Land Building Law

Question 1:

Common Law does not allow the benefit of a covenant to be ‘attached’ to land so as to bind the buyer.

Does Common Law allow the benefit of a covenant to be passed to a purchaser of land ? Can either the burden or benefit of a covenant be passed in equity and, if so, give details of how this might happen. [25 marks]

A covenant is an interest in the land which is in the form of an agreement between the land owners “to do something (affirmative covenant) or to refrain from doing something (restrictive covenant)”

A benefit is the promisees right to enforce the promise and a burden is the permissors duty to perform the promise.

What is common law?

Common law is part of the English law not embodied in legislation. It is made up of judicial rules made up of custom tradition and concept.

This is why common law can be applied where there is no legislation or it requires interpretation.

Gradually, over the years a large body of principles had been accumulated from cases which had been dealt with in which it was decided what was thought was fair. These principles together then formed a law; ‘Equity’.

Equity can be simply thought of as ‘fairness’ and was a very powerful source of law as it overcame many problems with the common law, because of the right justification it was thought to give. It gave people a ‘safety valve’ allowing them to seek different appropriate remedies and even actually be given a case when common law did not.

The benefit of a covenant in legal terms is the promisees right to enforce the promise. E.g. A landowner may give the occupier of a house a covenant which enforces a duty on him to keep the drains on his neighbour’s property maintained to avoid blockages. It is the intention of a covenant in common law that the ‘benefit’ of a covenant is passed on to the successor of the land.

However the Burden of the covenant may not be passed onto a successor or land purchaser. The burden of the covenant will always remain on the original covenantor, so he will be liable for any damages. This can be avoided by acquiring a guarantee from the land purchaser to carry out his duty.

In common law transfer of contractual liability is not recognised unless there is approval from the creditor. This has been established in the case of Linden Gardens Trust Ltd v Lenesta Sludge Diposals Ltd. “the burden of a contract can never be assigned without the consent of the other party to the contract…”

So in common law the benefit of a covenant may not be passed to a purchaser of the land. As they are regarded as a third party to the original contract, in common law it prevents the beneficiary from suing on a contract.

The doctrine of privity forbids “the contracting parties to enforce obligations against a stranger.’ ^³ And it has been the case for sometime in ‘common law that a contract between A and B cannot impose a liability upon C.”

And this ruling had been problematic in contract cases relating to land. The adjustment of the law came in 1848 when the case of Tulk v Moxhay was decided. There was a dilemma in this case that a restrictive covenant, if agreed by the buyer of land as part of the contract of the sale. Will that bind a buyer who later purchases the land is asked. In this case:

“the plaintiff, the owner of several plots of land in Leicester square, sold the garden in the centre to Elms, who agreed not to build upon it but to preserve it in its existing condition. After a number of conveyances the garden was sold to the defendant, Moxhay, who, though he knew about the restriction, proposed to build. The plaintiff, accepting his inability at common law to recover damages from one who was not party to the contract, sought an injunction against the erection of the proposed buildings.”

It was held that it would be inequitable to permit the erection of the building and the injunction was granted. The court came to this opinion as the defendant was aware of the covenant in making his decision to build. The court of equity is a court of conscience did not allow him to “disregard a contractual obligation affecting the land of which he had the notice at the time of his purchase”

In equity the two different types of covenants determine whether or not the benefit or burden of the covenant can be passed on to the purchaser of the land.

A restrictive covenant was established whereby the purchaser of the land is legally bound to abstain from performing certain acts on the land against the land owner or a third party who may later acquire the land e.g. blocking the drain.

A positive covenant places obligations on the covenantor to carry out specific actions such as maintenance e.g. painting the garden fence every 3 years.

In a restrictive covenant, the benefit of the covenant which is the promisees right to sue the promissor, may be passed onto the purchaser of the land. In the case of a restrictive a covenant the ‘burden’ i.e. the liability on the promissor to be sued is also valid. This is because it a condition in equity that to enforce the burden of a covenant it must be of a negative nature and not of a positive where a cost maybe incurred e.g. maintenance.

In a positive covenant the ‘burden’ of the covenant may not be passed onto the purchaser of land. The burden of a positive covenant does not run with the land so as to bind the successor or purchaser of the land to the covenant. This has been established in the case of Austerberry v Oldham Corporation where the defendant had purchased land subject to a covenant to keep the road in good a state. The defendant failed to carry out this obligation on the land. The covenantor looked to sue the defendant under the covenant that was made for their benefit. The landowner was unsuccessful in prosecuting the defendant on the case principle in Tulk v Moxhay 1848. The reason for this was that in Equity the obligation of a burden does not extend to positive covenants.

This is unless the land is registered together with a restriction at the land registry and a direct covenant with the land purchaser is made to enforce the burden of the original positive covenant.

However in the Case of `) the defendant had purchased land subject to a freehold covenant to to pay a contribution to keep the road and sea wall in good a state. The covenantee refused to pay the full contribution requested by the covenator and he decided to prosecute. Similar to the case of Austerberry v Oldham Corporation (1885) however it was held that the “The defendants could not rely on the rule in AusterberryVOldhamCorporation1885, that the burden of only restrictive covenants could run with the land.” This was because it would be inequitable for the defendant to benefit from “benefit of a covenant (i.e., the roads and see wall in good order) without being bound by the burden.”

The benefit of this covenant however, maybe passed onto the purchaser or successor of the land. So as to give them the right to enforce a promise by a promisee on that land.

Question 2:

Explain the differences between “leases” and a “licence” and between “common covenants” and “usual covenants” [25marls]

A lease is tenancy agreement with a ‘term of years absolute’ and has two conditions; “a fixed beginning and a fixed end, and it gives exclusive possession to the tennant.” The lease can be for any stated period of time. So the period of time is stated from the beginning although the lease can possibly end premature.

A license is an arrangement “outside of regulations.” A license allows the owner of the property to intervene with the property at any time. So the owner can ask a tenant in the property to leave at any time. It allows for the property owner to intervene and take charge of the property at any point. However with a license the owner is disadvantaged in that the license is outside of the regulatory system. Another disadvantage is that the owner in agreeing to a license must be very careful not to use any terms of a lease, in which case it is likely that a judge may treat is a lease and the licensee is given protection under leasing laws.

The significant difference between lease and license is that a lease gives full ownership to the tenant and protects him for the full term of the lease. Whereas a license is regarded as merely a contractual agreement. A licensee is not allowed to enforce anything as an interest in the land. Whereas a leaseholder has duties and privileges and an estate in the land. In a lease some of the obligations ‘run with the land’, so they bind the landlord and tenant even if the interests are sold on.

There are 3 main forms of a freehold lease:

• Periodic tenancy- a lease for a specific period that can be continually repeated until notice is given by either party. The period of tenancy is decided by when the rent is assessed, and not by the payment period, e.g. “£3,000 per annum, payable monthly” implies an annual tenancy though payment is monthly.

• Perpetually renewable lease- the landlord cannot give notice, so the lease continues as long as the tenant chooses. The Law of Property Act of 1925 converted all of these types of leases into a 2000 year lease.

• Leases for life- a lease for the life of the tenant or sometimes until they were married. After which the land reverts back to the lessor. The Law of Property Act of 1925 removed the legal status of this form of lease and converted it into a legal lease over a 90 year period.

Common Covenants

A common covenant can be express or implied. An express covenant is one which is written or spoken and an implied covenant is one which either by common law or statute. It is important that both parties to a contract are aware of their responsibilities under the lease so no infringement is made. If a party fails to comply with the agreement the other party is allowed to impose them under the lease.

A common covenant must ‘touch and concern the land.’ A better interpretation of the meaning of this has been established in the case of Swift Investments v Combined English Stores [1988] 3 WLR5 313

where “Lord Oliver suggested the following test to ascertain whether a covenant did touch and concern land: covenant to benefit only reversioner for the time being; covenant should affect nature, quality and mode of user or value of revisioner’s land; covenant should not be expressed as being personal.”

By the lessor:

The lessor should not impose or interfere with the land so that the original purpose of the lease is impeded. In the case of Browne v. Flower (1911), it was held that an infringement of the covenant only exists if the property is “rendered unfit or materially less fit to be used for the purpose for it was demised”.

• Not to derogate from their grant

The lessor should not impose or interfere with the land so that the original purpose of the lease is impeded. In the case of Browne v. Flower (1911), it was held that an infringement of the covenant only exists if the property is “rendered unfit or materially less fit to be used for the purpose for it was demised”.

• To allow the lessee quiet enjoyment

It is about allowing the tenant full enjoyment of the land as they so wish within the terms of the lease without any interference from the landlord

In Browne v Flower (1911), the view of the judge was that “there must be some physical interference with the enjoyment of the demised premises…a mere interference with the comfort of a person using the demised premises by the creation of a personal annoyance such as might arise from noise, invasion of privacy, or otherwise is not enough.” So a breach of this right would have to be of a physical nature and not of mere displease.

• To repair

The question of who is liable to carry out repairs is a complex issue. Under Common Law, a landlord has to ensure that the premises are fit for habitation at the commencement of the lease, but only if the dwelling is furnished. No such covenant is implied into leases for other types of property.

The duty by the lessor ‘not to derogate from their grant’ and ‘to allow the lessee quiet enjoyment’ are fundamental to the lease itself. If they are not expressed in the lease, they are still implied under common law.

By the lessee:

• Not to assign or sublet without permission

However, under the Landlord and Tenant Act 1927, permission to sublet cannot be withheld without unreasonable grounds for refusal.

The Landlord and Tenant (Covenant) Act 1995 amended the rules for commercial leases. In leases made after 1^st Jan 1996, the two parties may agree circumstances under which consent to assignment may be given or refused.

A ‘usual’ covenant has the same express rights as stated above so the lessee is covered under common law or by statute. However usual covenants have no implied terms which distinguish the two types of covenants.

Question 3: In 1997, David and Victoria, husband and wife, bought the fee simple of a village store where they have sold drinks and groceries. The title is unregistered and the conveyance was made to David alone. The purchase price was £10,000 and the “Small Shop Cash & Carry Ltd” lent £60,000 on the security of a legal mortgage from David. In the mortgage, David covenanted:

a) for 10 years, he would purchase all groceries from Small Shop Cash & Carry.

b) that the mortgage be irredeemable for 10 years

c)that after the expiration of the 10years the Small Shop Cash & Carry, should, for a further 5 years have the right of first refusal at market price if David decides to sell the store.

Profits from the store have been falling and David blames the poor quality of produce supplied from the Small Shop Cash & Carry.

Advise David:

a) whether he is bound by any of the covenants

b) whether, if he falls into arrears with payment of mortgage interest, the Small Shop Cash & Carry Ltd will be able to obtain possession of, and sell the store.

David and Victoria have purchased the fee simple absolute under s.1(a) LPA 1925. The purchase of the property is fee simple and in possession. In possession means that the owner can take benefit of the property at present rather than at some time in the future.

It is a freehold ‘fee simple absolute’ which is a type legal estate under the law and property act 1925 the other type is leasehold ‘term of years absolute. All other legal estates were abolished under this new act.

In the case of David and Victoria and Small Shop Cash and Carry ltd, the land has not been registered with the land registry. This means that a land charge is burdened on the owner of the land. With unregistered land the land has a “bundle of deeds” attached to the land. If there is a mortgage on the land this is usually held by the lender as a security of the loan.

A record of covenants on unregistered land is held by the land registry which are kept under the name of the original landowner at the time the covenant was taken out. It is not passed onto the purchaser of the land. As in this case David is the landowner.

With the conveyance being in David’s name, equitable interests are registered as land charges under David’s name as the primary titleholder.

David has been lent a mortgage, u need to discuss this further under s.1(2)(c) LPA 1925 which concerns a charge by way of a legal mortgage.

David had obtained a mortgage on the freehold for the conveyance of the land. Historically the lender took conveyance of the land until the mortgage was repaid and for the period of time the lender had conveyance, they had significant rights over the property. After the repayment David would be reconveyed the property.

After 1925 under s. 85 LPA 1925). LPA 1925 ‘by way of legal mortgage’ the lender is given a 3,000 year lease over the land. The lender has no conveyance of any state over the land under the mortgage.

David and Victoria have an interest in the land in the form of a land agreement with Small Shop Cash and Carry Ltd to do something. This means that there is a positive covenant which exists. What they have entered into an agreement to purchase all groceries from Small Shop Cash& Carry Ltd for 10years. So from the date of the agreement they are bound unto the contract unless all of the landowners agree to dissolve the covenant. Otherwise they will have to see through the term of the contract.

Under the post 1925 rules both the buyer and the seller have to register interests in the registers in order to protect both their interests. As a result of registering interests in the register, this is deemed as ‘actual notice’ of the charge so as to bind all parties for 10 years.

The second covenant also binds David to continue to purchase from Small Shop Cash and Carry Ltd. As it states the ‘the mortgage should be irredeemable for 10 years.’ So for this reason also David is bound by the agreement. T

As for “The doctrine of notice will continue to apply in respect of unregistered land governed by the Land Charges Act 1972 (LCA). Thus, the interest of a beneficiary under a trust of land is not registerable as a land charge and it’s capacity to bind a subsequent disponee will depend on notice. Pre-1926 equitable easements and profits are not registrable as land charges and may similarly bind a disponee in a way that post 1926 easements and profits may not since the latter are registrable.”

Under the LCA 1972 the unregistered land can also have equitable rights as registration on land charges are registered. This register binds the purchaser of unregistered land and this is what gives the purchaser interest on the land. The doctrine of notice is replaced once land charges are registered and many of the equitable interests of registered land are now available. This means that if the David is the sole owner of the land, and Victoria is a trustee who has invested, she has an equitable interest in the property. And as only David has paid the mortgage to the Small Shop Cash and Carry, they cannot take possession of the property as they may have been able to if it were a joint mortgage for both David and Victoria. The two parties besides Victoria are bound to the agreement. As a result of Victoria not being bound to the agreement Small Shop Cash and Carry will not be able to obtain possession of the land.

Table Of Cases:

• Austerberry V Oldham Corporation (1885)
• Browne v Flower (1911)
• Halsall v Brizell (1956)
• Linden Gardens Trust Ltd v Lenesta Sludge Diposals Ltd.
• Swift Investments v Combined English Stores [1988] 3 WLR5 313
• Tulk v Moxhay (1848)
• Reference:
• Law of Contract Thirteenth Edition- Cheshire, Fifoot & Furmston’s
• P473-5,
• The Law of Contract Tenth Edition- G. H. Treitel
• P435, 647-8,
• Land Law- kate Green & Joe Cursley
• P116-123, 137-149,
• http://www.jonesbahamas.com/
• http://www.kevinboone.com/
• http://www.landregistry.gov.uk/kb/Default.asp?ToDo=view&questId=23&catId=9
• http://www.oup.com/uk/orc/bin/9780199284436/resources/cases_materials/bychapter/chap_26.pdf
• http://www.spr-consilio.com/landcasenotes2.pdf