer will enter into covenants which have the efect of preserving the amenity and value of the land retained by the seller. Covenants are in efect a means of private control of land use.  In order to preserve the quality and value of what they had left, the landowners imposed strict covenants as to what could and could not be done on the land sold of. For example, they might require the buyer to covenant not to develop the land without the consent of the seller; or may covenant not to use the land for manufacturing or industrial purposes; or may covenant to use it for residences, maybe even restricting the number of houses which can be built on the land.  ^All of these covenants have the efect of preserving the value of the seller’s retained land because they eliminate the possibility of the adjoining land being used for a purpose which would reduce the attractiveness, quality and value of the retained land.  The Covenantee is the person who has sold part of their land and has required the buyer to enter into the covenant. The covenantee therefore benefits from the covenant which has been made, and is entitled to enforce the covenant in the event of it being breached. In other words, the covenantee is the person who is entitled to sue for breach of covenant.  It follows from this that the land owned by the covenantee is benefitted by the promise. This is the dominant land.  The person who gives the promise or enters into the covenant is known as the covenantor. Sometimes referred to as the grantor of the covenant. The covenantor is the person who must observe the terms of the covenant and is the person who can be sued if the covenant is breached. The land which is owned by the covenantor is the land which is burdened by the promise or covenant. This land is known as the servient land as it bears the burden of the promise. Official definition: the person who receives the benefit of the covenant and owns the dominant land.  Almost inevitably, the dominant and servient land will be sold or transferred to new owners at some point. When the dominant land is transferred, the new owner is successor-in-title to the original covenantee, and is known as the successor covenantee. If the relevant rules have been observed, that person now has the ability to sue for breach of covenant.  If the serviant land changes hands, the new owner is known as the successor covenantor, and if the relevant rules have been observed, they will be liable to be sued for breach of covenant. The rules on the burden of a covenant passing to a successor covenantor are complex.

Covenants impose two main types of obligation: positive and negative. Important to understand the differences between these two types, as different rules apply to each in terms of enforceability. A positive covenant is a promise to actively to do something.  The promise to do something will usually involve spending money: it could be a direct obligation to pay money, perhaps towards the upkeep of a shared facility such as driveway, a parking area or a communal garden. The covenant could involve a payment of money, which is not directly stated. For example, there could be an obligation for the covenantor to maintain a fence, a wall, or a roof; or to paint the exterior of a house every two years. This will inevitably involve some sort of expenditure. But it does not necessarily involve money. A covenant to keep a garden tidy may not involve expenditure but it does require time and effort to fulfil and is therefore a positive obligation.  On the other hand, a negative, or more properly, restrictive covenant is a promise not to do a specific thing on the land. It restricts the use of the land in some way. E.g. a covenant not to use land for residential purposes restricts the use of land to anything other than housing. A covenant to use land only for residential purposes restricts the use of the land to housing and nothing but housing.  There are many examples: not to use land for industrial, or retail, or hot food takeaways, or manufacturing; not to build above a certain height, or above a certain density of housing; not to install a window overlooking the dominant land etc. Q: What is a positive covenant? A: A covenant which obliges the owner of the land to do something. A positive covenant obliges the covenantor to ‘’put their hand in their pocket’’ and do something to comply with the covenant, either spend money or energy. The covenant cannot be complied with by inanction.

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Positive and Restrictive Covenants This element introduces the two types of covenant: positive and restrictive or negative. It sets out the test for determining the essential nature of a covenant. ‘Only such a covenant as can be complied with without expenditure of money will be enforced’ against a successor covenantor.’ Lindley LJ, Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD 403 It is therefore important to be able to distinguish positive and restrictive covenants, as only restrictive covenants are enforceable in equity against successor covenantors. A positive covenant is a promise to do something. A positive covenant is a promise to do something. Example: a covenant to paint the outside of a building every three years. A restrictive covenant is a promise not to do something. Example: a covenant not to use the land for retail purposes.

A mixed covenant is a promise which has positive and restrictive elements. Example: a covenant not to build on the land without the consent of the owner of the dominant land. The test for identifying whether a covenant is positive or restrictive is set out in Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD 403 This is known as the ‘hand in pocket’ test. If covenantors have to put their hands in their pockets to find money to spend to perform the covenant, it is positive. Time is money’ so any covenant which requires expenditure of money, effort or time falls within the definition of positive covenants’. Deciding whether a covenant is positive or restrictive is a matter of looking at the substance not form: look beyond the words used and ask ‘what is the essence of the obligation?’ Example: a covenant not to allow a building to fall into disrepair This covenant appears to be restrictive as it is written in a negative form, but the underlying obligation is to maintain the building: positive. Deciding whether a covenant is positive or restrictive is a matter of looking at the substance not form: look beyond the words used and ask ‘what is the essence of the obligation?’ Example: a covenant to keep land as open space This covenant appears to be positive but it is restrictive, as the underlying obligation is not to build. Mixed covenants, which impose positive and restrictive obligations, can be interpreted in one of two ways: 1. 2.

as separate covenants or as one obligation with a condition attached Separate Covenants Shepherd Homes Ltd v Sandham (No 2) [1971] 2 All ER 1267 This approach can be taken if the positive and restrictive aspects of the obligation can be separated to create two separate ‘stand alone’ covenants; one positive and one restrictive. Example:

A covenant to paint the exterior of a building every two years and not to paint the front door red This covenant can be split. To paint the exterior every two years: positive. Not to paint the front door red: restrictive. As one obligation with a condition attached: Powell v Hemsley [1909] 2 Ch 252 This approach is taken if the mixed covenant cannot be split into two separate obligations. The covenant is interpreted as being overall positive or restrictive, depending on whether it obliges the covenantor to do or not do something. The additional element, which cannot stand alone as a covenant, is viewed as being simply a condition attached to an overall positive or restrictive obligation. Example: A covenant not to build on the servient land without the consent of the dominant owner. This covenant cannot be split. Not to build’ is the main obligation: restrictive covenant. ‘Without consent’ is not a stand alone obligation. Seeking consent only operates as part of the main obligation: positive condition attached. Summary A positive covenant is a promise to do something A restrictive covenant is a promise not to do something To decide whether a covenant is positive or restrictive, look at the substance not the words The ‘hand in pocket’ test helps to interpret covenants as positive or restrictive A mixed covenant has positive and restrictive elements It may be possible to split a mixed covenant into two separate covenants

If it is not possible to split the covenant, it will be viewed as either overall positive with a restrictive condition attached, or as overall negative with a positive condition attached Q: Which of the following is a positive covenant? A: A covenant not to allow a fence to fall into disrepair This is a positive covenant as the substance of the covenant is to maintain the fence in a good state of repair. Q: Which approach is correct in interpreting a covenant not to build any extension to a house without the consent of the dominant owner? A: This is a mixed covenant which is predominantly negative with a positive condition attached. This is a predominantly negative covenant as the primary obligation is not to build on the land. The positive condition cannot stand alone but is only relevant when read alongside the main obligation. Freehold covenants: The Legal Issue of enforceability Slide 1: This element of learning explains the legal problem of enforceability of covenants between freehold owners who were not parties to the original covenant. Slide 2: Imagine a land owner, A. A owns a large piece of land from where A runs a retail business. A does not need all of the land and wishes to raise some money. A therefore sells part of the land to B. Slide 3: A does not want any factory or manufacturing industry on the land sold, as this will have a negative impact on the quality and value of what A has retained. So as part of the sale deal, A requires B to enter into covenants in the transfer deed to restrict B’s use if the land to retail use, and to compel B to build a security fence between the two pieces of land, to preserve the security of A’s land. In this scenario, A is the covenantee, receiving the benefit of the promises, and A’s land is the dominant land as it is benefitted by the covenants. B on the other hand, is the covenantor, making the promises, and B’s land is the servient land, being burdened by the covenants. Slide 4: If B were now to breach either of the covenants, A will have no problem enforcing them direct against B. This is because there is privity between A

and B, and basic contractual principles apply. A will be able to request an injunction against B to restrain any use which is not retail; and to request an order for specific performance, obliging B to build the security fence. Slide 5: Problems arise when A and/or B transfer their land. Suppose that A sells the dominant land to C, and B sells the servient land to D. Slide 6: Now there is no direct legal relationship between C and D: there is no contract between them, as the original covenants were made between A and B; the contract for the sale of the dominant land was made between A and C and the contract for the sale of the servient land was made between B and D. Slide 7: This presents problems for enforceability. Imagine that when C has bought the dominant land, and D has bought the servient land, D breaches the covenants by starting to build a waste processing plant on the servient land. D also neglects to maintain the security fence, and it has started to fall down in places. In this case, C will want to enforce the covenants direct against D, presumably applying for a prohibitory injunction to stop the construction of the waste plant, and a mandatory injunction to force D to maintain the fence. Can C do this if two things can be shown: Slide 8: First, it must be shown that C has the benefit of the covenants, which will enable C to sue. Without the benefit of the covenants, C cannot enforce the covenants. Slide 9: Second, it must be shown that D has the burden of the covenants, which will make D liable for breaches. Without the burden of the covenants, D cannot be sued direct for breaches. Slide 10: There are two sets of rules which must be applied to see whether the benefit and burden have passed to the successor covenantee and covenantor respectively. One set is the rules of equity, and the other is the common law rules. It is vitally important that these rules are not muddled or used on a mix and match basis. It is not possible, for example, to apply the common law rules to pass the benefit to C and the rules of equity to pass the burden to D. If the equity rules are applied to pass the burden, then they must be applied to pass the benefit.

Slide 11: Likewise, if the common law rules are used, it must be shown that both the benefit and the burden have passed at common law. Slide 12: If it can be shown that the benefit of the covenants has passed to C, and the burden has passed to D, using either the rules of equity or common law but not both, then C can enforce the covenants direct against D. Q: What is the legal issue in relation to freehold covenants? A: Whether the covenant is enforceable by and against successors in title to the original parties. The legal problem here is that there is no contractual relationship between successors in title to the original parties. We look at whether the relevant rules have been observed to enable a successor in title to the covenantee to enforce a covenant direct against a successor in title to the covenantor. Q: In order for a successor covenantee to enforce a covenant against a successor covenantor, what must the successor covenantee show? A: That the benefit of the covenant has passed to the successor covenantee and that the burden of the covenant has passed to the successor covenantor. In order for the covenant to be enforced by the successor covenantee, they must show that they have the benefit of the covenant to enable them to sue. In order to enforce the covenant against a successor covenantor they must show that the successor covenantor has the burden of the covenant to enable them to be sued. Equitable rules: Burden This element outlines the rules which govern the passing of the burden of a covenant to a successor in title to the original covenantor. As a general rule, the burden of a covenant does not pass to a successor at common law: Austerberry v Oldham Corporation [1885] AC 29 ChD 750. This means that at common law the covenant is unenforceable against a successor in title to the covenantor. This means that the covenantee or the successor covenantee is unable to enforce the covenant against the person who has breached it.

Equity has developed rules which allow the burden of certain covenants to pass to successors, which allows the covenant to be enforced direct against the person in breach. It is equity’s intervention which has created the proprietary right which we know as the restrictive covenant. The formalities for creating a restrictive covenant are set out in LPA 1925, s 53(1)(a):in writing and signed by the grantor. A restrictive covenant is a proprietary right: LPA 1925, s 1(3)s1(3) The equitable rules began with the case of Tulk v Moxhay (1848) 2 Ph 774, and have developed into what is known today as the rule in Tulk v Moxhay. There are 4 aspects to the rule: 1) The covenant must be restrictive 2) It must accommodate the dominant tenement 3) There must be intention for the burden to run 4) There must be notice of the covenant 1) The covenant must be restrictive In Rhone v Stephens [1994] AC 310 Lord Templemen said ‘For over 100 years it has been accepted law that equity will enforce negative covenants against freehold land but has no power to enforce positive covenants against successors in title of the land’. This means that to enforce a covenant in equity it must be shown that the substance of the covenant is restrictive. If a covenant is positive then the common law rules will apply to its enforcement. Positive covenants can only be enforced at common law. 2) It must accommodate the dominant tenement There are 3 aspects to this rule: FIRST: The covenantee and successor covenantee must hold an interest in land at the time of creation and enforcement There must be a dominant tenement which can be benefitted, so the original covenantee and successors must have retained an interest in dominant land at the time of creation and enforcement of the covenant.

LCC v Allen [1914] 3 KB 642. FACTS: Mr Allen bought land from LCC and covenanted not to build on it. He sold the land to his wife who started to build. LCC tried to enforce the covenant against her. HELD: the court refused to enforce the covenant as LCC had retained no land capable of being benefitted when it sold the land to Mr Allen. SECONDLY: The covenant must touch and concern the land The covenant must ‘touch and concern’ the dominant land. This means that it is the land, and not simply the dominant owner, which must benefit from the covenant : P&A Swift Investments v Combined English Stores plc [1989] AC 632. Example: a covenant not to use the servient land for industrial purposes would benefit the dominant land. Not having industrial use nearby would make the dominant land more enjoyable, peaceful and valuable than it would be if there were a factory on the servient land. HIRDLY: The dominant land and the servient land must be in proximity There must be sufficient proximity between the dominant land and the servient land. The two pieces of land must be near to each other, although they do not need to share a common boundary, or be directly next to each other: Bailey v Stephens (1862) 12 CB (NS) 91. 3) There must be intention for the burden to run This can be intention can be shown in one of two ways: EXPRESSLY or IMPLIEDLY EXPRESSLY: the covenant is worded in such a way as to make it clear that successors are to be bound: ‘ A hereby covenants with B for himself and his successors in title to land known as…’ or ‘A hereby covenants with the intention of binding land known as…’ IMPLIEDLY: LPA 1925, s 79 states that a covenant relating to land shall be deemed to be made by the covenantor on behalf of his successors in title, unless a contrary intention is expressed. 4) There must be notice of the covenant UNREGISTERED LAND:

The covenant must be entered as a D(ii) Land Charge (LCA 1972 s 2(5)(ii)). If so, a purchaser will be deemed to have notice of the covenant (LPA 1925, s 198). If the covenant has not been protected by entering a D(ii) Land Charge, a purchaser of a legal estate will take the land free of the covenant, they will not be bound (LCA 1972, s 4(6)). However, if the successor covenantor has been gifted or inherited the estate, they will still be bound despite the fact it has not been correctly protected. Whether the successor covenantor is deemed to have notice of the covenant depends on whether it has been properly protected by registration. REGISTERED LAND: The covenant must be protected by the entry of a notice in the charges register of the servient title (LRA 2002, s 32). If so, everyone, including a purchase for valuable consideration, will be bound (s 29(2)). If not, a purchaser for valuable consideration will take the land free of it and would not be bound (s 29(1)), but a successor in title covenantor who has been gifted or inherited the land (a ‘volunteer’) will still be bound (s 28). Summary There are four elements which must be present in order for the burden of a covenant to pass in Equity: Tulk v Moxhay. Negative in substance Accommodate the dominant tenement Intention for the burden to run Notice Q: What is the general rule on the burden of covenants at commo...