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Covenants Notes

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COVENANTS Commonhold was introduced in 2002 (Commonhold & Leasehold Reform Act), and is both a new term and a new concept in English law. It is best seen as a way of holding an area of land (or building) that is split into a number of units- the most obvious example being a block of flats. The use of leases to enforce covenants in this respect was thought to be unsatisfactory, partly because many people prefer to be owners rather than tenants and partly because management of flats by landlords has often been inefficient and a cause of friction. NB: it is still possible to use the old method. Commonhold enables holders of units to enjoy fee simple ownership. Positive obligations can be enforced against purchasers of units. The commonhold will encompass both individual units and common parts. There will be a commonhold association (CA) which will be a limited company by guarantee, with all unit-holders a member of it. The common parts will be vested in the CA. There will be a commonhold community statement (CCS) which will determine the rights and duties of both the CA and the unit-holders. There is no reason why the commonhold should not include separate plots of land though flying freeholds are excluded. New developments will almost always be registered as commonhold prior to the disposal of units. However, it is more difficult for an existing lease to become a commonhold, but, if it does all former charges are extinguished. On transfer, the new unit-holder is liable on the CCS obligations, to the exclusion of the transferor. These obligations are enforceable by the CCS and other unit-holders.

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LEASEHOLD COVENANTS Landlord and Tenant (Covenants) Act 1995, ss 2, 3, 5-8, 16, 23, 25, 28

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Clarke [1996] CLP Pt I, pp 97-104, 109-114: Under the law as it stood before 1995, the original parties to a lease remain liable under it throughout the whole term. This is because a lease creates both a proprietary and contractual relationship between the original parties to it. Those of the terms which are proprietary become enforceable by and between privity of estate. However, the contractual terms are made impliedly by the promisor on behalf of himself and his successors in title. Thus, when the property interest is assigned, the assignee gets by virtue of assignment the benefit of the contract and the rights and obligations making up the proprietary interest, but the assignor retains liability under the contract. So, if one party to the lease assigns, and his assignee commits a breach of term referable to that interest, the other party can choose who he wishes to sue. o The consequences of the continuing liability rule for tenants can be disastrous given the tendency to grant 99 year leases; or 15-25 year leases where commercial premises are concerned. o This liability may also be extended by rent review/increase, and extension on the original term, o Although the original tenant usually has implied indemnity from the assignee, this will always depend upon the solvency of the latter. o Contracting out of such continuing liability is rare, although possible. That is because landlords often require the original tenant to provide sureties in case of default by an assignee. Further, in private relations there was/is general ignorance as to this rule. What the new Act does is provide that in all 'new tenancies' the benefit and burden of the covenants in the lease (other than those made personal to) will pass on any assignment of the lease or reversion to the assignee. If it is the landlord who assigns, he can request permission from the tenant to be absolved from future liability. With the following exception, neither the original tenant nor any assignee will be made liable under a tenancy agreement after they have parted with their interest in it. The exception is that the landlord and tenant will in some circumstances be entitled to enter into an authorised guarantee agreement on assignment by the tenant; these circumstances are listed in s16(3). However, where those conditions are not satisfied, there can be no postassignment liability. o One point which is not exactly clear is whether the landlord may require a tenant to enter into an authorised guarantee as a condition of granting consent to an assignment. o Expresses regret that the Act will only have prospective effect; two schemes being doomed to co-exist for the foreseeable future.

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Law Com No 174: o Proposals for reform recognised importance of following two principles:
? A landlord or a tenant should not continue to enjoy rights nor be under any obligation arising from the lease once he has parted with all interest in the property:
? All the terms of a lease should be regarded as a single bargain for letting the property. When the interest is transferred then should take the complete bargain rather than just parts of it. o Summary of Recommendations:
? T who assigns a lease should generally cease to be liable with the lease covenants and should generally cease to have the benefit of the lease; assignee should take benefits & burdens.

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When consenting to assignment landlord can request that T guarantees performance; L who assigns his reversion should escape liability by serving notice of assignment to T; Incoming L should also be liable, if the old is also liable then liability will be joint; The distinction between covenants which touch and concern the land and those which do not should be abolished; Only lawful assignments (not equitable) should affect the liabilities; Should not be able to subvert the application of the Act by contractual agreement;

Bridge, [1996] CLJ 313: The transmission of the benefit and burden of leasehold covenants has been governed for centuries by rules contained in part in the common law and in part in statute. Underpinning all these rules is the requirement for transmissibility that the covenant in question "touch and concern" the land, or, as statutorily expressed, that the covenant "have reference to the subject-matter of the lease." Under the new principles, the benefit and burden of all leasehold covenants will automatically pass on an assignment of the reversion or the lease. Only if a covenant is expressed to be personal to any person will it not be enforceable by or against any other person."' Where a covenant requires to be registered as a land charge to be effective against successors in title, registration continues to be necessary.

o The pivotal provision of the new legislation is section 5, which deals with the privity of contract principle

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as it applies to tenants. The relative purity of the Law Commission proposals has been tainted by the Parliamentary process; although the assigning tenant is released from the covenants on assignment, it is almost certain that the quid pro quo for release will be a requirement to guarantee the liability of the immediate assignee. The success of the Act will be determined by how well it deals with the problems in the old law.

INTER-RELATIONSHIP BETWEEN FREEHOLD AND LEASEHOLD COVENANTS

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London & South Western Railway Co v Gomm (1882) 20 Ch D 562 at 582-3: Conveyance of land contained a covenant which provided that upon payment of a sum, the land would be re-conveyed to the original owner so that he could develop it. D purchased land without notice of the covenant; C tried to enforce. Jessel MR: o Cannot be enforced in contract as no privity; can only be enforceable in equity if runs with the land. o The doctrine of Tulk v Moxhay ought not the be extended; that case appears either to be an extension in equity of the doctrine in Spencer's Case (those covenants which touch and concern the land will run with it) to another line, or an extension in equity of the doctrine of negative easements.
? See above (Maudsley & Burn) for submission on the answer to this point. o The covenant in Tulk v Moxhay was affirmative in its terms, but held to imply a negative. Where there is a negative covenant expressed or implied, e.g. not to build so as to obstruct a view, or not to use a piece of land otherwise than as a garden, the Court interferes on one or other of the above grounds. o This is an equitable doctrine, establishing an exception to the rules of Common Law which does not treat such a covenant as running with the land, and it does not matter whether it proceeds on analogy to a covenant running with the land or on analogy to an easement. o The doctrine is not an authority for the proposition that an equitable estate or interest may be raised at any time, notwithstanding the rule against remoteness.

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Re Nisbet & Potts' Contract [1906] 1 Ch 386 at 402-4, 405-6: N purchased land from squatters. Restrictive covenants had previously been imposed on the land which N did not know about; he would have discovered them had he insisted on 40 years title, and made proper enquiries. P claimed that N could not produce good title because of the covenants. N claimed that covenants had no effect on title acquired be adverse possession. o Collins MR:??

Unless and until the right of the covenantee has been in some way infringed, so that it becomes necessary for him to enforce that right, there is no reason, either in principle or in fairness, why his right should be in any way affected. The person who stands simply with the benefit of a negative easement is certainly not put upon the assertion of his right unless and until that right has been interfered with in some way; it is a matter of absolute indifference to him what person is the owner of the land over which that right exists until that land is used in some manner incompatible with the assertion of that right on the part of the person entitled to it. A negative covenant is something which binds the land itself, and thus binds any person who takes that land, with the exception of a purchaser for value without notice. N failed to make the proper enquiries; had constructive notice of the rights affecting the land.

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Romer LJ: A covenant, when validly created, binds the land in equity, and can be enforced as against subsequent owners of the land, subject only to the limitation that, being equitable, it cannot be enforced as against a bona fide purchaser of the land without notice.

Hemingway Securities Ltd v Dunraven Ltd (1995) 71 P&CR 30 : H leased premises for 25 years to D, with covenant not to assign without H's consent. Further provided that prior to any assignment, the assignee was to enter into a direct covenant with the lessor to pay the rent reserved. In breach D sub-let the premises. Jacob J: o A restrictive covenant for the benefit of the landlords' reversion counts for the purposes for the doctrine of Tulk v. Moxhay; the restrictive covenant accordingly runs with the land. o One can have covenants not to build things without showing plans first; covenants against multiple occupation; there is no reason why this covenant against alienation should be treated differently.

RESTRICTIVE FREEHOLD COVENANTS

The general rule is that the burden of a covenant affecting land does not run with the land at common law; that is because a person cannot be liable for a contract to which he was not privy. This is a basic principle, which has necessitated the development in equity of the doctrine of restrictive covenants. However, apart from cases in which specific performance has been decreed, equity has only interfered where the covenant is restrictive. Positive covenants are therefore not enforceable by an action for damages against an assignee of the covenantor.

1. "Touching and concerning"

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Re Ballard's Conveyance [1937] Ch 473: Owners of estate sold land on the edge subject to a restrictive covenant that could only be used for agricultural purposes; the covenant was expressed as being for the benefit of the whole estate. Clauson LJ: o Covenant can be enforced as between the original contracting parties; can also be enforced by a person who derived title from original covenantee provided that the covenant is one which runs with the land; o To run with the land it must touch and concern it; thought that in this case breach could not possibly affect the entire estate; where does not touch and concern all the land annexation is ineffective. o Even if it touches and concerns some of the land the court will not sever& annex it to that part alone.

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Wrotham Park Estate Co v Parkside Homes [1974] 1 WLR 798: Part of estate was conveyed to B subject to a covenant not to develop land except in strict accordance with an attached plan. Land was then sold on to D who attempted to build in breach; C sought injunction for prevention & order for destruction. Brightman J: o There can be obvious cases where a restrictive covenant clearly is, or clearly is not, of benefit to an estate. Between these two extremes there is an area where the benefit is a matter of personal opinion, where responsible and reasonable persons can have divergent views sincerely and reasonably held. o In such cases, it is not for the court to pronounce which is the correct view; the court can only decide whether a particular view is one which can reasonably be held. o If a restriction is bargained for at the time of sale with the intention of giving the vendor a protection which he desires for the land he retains, and the restriction is expressed to be imposed for the benefit of the estate so that both sides are apparently accepting that the restriction is of value to the retained land, the validity of the restriction should be upheld so long as an estate owner may reasonably take the view that the restriction remains of value to his estate, and that the restriction should not be discarded merely because others may reasonably argue that the restriction is spent.

2. Burdens

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Land Registration Act 2002 s 32: Allows for entry of notice in land register of a burden of restrictive covenant.

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Law of Property Act 1925 s 79: A covenant relating to any land of a covenantor or capable of being bound by him, shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself his successors in title and the persons deriving title under him or them, and, subject as aforesaid, shall have effect as if such successors and other persons were expressed.

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Tulk v Moxhay (1848) 2 Ph 774: Sale subject to covenant that grounds were to be maintained as gardens and in sufficient repair, uncovered of buildings. Land was then sold to P; issue of enforcement. Cottenham LC:

3 o A covenant between vendor and purchaser, on the sale of land, will be enforced in equity against all o o

subsequent purchasers with notice, independently of the question whether it be one which runs with the land so as to be binding upon subsequent purchasers at law. 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; with notice of which he purchased. Decides that this is the case as to hold otherwise would entail that it would be impossible for an owner of land to sell part of it without incurring the risk of rendering what he retains worthless.

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Haywood v Brunswick Permanent Building Society (1881) 8 QBD 403: Issue as to whether action for covenant of repair could succeed against mortgagee of premises who acquired right to the rent. o As the covenant does not run at law the question is an equitable one; the covenants within the scope of the Tulk v Moxhay rule are only those which restrict the mode of using the land; a covenant to repair is not restrictive and is therefore not covered; refusal to enlarge the rule beyond this. o This is not a case of landlord and tenant: should never lose sight of that distinction.

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Rhone v Stephens [1994] 2 AC 310: Two houses were in common ownership; V sold one to P, covenanting to keep the common roof which covered both cottages in a wind and water tights condition. Q as to whether the covenant could be enforced when house conveyed to new owners. Lord Templeman: o The result of Spencer's Case and statute is, as between landlord and tenant both the burden and the benefit of a covenant which touches or concerns the land demised and is not merely collateral run with the reversion and the term at law whether the covenant be positive or restrictive.
? As between persons interested in land other than as landlord and tenant, the benefit of a covenant may run with the land at law but not the burden. o Equity supplements but does not contradict the common law.o

o

o

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When freehold land is conveyed without restriction, the conveyance confers on the purchaser the right to do with the land as he pleases provided that he does not interfere with the rights of others or infringe statutory restrictions.
? Equity does not contradict the common law by enforcing a restrictive covenant against a successor in title of the covenantor but prevents the successor from exercising a right which he never acquired (Tulk v Moxhay). Restrictive covenants deprive an owner of a right which he could otherwise exercise. Equity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it. Enforcement of a positive covenant lies in contract; it compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; it deprives the owner of a right over property.
? To enforce a positive covenant would be to enforce a personal obligation not agreed to.
? To enforce negative covenants is only to treat the land as subject to a restriction. Section 79(1) of the Law of Property does not have the effect of causing covenants to run with the land.

LCC v Allen [1914] 3 KB 642:

3. Benefits (i) Annexation

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LPA 1925, s.78: 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.

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Rogers v Hosegood [1900] 2 Ch 388: Owners & mortgagees conveyed a plot of land to P, who entered into a covenant with that no more than one house should be erected on the plot, and that it should be used for residential purposes only. Covenant entered into with statement that it should bind heirs and assigns, being an obligation attached to the premises. Neighbouring plot was conveyed, O not having knowledge of the covenant. Collins LJ: o When the covenant was clearly made for the benefit of certain land with a person who in the contemplation of such a court was the true owner of it, it would be regarded as annexed to and running with that land, just as it would have done at law, but for the technical difficulties.

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