Property - Freehold Covenant

Question 1

Property - Freehold covenant - Steps

Answer 1

This structure plan is based on an example scenario with two tenements,* *a* *mansion* *and* *agatehouse,wherethe* *original* *owner* *of the gatehouse* *gave* *a* *covenant* *to the* *owner* *of* *the* *mansion. Both freeholds have since been sold**.

• STEP 1: Define the issues:
• STEP 2: Has the burden passed in equity?
• STEP 3: Has the benefit passed in equity?
• STEP 4: Draw an interim conclusion
• STEP 5: Has the burden passed at common law?
• STEP 6: Has the benefit passed at law?
• STEP 7: Formalities
• STEP 8: Conclude

Question 2

Property - Freehold covenant - Define the issues

Answer 2

• Define the issues: issueswithfreeholdcovenantsoftenarise when one freeholder sells a part of his land andwantstorestrictthenewowner’s use of that land.
• COVENANT
  
  • A covenant is a promise made by one party (the “covenantor”) for the benefit of another party (the “covenantee”) which is (usually) contained in a deed (Mackenzie).
• Begin by identifying the benefited and burdened tenements.Then identifytheoriginalcovenanteesandcovenantorsandthesuccessorcovenanteesandcovenantors.
• Definethesetermswhen youfirstusethem-rememberthatcovenantsrelatetoland:
  
  • “BENEFITED” LAND
    
    • The “benefited” land is the land which benefits from the covenant. It is ownedbythecovenantee.
  • “BURDENED” LAND
    
    • The “burdened“ land bears the burden of carrying out the covenant.Itis owned by thecovenantor-thelandownerwhomadethepromiseof the covenant to the original owner.
• State that the issue is wit_h_ enforceab_ility: successor covenantees will only be able to enforce performance of the covenants if the benefit enjoyed by the predecessor covenantees passes, and if the burden agreed to by predecessor covenantors passes to su_ccessor _covenantors_, because there is no longer privity of contract between the parties.
• Explain what the covenants are, and what the potential breaches are: Point out whether the covenants are positive (to do something) or negative (to no co something) covenants. Here are some examples based on the above diagram.
  
  • 1)* *Not* *to* *use* *The* *Gatehouse* *for* *teaching. This is a negative covenant, as it restricts the covenantor’s use of the land. It was breached when Person D bought The Gatehouse and set up a boarding school there.
  • 2**) To submit building plans to the owner of The Mansion before building any extension to The Gatehouse. This is a negative covenant with a positive condition. It was breached when Person D built a new school building without submitting plans.
  • 3)* *To* *pay* *half* *of* *the* *costs* *of the* *maintenance* *of* *the* *conservatory* *in* *the* *back garden of The Mansio**n, which both owners are entitled to use. This is a positive covenant, as it requires the covenantor to act in order to comply with it. It was breached when Person D stopped paying.
• The successor covenantee may be able to choose who to sue: the original covenantor or the successor covenantor. The original covenantor can be sued for damages at common law. But only the successor covenantor can be ordered to remedy the breach in equity. State that it is preferable to sue the successor covenantor, and that in order to get this, both the benefit and burden must pass in equity, or both must pass at common law. You cannot mix and match. A covenant will only be enforceable between persons B and D in the above example if the benefit has passed to person B and if the burden has passed to person D.
• It is unlikely that the burden will have passed at common law (Austerberry v Oldham Corporation and Rhone v Stephens - see STEP 5 below), so first consider whether the burden has passed in equity. Note that equitable remedies are preferable as they can prevent or remedy a breach, whereas only damages are available at common law.

Question 3

Property - Freehold covenant - Has the burden passed in equity?

Answer 3

• The four requirements are set out in Tulk v Moxhay:
  
  • 1) THE COVENANT IS NEGATIVE IN SUBSTANCE:
    
    • Test: the covenant will be negative if it can be complied with by doing nothing__, i.e. by not expending any money, time or effort - the “hand-in-pocket” test (Haywood v Brunswick).
    • If the result is unclear, it may be possible to sever it into two or more covenants, allowing just the negative part to pass the test (Shepherd Homes v Sandham (No.2)). Alternatively, consider whether, as a whole, the covenant can be seen as mainly positive or negative. It may be negative with a positive condition attached (e.g. a covenant not to build without first informing the dominant owner), or vice-versa. If this is the case the covenant will be viewed as entirely positive or negative, despite the contrary minor condition (Powell v Helmsle_y). Equit_y will never enforce positive covenants against successors-in-title (Rhone v Stephens).
  • 2) THE COVENANT MUST ACCOMMODATE THE BENEFITED TENEMENT:
    
    • This has three parts:
      
      • i) The original covenantee had an estate in the benefited tenement at the time the covenant was created, and the successor has an estate in the benefited tenement at the time of enforcement (London County Council v Allen).
      • II) Thecovenanttouchesandconcerns the benefited land: “touch and concern” is explained by LordOliverinP&ASwiftInvestmentsvCombinedEnglishStoresasaffecting “the nature, quality,* *mode* *of* *use, or value of the covenantee‘s land“, and is not expressed to be personal - i.e. it must only benefit the landowner for as long as they own the benefited land. This could include restrictions on business use, e.g. “noIronmongery“ (Newton Abbott Cooperative Society v Williamson & Treadgold Ltd). REMEMBER: the test i_s whether it benefits the land_, not just the landowner.
      • iii)Thebenefitedandburdenedtenements aresufficientlyproximate, i.e. neighbouring or at least closely adjacent(Bailey v Stephens).
  • 3)THEORIGINALPARTIES INTENDEDTHE BURDENTOPASS:
    
    • This can be shown through the express words of the title deed. If it is not shown in the deed, it will be implied by s. 79 LPA 1925, unless it is expressly excluded.
  • 4)NOTICEPROVISIONS:
    
    • A s.32noticemusthavebeenentered on the charges register of the burdened freeholdforregisteredland(or a class D(ii) at the LCR for unregistered land) prior to the sale of the burdened land.If notice is entered, the covenant will bind a successor purchaser. If not,onlyavolunteersuccessor (someonegiven the land as a gift or inheritance) will be bound.

Question 4

Property - Freehold covenant - Has the benefit passed in equity?

Answer 4

• REQUIREMENTS:
  
  • 1)Th_e_covenan_t_ _touches_ _and_ _concern_s the benefited tenement (P&A Swift) (see above).
  • 2) The covenantee’s successor-in-_title_ became entitled to the benefit of the covenant either by annexation,assignmentoraschemeofdevelopment(Renals v Cowlishaw):
    
    • ANNEXATION:
      
      • This means that the benefit of the covenant is tied to the land at the time that the covenant is made. It becomes an incorporeal hereditament that passes automatically with the land.Thismaybeachieve_d_expressly, impliedly, or by statute__. It does not** **matter** **how la_rge_ _the_ lan_d is*(Wrotham Park* *Estate* *v* *Parkside* *Homes*).Annexationmeansannexationtoeachand every part of the land (Fe_derated_*_Hom_*_es _v_ MillLodge Properties)**.
        
        • a) Express: clear language stating that the benefit is annexed to the land, not to persons (Wrotham Park)*. E.g. *“to the vendor‘s assignees and heirs” is not express language as it refers to persons instead of land (Renals v Cowlishaw). For there to be annexation it is not essential for the Land Registry to h_ave_ entered the burden on the charges register of the servient land (Rees and another v Peters).
        • b) Implied: this is rare, so unlikely to be relevant to your examquestion,
        • c) Statutory: express language is not always necessary, as annexation will be assumed under the interpretation of s. 78 LPA 1925 given in Federated Homes__, unless expressly excluded (Roake v Chadha).
  • ASSIGNMENT:
    
    • If not annexed on creation, the benefit can be assigned (transferred) to the successor expressly. Any assignment must be in signed writing (s. 53[1)(c) LPA. The benefit must be assigned every time the property is transferred (Miles v Easter).
  • A SCHEME OF DEVELOPMENT: Only mention this where a property developer subdivides a large plot of land and creates covenants that bind all plots and are enforceable by all purchasers. Conditions for the benefit to pass come from _Ellisto_n v Reacher:
    
    • a) the benefited and burdened tenements must have derived title from the same seller;
    • b) the common seller divided the land, intending the covenants to apply to all plots;
    • c) all the plots are burdened for the benefit of all the other plots;
    • d) the benefited and burdened tenements were purchased on that basis; and
    • e) Reid v Bickerstaff added that the scheme of development must be clearly defined on a plan.

Question 5

Property - Freehold covenant - Draw an interim conclusion

Answer 5

• For which of the covenants has both the benefit and burden passed in equity? Point out that these covenants have passed, and so the successor covenantee can enforce them in equity and apply for equitable remedies such as injunctive relief, such as a negative injunction to prevent The Gatehouse being used as a school. Only discuss passing at common law for those covenants which have not passed in equity.

Question 6

Property - Freehold covenant - Has the burden passed at common law?

Answer 6

• Has the burden passed at common law?
  
  • General rule: the burden does not pass at common law (Austerberry v Oldham Co_rp_oration).
  • The o_nly_ exception is the mutual benefit and burden rule (Halsall v Brizell**), e.g. a covenant to maintain half of the shared conservatory in the above example - the benefit is the use of a conservatory and the burden is the cost of its maintenance. The benefit and burden must be explicitly interlinked, i.e. it is not po_ssible to take the benefit without also having to take the burden (Rhone v Stephens). It is essential that the benefit and burden passe_d in the sa_me transaction (Davies v Jones). The successor covenantor must also have a genuine choice to take both t_he benefit and burden, or to take neither (Thamesmead Town v Allotey) - if there is no choice, then the burden will not pass (e.g. a covenant to maintain a road, which is the only means of access to the covenantor’s land, would not pass, as the covenantor has no real choice as they would need to maintain the road to get access to their own land).
  • In the above example, Person D can choose to: (i) use the conservatory and help maintain it; or (ii) not use it, so the burden could potentially pass.
  • If the burden does not pass, there are other o_ptions_ for the successor covenantee:
    
    • Pursue th_e origina_l covenantor.
      
      • The original covenantor remains liable under common law for any breaches of the covenant, even if it is the successor that commits the breaches (Tophams* v *Earl* *of* *Sefton**, applying s. 79 LPA 1925). However, the original covenantor can only pay dam_ages_ - he is no longer in occupation so cannot remedy the breaches – so this i_s_ of limited use for the successor covenantee.
    • Indirectly pursue the successor covenantor by a chain of indemnity covenants.
      
      • If the original covenantor has ensured that his successo_r_ indemnified hi_m_ against any bre_aches_ when he sold his estate, the successor would have to reimburse the original cove_nantor_ for any losses arising from breaches. So, if the original covenan_tor_ was pursued successfully (see above point 1), he could then claim damages back from his successor. Again, only damages are available, but the threat of dama_ges_ might be likely to prevent the successor covenantor from starting or continuing to breach a covenant.
    • The covenantee could place a s. 40 LRA 2002 restriction on the register of the servient land so that no transfer of the burdened land can take place without the covenantee’s consent.
      
      • What this means in practice is that the covenantee will ask for a new covenant directly from the potential successor covenantor (because he will only allow the land to be sold if it is given). This is a new covenant so all issues of the burden passing are irrelevant - t_he_ burden will be taken by the successor covenanto_r. Note that you will still have to discuss the passi_ng _of the benefit i_f the covenantee sells his benefited tenement.

Question 7

Property - Freehold covenant - Has the benefit passed at law?

Answer 7

• REQUIREMENTS:
  
  • The benefit may be expressly assi_gned_ under s. 136 LPA 1925: the original covenantee must do so in writing, and give this to the successor covenantee. He must also give written notice to the covenantor.
  • Alternatively, the benefit could be impliedly assigned (P&A Swift Invest_men_ts v Combined English Stores). This requires that the covenant:
    
    • “**Touches and concerns the benefited tenement (see above).
    • Demonstrates the original parties intention that the benefit should pass with the land retained by the covenantee.
      
      • If it is not expressly stated that the covenant is for the benefit of the l_and_ or for successors in title to the land, this intention will be implied under s. 78(1) LPA 1925, unless it has been expressly excluded.
    • At t_he_ _time_ _the_ _cov_enantwascreated, the covenan_tee_ must have had a legalestateinthebenefitedland(i.e. one recognized by s. 1(1) LPA 1925).
    • At the time of enforcement, the successor-in-title must hold a legal estate in the _benefited land, t_hough it need not necessarily be the same estate (Smith & Snipes Hall Farm v River Douglas Catchment Board).

Question 8

Property - Freehold covenant - formalities

Answer 8

• State that freehold covenants cannot be legal interests, only equitable interests (s. 1(3)LPA1925),sotheymustbeprotected in order to bind a successorowneroftheservientland(S.29LRA2002).Otherwise**, only volunteer successors (thosereceiving land as a gift) will bebound. This is don_e_ **by notice (see STEP 2 above). Next,consider:
  
  • Have the covenants in the question been protected?
  • Is the successor covenantor a purchaser or a volunteer?
• REMEMBER t_hat if_ _the_ _succes_sorcovenantorisa purchaserandnonotice(or D(ii)) has been entered, thenthecovenantswillnotbindhim.
• Only state this part if relevant: have the covenants been extinguished or modified? This is only possible in one of the followi_ng_ ways:
  
  • An express agreement
    
    • between the dominant and servient landowners;
  • An implied agreement
    
    • (e.g. if the dominant landowner acquiesces to long standing breaches by doing nothing over the years);
  • A declaration by the court
    
    • under s. 84(2) LPA 1925; or
  • A declaration by the Lands Tribunal
    
    • under s. 84(1)LPA1925.
• REMEMBER that if one of the parties in the question claims that the covenant is extinguished or modified, it will only be so if one of the above methods is strictly followed.

Question 9

Property - Freehold covenant - Conclude

Answer 9

Which covenants pass? Do they pass in equity or at common law?Whonowbearsthebenefit(s) and burden(s)? Which remedies are available for each of the covenants as a result? Is the enforceability issue solved and have all formalities been complied with?