Private Law Enforceability Of Covenants Notes

PRIVATE LAW: ENFORCEABILITY OF COVNENANTS * INTRODUCTORY * PRE-1996 * POST-1996 * INTRODUCTION • 2 sets of rules - need to be precise about it. Classic PQ gives 1 lease in 1990 and then asks if it would be different if the lease was created post-1996. (1) leases granted before 1st January 1996, and (2) those granted on that date or afterwards. The old law (common law/statutory) was thought to be unsatisfactory, so the new law (statutory) is supposed to be more satisfactory. But does it effectively deal with the deficiencies? To what extent has it been successful? • The rules governing the transmissibility of guarantees continue to be a matter of common law, whether granted before or after Jan 1st 1996. However, the position of guarantors has been affected in a number of ways by the 1995 Act. (M & W) • 1st Jan 1996 = when the Landlord and Tenant (Covenants) Act 1995 came into force • There are some crucial distinctions between the rules • Burden and benefit are separate pieces of property (proprietary rights). They can therefore be transferred. E.g. the original tenant passes on the obligation of payment to a later tenant - the landlord passes on the right to enforce to another landlord. The two things can pass for different reasons - think of them separately. • Comes down to 2 questions: • • 1. Does the C have the right to enforce the covenant? (does C have the benefit of the covenant?) 2. Does D have an obligation to perform? (is D subject to the burden of the covenant?) LEASES GRANTED BEFORE 1ST JANUARY 1996 - Summary (M&W) • If there is privity of contract, all covenants are enforceable - the general benefit, but not the burden, is assignable, so that assignees of the benefit can sue the original promisor without resort to the law of property. Can be enforced both at law, by an action for damages, and in equity, by an injunction for specific performance. • If there is privity of estate, but not privity of contract, only covenants which touch and concern the land are enforceable. Privity of estate means that the relationship of landlord and tenant exists between the parties (there is a relationship of tenure - Milmo v Carreras). If L1 grants a lease to T1 and T1 assigns it to T2, there is no privity of contract between L1 and T2 since there was no contract between them. This reflects the different position as between the original parties and the subsequent parties. But there is privity of estate because T2 has become L1's tenant by acquiring the estate which L1 created. Covenants which do not touch and concern the land are not enforceable as they have nothing to do with the relationship between the landlord and tenant. • If there is neither privity of contract nor of estate, then with two exceptions, no covenants are enforceable. I.e. between a landlord and sub-tenant. Exceptions: Common law allowed for the benefit of the covenant to be assigned with the land for the benefit of which it was made, provided the covenant was one which touched and concerned the land. Equity went further and enforced assignments of the benefit of contracts generally, whether or not connected with the land; and there is now a statutory procedure for assignment which takes effect at law (s.136 LPA 1925). General rule that the benefit of a contract is assignable by itself: ONLY TO RIGHTS, NOT TO DUTIES • Equity allows the transmission of both benefit and burden of restrictive covenants (e.g. not to build), can run in equity provided there is both land which is benefitted and land which is burdened. (c.f. cases where the doctrine of notice is still relevant, a purchaser of a legal estate without notice takes free from burden) • Thornton (1991) • The basic principles governing the parties' rights and liabilities in this field under the present law are well known, centring upon privity of contract, privity of estate and upon statutory rules found in ss 141 and 142 of the Law of Property Act 1925. • The law consists of a complex set of rules, which together form something resembling an intellectual jigsaw puzzle, and one from which several pieces are still missing. Legal or Equitable? - Determines Treatment • LEGAL LEASES (1) Original Parties (A) • Assignment (B) • Reversion (i) • Lease (ii) • • EQUITABLE LEASES (2) Original Parties (A) • Assignment (B) • Reversion (i) • Lease (ii) • Legal/ Equitable Distinction • The distinction between legal and equitable pre-1996 is CRUCIAL Legal = deed if over 3 years - Registration requirement (21 years, not 7 for pre-1996 as governed by the LRA 1925). So it can be legal if over 3 years with a deed and up to 20 years it doesn't need to be registered. • Those under 3 years aren't really relevant because nobody sells/buys them and there is mostly a covenant against assignment. • Equitable = written instrument • • • s.52 LPA, assignment must also be by deed for it to remain legal, if not it turns the legal lease into an equitable one Crago v Julian. This only happens if there is a cock up - e.g. Brown & Root v Alliance serious consequences for enforcement. In a problem question, look for words like "assigned by deed, assigned by grant, by disposition" etc. If transferred orally then that means it hasn't been assigned at all! (1) LEGAL LEASES Original Parties (A) • Assignment (B) • Reversion (i) • Lease (ii) • Most of the leases out there in the real world will be legal, because they are often commercial long leases - both parties will likely have legal advice.

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