Property Lecture 4 Notes PDF

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Property law Lecture 4 Notes...

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Lecture Four

1.

Covenants surviving assignment/transfer of leases;

What are the two components of a lease? Assignment/ transfer - general • Lessee may assign/transfer leasehold unless lease expressly prohibits it. • Lessor may transfer the reversion interest. • Thus issues of privity of contract and privity of estate. Diagram of some of the possibilities Lor 1*----Lor 2 etc --------------------- -------- ? _ I__ \__________________________> (Timeline) C No C I \ Le 1 ----- Le 2* etc ----------------------? C stands for contract. No C stands for no contract *Therefore no privity of contract between Lor 1 and Le 2 unless a “deed of assignment” is signed between the parties creating this privity of contract when the assignment occurs Issues that emerge o Position of lessor o Position of Lessee o Effect of registration under the Land Transfer Act o Effect of the Property Law Act 2007 provisions  Every contract has a benefit and a burden, you can usually assign a benefit but you can’t typically assign a burden. Before the Property Law Act 2007 – i.e. at common law: Lessee covenants bind successors if only they “touch and concern” the leased estate For lessee’s covenants: Spencer’s Case (1583) 5 Co Rep 16. Spencer’s Case held a lessee covenant to build a wall was enforceable, as it “touched and concerned the leased land.” In Spencer’s Case (77 E.R. 72) a lease contained a covenant that the tenant would build a wall. The lease was assigned twice. It was held that the burden of lease covenants that touch and concern passes to assignees of the lease. For lessor’s covenants: Grantees of Reversions Act 1540 (Now abolished for NZ, as now these provisions are in the 2007 Property Law Act). • To do with abolition of the Monasteries by Henry VIII • Jurists at the time struggled with the concept of a “reversion”, since unlike the leased land, there was nothing corporeal to which the assignment seemed to relate. Of course, this was itself extremely illogical, since the very concept of estates in land is artificial and abstract.

While Spencer’s Case held that privity of estate would enable covenants that touched and concerned the land to be enforced by or against an assignee of the lease, the position regarding the reversion was more complicated. Until the Grantees of Reversions Act 1540 no such principle applied to the lessor’s reversion. However, the 1540 Act was passed out of the pragmatic need for Henry VIII, having confiscated monasteries and other Church lands, to be able to facilitate those to whom he then assigned those lands to collect the rents from their tenants who had contracted with their original Church landlords Grantees of Reversions Act 1540: ceased to have effect as part of the laws of New Zealand, on 1 January 2008, pursuant to section 365(1) of the Property Law Act. An illustration of how this works for the reversion interest; P & A Swift Investments v Combined English Stores [1989]- This was a case involving a guarantee the tenant would pay the rent –use this case for definition of what interests would be binding in exam. Per Lord Oliver (at 642): “You look to see whether the covenant benefits only the reversioner for the time being. In other words, if separated from the reversion interest, it ceases to be of benefit to the covenantee;” • In other words the covenant affects the nature, quality, mode of use or value of the land of the reversioner; and • the covenant is not expressed to be personal… NB: Here a lease contained a surety covenant (or guarantee) that if the tenant failed to perform the lease covenants then the surety would do so. The landlord assigned the reversion but not the benefit of the covenant. The tenant failed to pay the rent and the new landlord wanted to enforce the guarantee. Had the benefit of the guarantee passed to the assignee of the reversion automatically? It would do so if the guarantee covenant could be said to ‘touch and concern’ the land. The House of Lords unanimously decided that the assignee could enforce the guarantee. Lord Templeman described a surety or guarantor as a ‘quasi-tenant’ (at 638). Examples of covenants that have been found to “touch and concern” the land: Lessor covenants in favour of the lessee ... • for quiet enjoyment; • to repair; • to renew the lease; • to supply the premises with water; Lessee covenants in favour of the lessor :  to pay the rent; • to pay the rates; • to repair; • to insure against fire; NB: Directors to personally guarantee performance of the lessee Co. May be OK. - P & A Swift Investments v Combined English Stores [1989] What covenants may not touch and concern? Lessee covenants ... • to maintain common areas outside the leased area (?);

• to maintain my car; • to perform a personal service; • to belong to the Northern Club; Lessor covenants … • to sell the reversion at a stated price to the lessee if the lessee exercises an option to purchase; • not to open a competing business within half a mile; • to repair other premises; NB: Directors to personally guarantee performance of the lessee Co. May be OK. – P & A Swift Investments v Combined English Stores [1989] 1 AC 633, 642 Deed of assignment. Does registration of a lease under the Land Transfer Act make any difference? Remember s 97(3) of the Land Transfer Act – for registered leases S 97(3) Transfer of lease or mortgage (1) A registered mortgage or lease may be transferred by memorandum of transfer as aforesaid. (2) Upon registration of any such memorandum of transfer the estate or interest of the transferor as set forth in the instrument, with all rights, powers, and privileges thereto belonging or appertaining, shall pass to the transferee. (3) The transferee shall thereupon become subject to and liable for all and every the same requirements and liabilities to which he would have been subject and liable if named in the instrument originally as mortgagee or lessee of the land, estate, or interest; and by virtue of every such transfer as is hereinbefore mentioned the right to sue upon any memorandum of mortgage or other instrument, and to recover any debt, sum of money, annuity, or damages thereunder (notwithstanding that the same may be deemed or held to constitute a chose in action), and all interest in any such debt, sum of money, annuity, or damages shall be transferred so as to vest the same at law as well as in equity in the transferee thereof: Provided that nothing in this section shall prevent a Court of competent jurisdiction from giving effect to any trusts affecting the said debt, sum of money, annuity, or damages in case the transferee holds the same as a trustee for any other person. Compare: 1915 No 35 ss 89, 90; 1925 No 20 s 6 Problematic- as court of Appeal is saying otherwise as the common law was so strictly applied that the statute does not affect it. Per Seon Developments Ltd. v Roger case!! Problematic (and a trick for inexperienced players) Seon Developments Ltd v Roger (1993) 2 NZ ConvC 191,664 (CA): Here the Court of Appeal left the issue open, but suggested the section did not extend the test for lessee liability from the position at common law. Compare with what be stated for mortgages (inconsistent approaches!) We then come to the Property Law Act 2007 The idea was to get over the “touch and concern” test and enable all covenants in a lease to be binding.

An exception was to be made where the context made clear that a covenant in a lease was intended to be personal in effect … Perhaps unsurprisingly this this has led to issues, because: A. The new provisions do not affect existing property rights (under leases that were in force prior to the new Act coming into force - 1 Jan 2008) (think of leases for 999 years); and B. How do you determine what covenants in a lease (post the 2007 Act) are intended to be personal? It is still necessary to consider the touching and concerning test in relation to: Transfers or assignments of leases when those transfers or assignments came into operation before 1 January 2008; Transfers of reversions when the leases came into operation before 1 Jan 2008. The applicable Property Law Act 2007 provisions are given next They are technical … They are stated in the following context.  Lessor covenants with regard to any assignment of the reversion interest  Lessee covenants with regard to any assignment  Continues protection of property rights that arose prior to the new Act coming into force – 1 Jan 2008 Lessor covenants with regard to any assignment of the reversion interest (Part 4, subpart 4) Section 231 Property Law Act 2007 Burden of lessor’s covenants to run with reversion. (1) If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the obligations imposed by every covenant of the lessor— (a) run with the reversion; and (b) may be enforced by the person who is from time to time entitled to the leasehold estate … against the person who is from time to time entitled to the reversion. (2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance. (!) –Rod has difficulty with this as if the intention is that all covenants run how do we know when this applies. (3) In subsection (1), the reference to every covenant of the lessor is,— (a) for a lease that comes into operation before 1 January 2008, a reference to every covenant of the lessor that refers to the subject matter of the lease; and (b) for a lease that comes into operation on or after that date, a reference to every covenant of the lessor, whether it refers to the subject matter of the lease or not. (unless there is a contrary intention) Section 233 Property Law Act 2007 Benefit of lessee’s covenants run with the reversion (1) If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the rights to which this section applies— (a) run with the reversion; and

(b) may be exercised by the person who is from time to time entitled to the income of the land, whether or not the lessee has acknowledged that person as lessor (that is, with or without attornment by the lessee). (2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance. Then s 232 (1) and (2) (1) Section 233 applies to all or any of the following rights under a lease: (a) the right to receive the rent payable: (b) the right to enforce every covenant of the lessee, including a covenant relating to a subject matter that was not in existence when the covenant was made: (c) the right to enforce any guarantee of the performance of all or any covenants of the lessee: (d) all rights and remedies of the lessor. (2) In subsection (1)(b), the reference to every covenant of the lessee is,— (a) for a lease that comes into operation before 1 January 2008, a reference to every covenant of the lessee that refers to the subject matter of the lease; and (b) for a lease that comes into operation on or after that date, a reference to every covenant of the lessee, whether it refers to the subject matter of the lease or not. We then move on to the liability of the lessee where there is any assignment of the lessee’s interest Again, we deal with benefit and burden … This is Part 4, subpart 5 of the Property Law Act 2007 Section 240 Transferee or assignee becomes lessee (3) A person who becomes the lessee under this section— … (b) must observe and perform all covenants of the lessee; and (c) may enforce all covenants of the lessor. (4) Subsection (3) applies whether or not any covenant referred to in that subsection relates to a subject matter that— (a) was not in existence when the covenant was made; or (b) refers to the subject matter of the lease. [HOWEVER] ... (5) Subsection (3) does not apply to a covenant that, immediately before the transfer or assignment, was not binding on the lessee, or on the lessor, as the case requires. What of the liability of lessees after they have assigned their leasehold interest…? Diagram of some of the possibilities Lor 1*----Lor 2 etc --------------------- -------- ? _ I__ \__________________________> (Timeline) C No C I \ Le 1 ----- Le 2* etc ----------------------?

C stands for contract. No C stands for no contract *Therefore no privity of contract between Lor 1 and Le 2 unless a “deed of assignment” is signed between the parties creating this privity of contract when the assignment occurs See… s241 Transferor or assignor remains liable (1) If there has been a transfer or assignment of a lease, the transferor or assignor remains liable to the lessor for— (a) the payment of the rent payable under the lease; and (b) the observance and performance of all covenants of the lessee. (2) … However, if, without the consent of the transferor or assignor, the transferee or assignee agrees with the lessor to vary the lease, the variation does not increase the liability of the transferor or assignor beyond that provided for by the lease at the time of the transfer or assignment. (3) Subsection (1) does not apply to a covenant that, immediately before the transfer or assignment, was not binding on the lessee, or on the lessor, as the case requires. (4) Subsection (2) does not apply if the lease provides for the variation. So … as a consequences of this 1. Leases entered into and assigned prior to 1 Jan 2008; 2. Leases entered into prior to enactment and then assigned (for the first time) on or after I Jan 2008; 3. Leases entered into on and after 1 Jan 2008: See materials: Tait Article NB 1. May be privity of contract, 2. Same and if there is an assignment then old test of touch and concern 3. Privity of contract and estate all the way along the chain Diagram of some of the possibilities Lor 1*---------Lor 2 etc --------------------- -------- ? _ I_________ \_______________________> (Timeline) C No C I \ Le 1 ------------------ Le 2* etc ----------------------? C stands for contract. No C stands for no contract *Therefore no privity of contract between Lor 1 and Le 2 unless a “deed of assignment” is signed between the parties creating this privity of contract when the assignment occurs Final point on leases …What do we make of the following wording (we have seen these power points before)…

(Part 4, subpart 4) Section 231 Property Law Act 2007 Burden of lessor’s covenants to run with reversion. (1) If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the obligations imposed by every covenant of the lessor— (a) run with the reversion; and (b) may be enforced by the person who is from time to time entitled to the leasehold estate … against the person who is from time to time entitled to the reversion. (2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance. –When do you know/what is required for it to be intentional? Section 233 Property Law Act 2007 Benefit of lessee’s covenants run with the reversion (1) If the reversion expectant on a lease ceases to be held by the lessor (whether by transfer, assignment, grant, operation of law, or otherwise), the rights to which this section applies— (a) run with the reversion; and (b) may be exercised by the person who is from time to time entitled to the income of the land, whether or not the lessee has acknowledged that person as lessor (that is, with or without attornment by the lessee). (2) Subsection (1) applies unless a contrary intention appears from the lease or from another circumstance.

2.

Covenants surviving assignment/transfer of land;

This breaks down to two issues A. Land covenants; and B. Schemes of Development (otherwise called Building Schemes) Basic problem … How do we make obligations binding on a future landowner if not covenants in a lease (or perhaps encumbrance instrument)…. Equity to the rescue … NB: Law has always faut against personal covenants being binding, equity decided this was too strict. Equity says that in certain circumstances personal covenants are binding- offering 2 exceptions which the PLA has added to. Consequences: Application of equitable principles • clean hands; • specific performance; • injunction; • part performance; • equitable damages; • Etc.

A. Land Covenants

At common law the burden of a covenant does not run with the land. Tulk v Moxhay (1848) established that in Equity, in certain circumstances, the burden of a restrictive covenant will run with the land: NB: In 1808, Charles Augustus Tulk, the owner of several parcels of land in Leicester Square,[1] sold a plot to another party, making a covenant to keep the Garden Square "uncovered with buildings" such that it could remain a pleasure ground. Over the following years the land was sold several times over to new parties, eventually to the defendant. The defendant, who was aware of the covenant at the time of purchase, refused to abide by the covenant as he claimed he was not in privity of contract and so was not bound by it. • •

Lord Cottenham LC stated: “It is said that the covenant being one which does not run with the land, this Court can not enforce it; but the question is not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased.” Per Tulk v Moxhay (1848) Case law developments since Tulk v Moxhay … The doctrine in Tulk v Moxhay applied to negative covenants only: Example: “Y covenants not to erect more than two buildings on the servient tenant in favour of the dominant tenement, Z.” A negative covenant prohibits or restricts certain conduct by the covenantor. The covenant can be kept without breach merely by inaction on the part of the covenantor…..[it] does not place on the covenantor an obligation to do anything. “In deciding whether a covenant is negative or positive the issue is not whether it is negative in form but whether it is negative in substance …” Ceda Drycleaners Ltd v Doonan [1998] 1 NZLR 224: (HC) per Potter J Negative or positive?  “Trees must be trimmed when over 3 metres high”- positive  “You must obtain my approval before you build a greenhouse”-negative Caselaw developments since Tulk v Moxhay (cont.)… The covenant must benefit other land: Formby v Barker [1903] 2 Ch 539 (see NZLL 10.19) • Vendor sold all his land. • Sale was subject to restrictive covenants. • Land then passed to another who was aware of the covenants but acted in contravention of them. -Covenants not enforceable. Is this the same as the test for leasehold covenants, illustrated by P & A Swift Investments v Combined English Stores [1989]? I.E. is the test as follows …???

You look to see whether the covenant benefits only the reversioner for the time being. In other words, if separated from the reversion interest, it ceases to be of benefit to the covenantee; • In other words the covenant affects the nature, quality, mode of use or value of the land of the reversioner; and • the covenant is not expressed to be personal… The answer is no …! - This is because there may be covenants that benefit each party in terms of their relationship of landlord and tenant that do not “run with the land” in Equity. –Is the relationship between the lessor and lessee intimate? Omaha Beach Residents v Townsend Brooker NZRMA [2010] (HC) (casebook) -Didn’t relate to using the servient tenement at all. Covenant not to object under the Resource Management Act to any future development on an adjoining property? Did it operate as a burden on the affected land? Ceda Drycleaners Ltd v Doonan [1998] 1 NZLR 224: (HC)- used the servient tenement. Covenant not to carry on commercial or professional activities on the land without belonging to a members association (to which others in shopping mall complex belonged). Did this benefit other land? This case has been loaded on AUTonline … NB: These covenants provided inter alia, that a shop proprietor was not to conduct any commercial or professional activity on the premises unless he or she was a current and fully financial member of the MTCBA and paid its levies. The...