LAND LAW- FREEHOLD COVENANTS

 

Freehold covenants are promises extracted by the one freehold owner (covenantee) from another freehold owner (covenantor), whereby the latter promises either to do (positive covenant) or not to do (negative covenant) something over his land. The land burdened by the promise becomes the ST. The land benefiting from the promise becomes the DT.

Covenants commonly arise when a freehold owner is selling off part of his freehold to another and wishes to maintain some degree of control over the land being sold in order to preserve the value and enjoyment of the land he is retaining. Such covenants could include, for example, restriction on the ability to build on the land or restrictions as to how the land can be used. Such covenants effectively amount to a form of private planning control. However, despite the development of this area of law, they have not eradicated the need for public planning controls.

ENFORCEMENT:
(a) Between the original parties to covenant.
Privity of contract can exist between the original covenantor and covenantee. Should the covenantor breach his covenant, the covenantee could enforce the breach using normal contractual principles.

Generally only the parties to a deed/contract can enforce the terms of that deed/contract. This rule is subject to 2 exceptions:
i. s56 LPA 1925: A person, not a party to a covenant, may sue upon it provided the covenant was purported to be made with him, rather than simply confer a benefit upon an unidentifiable third party: Re Esslesiastical Commissioners for England's Conveyance. It is essential that the third party is identifiable at the time of the creation of the covenant. Consequently, a covenant may made with successor in title would not benefit those future owners of the land since, at the time the covenant was made, they are not identifiable: Kelsey v Dodd. Once a benefit of a covenant has been acquired this way by a third party not named in the deed of creation, he is treated in the same way as an original covenantee and may pass the benefit to his successor.

ii. Contracts (Rights of Third Parties) Act 1999: This applies to contract entered into on/after 11/05/2000. Under s1(1), a third party may enforce terms of a contract to which he was not a party:
- the contract expressly provides that he can or
- the term of the contract purports to confer benefit upon him.
Thus a party, other than the original covenantee, may able to enforce the terms of a covenant. To do so, the covenant must have named this person or identified them as member of class. This person need not have been existed when the covenant was created.
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BETWEEN SUCCESSORS IN TITLE:
Benefit of covenant- Even after the DT and ST have passed to successors in title, the covenants are still enforceable between the original parties due to their contractual relationship. In reality, however, the original covenantee is unlikely to take action to stop subsequent breaches of covenant. As he no longer owns the DT, he will not suffer any loss as a result of a breach being committed.

Rather this successor in title, the current owner of the DT and the person actually being affected by the breach, will wish to take action. However, this will only be possible if he can establish the benefit of the covenant being breached passed to him when he took over the DT.

Burden of covenant- Although the original covenantor remains liable for subsequent breaches committed after he has transferred the ST to a successor, he may not be the best person to pursue for the breach since:
i. he may be difficult to trace and if he can be found, any remedy obtained against him would be limited to damages as he no longer owns the ST and
ii. pursuing him would provide little motivation for the successor actually committing the breach to stop (unless there exists any indemnity covenant between himself and the original covenantor).

Rather his successor in title, the current owner of the ST and the person actually committing the breach, should be pursued. However, it will only be possible to do so if it can be established that the burden of the covenant passed to him upon the transfer of the ST.
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AT COMMON LAW
A. PASSING THE BENEFIT OF A COVENANT:
Express assignment- Provided it is not purely personal, the benefit of a covenant can be expressly assigned to any third party in accordance with ordinary rules of law. Such assignment must satisfy the requirements under s136LPA 1925, namely：
i. in writing
ii. express notice of the assignment has been given to the covenantor.
Once the benefit has been assigned to a successor in this way, the assignor loses the ability to enforce the covenant. That ability has passed to their assignee.

Implied assignment- The requirements from P&A Swift Investments v Combined English Stores Group Plc must satisfied:
1. The covenant must 'touch and concern' the DT
The covenant must be for the benefit of the land itself, rather than merely a personal benefit for just the original covenantee. A covenant that affects the land as regards mode of occupation or value, in the sense that the owner of that land gets more from his land by reason of the covenant being attached to it, may be deemed to touch and concern that land. Smith & Snipes Hall Farm v River Douglas Catchment Board. In addition, if the covenant only benefits a party whilst they are the owner of the DT, and will be of no benefit to them when they part with that land, it is likely to be seen as covenant that touch and concerns. P&A Swift Investments v Combined English Stores Group Plc.

A covenant will not deemed to touch and concern the land where it has been expressed as personal to the covenantee, even where the tests above are met: P&A Swift Investments

2. The original parties must have intended for the benefit to pass to successors in title of the DT.
Such intention can be found either:
-express wording of the covenant or
-for all covenants created after 1925, it is implied by virtue of s78LPA 1925.

3. At the time the covenant was created, the covenantee must have held a legal estate in the land to be benefited

4. The successor in title to the covenantee, who seeks to enforce the covenant, must also hold a legal estate in the DT.

B. PASSING PURDEN OF A COVENANT
At common law, the burden of covenant will never pass to a successor of the ST, Rhone v Stephens. Whilst the covenant may remain enforceable against the original covenantor at common law, this will have title practical benefit for the person seeking to enforce the covenant.

But why does the common law adopt this position that the burden of a covenant will not pass to a successor in title to the ST? Arguably, it reflects common law reluctant to allow restrains to be placed on a piece of land that could effect future generations. To allow, this might result the land becoming so bogged down with obligations and eventually the land became inalienable. This could have far reaching negative economic consequences.

There have been attempts to undermine this common law position. For example, it has been suggested that s79 LPA 1925 allows the burden to pass at common law since it implies into every covenant created after 1925, subject to the contrary intention, that the covenant 'deemed to made by the covenantor on behalf of himself his successors in title and the persons deriving title under him or them.' This argument has been rejected in Tophams v Earl of Sefton, where it was declared that s79 is no more than word-saving provision and does not have the effect of passing the burden of a covenant to a successors of ST.

The Contract (Rights of Third Parties) Act 1999 will also provide no assistance in passing the burden of a covenant to a successor. Whilst it allows, in some circumstances, the benefit of a covenant to be enjoyed by persons not a party to its creation, the statute is unwilling to extend the rule to the burden.
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IN EQUITY:
A. PASSING THE BURDEN OF A COVENANT
Equity will allow the burden of a covenant to pass from the land owner of the ST to his successor in title, where there is 4 conditions, developed from the case Tulk v Moxhay, namely:
          1. The covenant must be negative in nature
          2. The covenant must accommodate the DT
          3. The original parties must have intended for the burden to pass with the ST
          4. The purchaser of the ST must have had notice of the covenant.

||Explaining in detail flowing from the first, the covenant must be negative in nature, where the compliance with the covenant should not require action/expenditure of money, Haywood v Brunswick Permanent Benefit Building Society. This is a question of substance not form. For example, a covenant 'not allow a brick wall to fall into disrepair', whilst worded negatively, will require action such as maintenance work, if it is to be complied with. It is therefore a positive covenant.

Where a covenant appears to be mixed, with both positive and negative components, it may be treated in one of two ways. Any positive element of the covenant may be severed allowing the remaining negative component to pass the first hurdle of Tulk v Moxhay. Alternatively, the court will decide whether which component of the covenant is dominant and this will determine the status of the covenant.

||The second condition to met in order to pass the burden to the successor, the covenant must accommodate the dominant land. There are three components to meet:
               1. There must be identifiable land that can enjoy the benefit of the covenant,
                   both at the time of creation and the date of enforcement of the covenant.
                   LCC v Allen.
               2. The covenant must touch and concern the DT. It must not merely personal
                   to the original covenantor.
               3. There must be sufficient proximity between the DT and ST.

The question to ask is whether it is possible for a covenant to touch and concern the land when the DT is a very large estate? In Re Ballards Conveyance, where the estate was 1,700 acres, it was held that the covenant in question was not effective as it could not be seen to benefit the entire estate. The current view on this point is probably adopted in Wrotham Park Estate v Parkside Homes Ltd: covenants should be seen to touch and concern the whole DT unless it can be shown that the opinion could not reasonably held. Here the covenant in question was held to benefit the whole plot just less than 4,000 acres in size.

||The third condition is that the original parties must have intended for the burden to pass with ST. This can be shown either:
               1. In the express writing of the covenant.
                   For example, 'the covenantor covenants on behalf of himself and his successor in title'
               2. Post 1 January 1926 such words will be implied by virtue of s79 LPA 1925,
                   subject to contrary intention.

Any suggestion that s79 LPA 1925 by itself will make the burden of a covenant run with the servient land, thus rendering the other 3 requirements for passing the burden in equity redundant, has been rejected. In Morrells of Oxford Ltd v Oxford United Football Club, Robert Walker LJ confirmed that the role of s79 is merely to simplify the conveyancing process by creating the rebuttable presumption that covenants are made not just with the original covenantor but also with his successors in title. It will not by itself pass the burden to the successor.

||Lastly, the purchaser of ST must have had notice of the covenant. Today it is essential a question of registration and the conditions for meeting this requirements therefore differ depending upon whether the covenants affect registered or unregistered land.

REGISTERED LAND 

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The covenant should be entered as a notice on the charges register of the servient land.

s32 LRA 2002

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                                                     |                                                       |

           When entered, a purchaser has notice:                   Where not entered a purchaser
                                s29 LRA 2002                                    for valuable consideration is
                                                                                            deemed not to have notice
                                                                                                      s29(1)LRA2002
                                                                                                             |

                                                            A purchaser has notice if he

                                                         did not provide

                                                          valuable consideration,

                                                        for example:

                                                         1. inherited property

                                                           2. was gifted the property

                                                      |

                                                       Note a restrictive covenant

                                                    that has not been entered 

                                                    will amount to an interest

                                                   that can override the

                                                 position on the 

                                                register under

                                                   Sch 3 para 2 LRA 2002

                                            as it does not give the holder

                                            of the covenant actual occupation.

UNREGISTERED LAND

               Post-1925 covenants:                                             Pre-1926 covenants:
               should be registered as class D(ii) ----------------     governed by the doctrine
               land charge: s2(5)(ii) LCA1972                             of notice
                                 |
                                 | ---------------------------------------------
                                 |                                                        |
                 Where registered,                          Where not registered,
              a purchaser has notice                       a purchaser of a legal estate
                   s198 LPA 1925                           money worth is deemed not
                                                                       to have notice.
                                                                       s4 (6) LCA 1972

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                  A purchaser has notice if:

                 1. A purchaser of an equitable

   estate/interest or

                   2. a purchaser of legal estate for

                no consideration (gift) or

                                     consideration that is not worth money.

B. PASSING THE BENEFIT OF A COVENANT
Where the burden of a covenant has passed in equity, a successor in title to the dominant land must prove that the benefit of the covenant passed to him in equity too, if he is to be in a position to enforce the breach: Miles v Easter.

The benefit of a covenant will pass in equity provided:
1. The covenant is one which touches and concern the land
2. The covenant passed either by
       i. annexation
       ii. express assignment
       iii. scheme of development

ANNEXATION:
Occurs at the time the covenant is created and permanently attached the benefit of covenants to the DT. Consequently, once annexed the benefit has effectively become part of the land and will automatically pass to all successive owners of that land without specific mention and irrespective of whether they know about the existence at the time of transfer.

i. Express annexation:
This is where the wording of the covenant shows that the benefit is being attached to actual dominant land and not being entered into merely for the benefit of the conveyance. This can be achieved by either:
a. ensuring that the covenant is expressly made for the benefit of DT
b. ensuring that any reference made to the covenantee is done so in their capacity as owner of the DT.

Once deemed expressly annexed to the DT, the benefit is regarded as annexed to the whole of the land. This result can caused problem in the past:
a. To be seen as annexed to the whole of the DT, you would need to show that the covenant touches and concern the whole land. This may prove problematic where the DT is a very large estate. Re Ballards Conveyance. Where a covenant was deemed not to benefit an estate almost 1700 acres. Consequently the purported annexation was ineffective and the benefit of the covenant could not pass to successive owners of the DT. Where the benefited estate is broken up and sold off in parts, it ceases to exit as a whole and any annexation that had existed would cease to be effective, both in respect of the land retained and the land sold off.

Today, these problems appear to be surmountable:
a. A covenant should be seen to touch and concern the whole DT unless it can be shown that that opinion could not reasonably be held. Consequently, annexation may be effective irrespective of the size of the dominant land. Wrotham Park Estate v Parkside Homes Ltd. In Marquess of Zetland v Driver, where a covenant is expressly annexed to each and every part of the land, upon sale of part, the benefit will pass. The benefit will also continue for that land retained, thus overcoming the problem with annexation identified in Russell v Archdale.

ii. Statutory annexation:
In Federated Homes v Mill Lodge Properties Ltd, the CA found that s78 LPA 1925 operates automatically annexe the benefit of a covenant to a DT, without the need for express words. Prior to this decision, s78 had been interpreted as a mere word saving provision, operating to pass the benefit of covenant, only once a valid express annexation had already been established. Brightman LJ rejected this narrow interpretation of the provision. Indeed, he went further and held that automatic annexation by virtue of s78 LPA would attach the benefit of covenant to each and every part of the DT, thus eliminating the need to do so expressly. This has since been confirmed in Small v Oliver & Saunders, subject to any contrary.

Whilst this fully distribute the effect of annexation has been accepted, the decision that annexation can occur automatically without the need for any express words has been criticized:
a. Arguably, Parliament only intended s78 LPA 1925 to operate word saving provision. Indeed, the provision itself makes no mention of the word 'annexation'. If this is the case, the decision in Federal Homes goes too far in producing a result that is contrary to Parliament's intention.

b. If the interpretation of s78 LPA 1925 is truly correct, it renders express assignment, as an alternative method of passing benefit, defunct. If it is true, you have to question why so much case law has risen surrounding the issue of express assignment if, as is declared to be the case in Federal Homes, the benefit will automatically passed anyway by virtue s78 LPA 1925.

c. s78 provides no provision for contrary intention. Arguably, it makes annexation a compulsory consequences of entering into a covenant, irrespective of the parties' intention. This particular criticism has been addressed in Roake v Chadha. Automatic statutory annexation was exclude by virtue of the conveyance stipulating that the benefit of the covenant expressly assigned. The ability, by way of careful wording, to exclude automatic annexation by virtue of s78 has since been confirmed in Crest Nicholson Residential (South) v McAllister 

iii. Implied annexation:
Where the court may not find sufficient words of express annexation, it may look at the surrounding circumstances and imply annexation: Marten v Flight Refuelling Ltd

EXPRESS ASSIGNMENT:
This is where the benefit of a covenant is expressly assigned to the successor to the DT. It must occur contemporaneously with the transfer of the DT. Miles v Easter, otherwise will be deemed ineffective Re Union London & Smith's Bank Ltd's Conveyance.

SCHEME OF DEVELOPMENT:
This arises in situations where you have a large estate, owned by the single owner, who subsequently decides to sell the estate off in lots. Upon the sale of each lot, the vendor seeks covenants from the purchasers, with the aim of obtaining these covenants, the DT will comprise those unsold lots owned by the vendor. So long as the vendor retains some of these unsold plots, for the benefit of which the covenant were given, he is in a position, as the original covenantee, to enforce any breaches. The difficulty arise when the final lots are sold and the vendor no longer owns any of the estate and indeed, probably no longer cares about whether the covenants are being observed. Those who do care will be the current owners of the lots. Some such owners may be able to claim the benefit of the covenant has passed to them using the rules outlined above. However, those who own lots that were sold before the covenant being breached had been obtained, will not be anle to do so. This is because their lots did not form part of the DT at the time the covenant was given. To overcome this problem, a scheme was established which essentially allowed the covenants in such a situation be mutually enforcable between the various owners of the lots.

Following the desicion in Re Dolphin's Conveyance, there are 2 key requirement that must met for such a scheme to operate:
1. There must be an identifiable scheme, it must be possible to identify the perimeters of the land to which the scheme relates
2. Of paramount importance, there must be mutually perceived common intention that a scheme was clearly intended to be established for the reciprocal enforcement of obligation.

REMEDIES
1. Injunction
2. Damages in lieu of an injunction.

POSITIVE COVENANTS
In principle, these remain enforceable only against the original covenantor. Neither common law nor equity will pass the burden of a positive covenant to a successor of the ST. However, ways have been developed in circumvent this position and make positive obligations enforceable against successive owners to ST.

INDEMNITY COVENANTS
The original covenantor remains liable on the covenants, after having disposed of the ST to a successor in title, due to his original contractual position.Upon disposing of the ST he may extract an indemnity covenant from his successor, obliging the successor to indemnity him in respect of any damages he pays out as result of his successor breaching the covenants. It is possible in situations where the ST has changed hands many times, that a chain of indemnity covenants will be created. Where a complete chain of indemnities exists, ultimately, the party left out of pocket as result of the breach of covenant, will be the party at the end of the chain ie the person committing the breach in the first place. This, therefore, achieves indirect enforcement of positive obligations against successive owners to the ST.

The rule in Halsall v Brizell
A person who wishes to claim the benefit of a deed must also submit to any corresponding burden which is imposed by that deed. There are 2 conditions which have to be met, as clarified in Thamesmead Town v Allotey:
1. There must be a colleration between the burden and the benefit; the burden must be relevant to the enjoyment of benefit
2. The successor in the title to the covanantor must have had the opportunity to elect whether to take benefit or, having taken it, elect to renounce it, even if only in theory, and thereby escape the burden.

EXTINGUISHMENT AND DISCHARGE
Extinguishment
A covenant will no longer be enforceable where the DT and ST cease to be in separate ownership/occupation.

Discharge
A. By the parties effect:
This can be done by deed

B. By the court- applicable to restrictive covenants only.
In accordance with s84(1) LPA 1925, as amended by s28 LPA 1969, any person with an interest in the freehold that is affected by the restriction as to its use, may apply to the Lands Tribunal for an order to wholly or partially dishcarge or modify the restriction. This may be granted in following situation:
1. Where the restriction has become obsolete, due to 'changes in the character of the property or the neighbourhood or other circumstances;

2. The continued existence of the restriction impedes a reasonable user of the land and either
     - restriction does not provide any practical benefit to any person
     - its contraty to public interest

3.  Those entitled to the benefit have agreed, expressly or impliedly to its discharge/modification

4. The proposed discharged/modification will not injure persons entitled to the benefit of the restriction.

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