Freehold and Restrictive Covenants Lecture

This chapter will focus on covenants. With leasehold covenants, a covenant regulates the use of land in some way. Freehold covenants refer to an obligation on an owner of the land to do something, or take some ‘positive’ action, for example, having to make sure the grass on the front garden is kept short. A restrictive covenant prohibits the owner of land from doing something, for example, not being able to keep certain animals on the land. A basic way of understanding a covenant is that it is a contract between landowners to do or not to do something on the land.

This area of law would appear to be fairly simple and uncomplicated. However, as we know, land is bought and sold frequently, this raises questions as to whether the new owners of the land are bound by the promises made by the previous owners. There are four key distinctions to consider when attempting to determine whether a covenant is binding on a new owner of land:

1. The ‘running’ of the burden
2. The ‘running’ of the benefit
3. The rules of the common law
4. The rules of equity

This chapter will begin by outlining the distinctions between these four areas alongside with the key cases. We will then go on to consider the importance of registering such covenants on the land register. Next, more specific rules of freehold and restrictive covenants will be explored, such as how exactly a successor in land can enforce covenants and actions of landowners which may affect covenants. Finally, potential reform for this area of law will be explored, as some of the rules and principles can be considered unfair and outdated.

The burden of a covenant

The ‘burden’ of a covenant refers to the land which has the obligation to do, or not to do in the case of restrictive covenants, something. In our first example of the covenant to keep the grass short, the owner of that land has the ‘burden’. The ‘running’ of the burden refers to whether a new owner of the land has to abide by the covenant. Here is a quick example of where the running a covenant becomes relevant:

• Party A and Party B are next door neighbours
• Party A enjoys keeping their front lawn pristine, but Party B’s is extremely overgrown
• To make sure their street looks good, Party A enters into a covenant whereby Party B promises to keep the lawn cut short (this may likely be for a sum of money)
• Party B then sells their land on to Party C
• Does Party C have to keep their lawn cut short like Party B promised?

These terms are also important, and will be used throughout the chapter:

• The covenantor is the landowner making the promise (the person burdened by the promise, Party B in the example)
• The covenantee is the landowner to whom the promise is made (the person with the benefit of the promise, Party A in the example)
• The dominant land is the land of the covenantee
• The servient land is the land of the covenantor
• A positive covenant is one which requires action
• A negative covenant is one which prevents action (restrictive covenant)

The general rule at common law

The basic rule is that the burden of a covenant in relation to land does not run with the land at common law, as per Austerberry v Corporation of Oldham (1995) LR 29 Ch. D. In other words, in our example, the burden of cutting the lawn does not run at common law, Party C does not have to cut the lawn short as promised by Party B. This is fairly simple, following the basic rules of privity of contract.

Circumventing the general rule

As you can see, the fact that positive covenants cannot be enforced leaves covenantee without a remedy. Here are some quick examples of ways which this may be circumvented:

• A chain of indemnity covenants. Each successor of land will promise the previous owner that they will be liable for any breach of covenants. In our example, Party C would promise Party B that they would indemnify any damages Party B might need to pay Party A because of a breach of covenant. Although this does not create a direct obligation for Party C to cut the lawn short, it is in their best interest to do so, as if Party A sues Party B as a result, Party C must indemnify Party B (a good way of understanding this is to draw a diagram out if you are struggling! It can be complicated to read without visualising it)
• To lease the land instead of selling it, and replicate the covenants in the tenancy agreement. Ie. Party B would rent to Party C, and one of the covenants in the lease would be to keep the lawn short.

There are a variety of other very specific ways, but these are outside the scope of this chapter and your course. The best way of enforcing a positive covenant is through equity.

The general rule at equity

The leading case of Tulk v Moxhay [1848] EWHC J34 (Ch) created a certain set of circumstances which would result in the burden of a covenant running. Where the covenant is restrictive in nature, and the purchaser of land has notice of the covenant, they are bound by it.

When using the case of Tulk v Moxhay, four requirements must be satisfied:

1. The covenant must be negative
2. At the date of the covenant, it must be made to benefit the dominant land
3. The covenant must touch and concern the dominant land
4. The covenant must be made with the intention to burden the servient land.

The covenant must be negative

The test for whether a covenant is negative or not is whether they will have to pay anything to comply with the covenant. In our previous restrictive negative covenant example of not being allowed to keep animals on the land, it is clear this would not cost anything, therefore it is negative (Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD 403).

This is an important distinction to make because a covenant may be worded in a way which seems negative - ‘not to allow the grass to grow too long’, the ‘not to’ seems negative but it is in fact a positive obligation to cut the grass.

At the date of the covenant, it must be made to benefit the dominant land

The best way to understand this rule is by reference to the London County Council case explained above. Essentially, there must be some kind of benefit retained by the dominant land at the date of the covenant. In the above case, as all of the land was sold at once when the covenant was agreed, there was no dominant land.

The covenant must touch and concern the dominant land

In other words, the covenant must benefit the dominant land. There would be no use for a restrictive covenant not to make noise if the dominant land was 100 miles away. Usually, this test falls down to how far away the dominant land is from the servient land. In Kelly v Barrett [1924] 2 Ch 379 a five-mile distance between the dominant and servient land was considered to be too much.

The covenant must be made with the intention to burden the servient land

There is a distinction to be had between covenants that are intended to bind only the covenantor, and those which are intended to bind the land itself and subsequent owners.

S79(1) of the Law of Property Act 1925 creates a presumption that a covenant created will be intended to bind the covenantor, the land and any subsequent owners. This presumption may be rebutted by any express statement in the covenant that it is intended to bind only the current owner of the land. Therefore, this requirement is easily satisfied but you should still be wary of the wording of the covenant.

The operation of privity of contract in covenants - binding the original parties

It is important to know that the original parties to a covenant will be bound by the covenant, regardless of any sale of the land. Therefore, in our original example, despite the fact that Party B have sold on their land, Party B are still liable for the covenant and Party A can seek a remedy against them if the lawn grows too long. This seems extremely unfair Party B would not be present at the property and may have little power over Party C to enforce the covenant. This follows the principles of privity of contract.

Furthermore, if Party A sold their dominant land on to Party D, Party D would be able to enforce the covenant against the owner of the servient land. This principle is stated in S56 of the Law of Property Act 1925, whereby it is explained that any person can take the benefit of a covenant despite not being named as a party to the conveyance or other instrument.

Similar to the above exploration of S79, this presumption under S56 can be rebutted if there is an express statement that the benefit of the covenant is only to be for the current owner of the land, and not any subsequent purchasers. Re Ecclesiastical Commissioners for England’s Conveyance [1936] CH 430.

A covenant is not only restricted to owners or successors in land. A generic class of persons can be referred to, such as ‘the owners of all of the houses on this street’. However, the rule is that only those persons who are identifiable and in existence at the date of the covenant can claim under S56. This rule is subject to the Contracts (Rights of Third Parties) Act 1999

Referring back to our example, if Party B covenanted with 10 of their neighbours to keep his lawn short, anybody who owns these properties at the time the covenant was created can enforce the covenant. They do not need to be specifically referred to, just ‘the owners of the ten neighbouring properties’ would be sufficient. However, if somebody else moved in to one of these properties later, they would not be able to enforce the covenant as they were not identifiable and in existence at the date of the covenant under S56. It is important to note that the covenant may be enforceable under different ways discussed later, but not under S56 here.

Changes implemented by the Contracts (Rights of Third Parties) Act 1999

This piece of legislation made some changes to the way S56 operates. Essentially, it removes the requirement that the third party wishing to enforce the benefit of a covenant must be in existence at the time of the covenant.

This only applies to covenants made after 11 May 2000. If so, and one of these requirements are met, a third party may enforce the covenant:

1. The covenant expressly states the third party
2. The third party is identified by name, a member of a class or a particular description (they do not need to be in existence).

The second requirement means that successors in title will be able to enforce covenant rights against the convenantee.

The benefit of a covenant

If you thought determining whether or not the burden of a covenant was complicated, unfortunately, whether the benefit of a covenant runs with the land is just as complicated. As is the case with a burden of the covenant, the common law and equity have differing rules and you will need knowledge of both.

Benefit of a covenant at common Law

Similar to the burden of covenants, there are four clear requirements:

1. The covenant must ‘touch and concern’ the land
2. The covenantee must hold a legal estate in the land on the date of the covenant
3. The buyer of the land must derive their title from the original covenantee
4. The benefit must have been intended to run with the land at the date of the covenant

The covenant must ‘touch and concern’ the land

Similar to the rule on the burden of a covenant, there must be some benefit to the dominant land. The test for whether the covenant touches and concerns the land was formed in P & A Swift Investments v Combined English Stores Group [1989] AC 632:

1. Does the covenant benefit the owner of the dominant land? The benefit to this owner ends when ownership of the land ends
2. Is there an effect on the nature, quality, mode of use or value of the dominant land?
3. Is the covenant be worded in a generic manner to apply to all owners of the dominant land - it must not be addressed to a specific individual.

The covenantee must hold a legal estate in the land on the date of the covenant

This requirement is fairly straightforward. Simply, the covenantee must hold a recognised legal estate in the land. This can either be through fee simple absolute in possession or a term of years absolute under S1(1) of the Law of  Property Act 1925.

The buyer of the land must derive their title from the original covenantee

This test changes dependant on whether the covenant is pre-1926 or post-1926. For pre-1926 covenants, the new owner of land must hold the same legal estate as the original covenantee. For post-1926 covenants, as per S78(1) of the Law of Property Act 1925, the new owner of land only needs to hold either a fee simple absolute in possession or a term of years absolute.

The benefit must have been intended to run with the land at the date of the covenant

Again, this requirement is different dependant on whether the covenant is pre or post 1926. For covenants created after 1926, there is a presumption under S78(1) of the Law of Property Act 1925 that the covenant is presumed to have been intended to run with the land. Under pre-1926 covenants, the parties must show they intended the benefit of the covenant to pass to new owners.

Following these four requirements being met, the benefit of the covenant has passed at common law, meaning the current owner can sue for breach of covenant. If any one of the requirements have not been met, the test fails and the covenantee must look to equity for a remedy.

Benefit of a covenant at equity

There are four different ways in which the benefit of a covenant may run in equity. The first of those is extremely simple, and it is that the covenant msut ‘touch and concern’ the land. You can refer to the test discussed above from P & A Swift Investments v Combined English Stores Group if you need a recap on what that means. The other three ways are slightly more niche. These are:

1. Annexation
2. Assignment
3. A building scheme

Annexation

Annexation is where the benefit of a restrictive covenant is clearly applicable to a defined area of land in such a way that the benefit of the covenant will pass on any transfer of the land. This can be a confusing principle and case law has attempted to clarify it. Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 ruled that the annexation rule does not apply to covenants entered before 1926. To further understand this rule, the different types of annexation will be considered.

Express annexation

In express annexation, the document conferring the covenant will be drafted in such a way that it is clear that the covenant is made the benefit the land and not the covenantee. The covenantee may be mentioned in the document, but as long as the drafting is clearly focussed on the actual land, it will be considered express annexation.

For example - ‘This covenant is entered to with Party A and his successors in title to the land’. Despite mentioning the name of the party, it is clear there is an express intention for the covenant to run with the land.

The above cases show two covenants with very similar wording, but highlight the importance of identifying a dominant land.

Annexation of large pieces of land

When annexing a large piece of land, you wish to place a covenant over, you can either choose to annex the covenant to only the whole of the dominant land, or to annex the covenant to each and every part of the dominant land. There are a number of differences between the two.

Disadvantages of annexing to the whole of the dominant land

The case of Re Ballard’s Conveyance [1937] Ch 473 highlights the disadvantage very well. In situations where the servient land is small and the dominant land is large in comparison, there may be an issue in proving that every part of the dominant land benefits from the covenant. Imagine a scenario where the dominant land was 1000 acres and the servient land was a small patch in one corner of the 1000 acres. How can you argue that there is a benefit for the opposite corner of the dominant land?

In Re Ballard’s Conveyance, the court held that a 16-acre servient land did not benefit the whole of the 1700 acre dominant land, meaning the annexation had failed. However, if the covenant had been drafted for the benefit of each and every part of the dominant land, there would be a valid annexation to any part of the dominant land that benefits from the covenant. The benefit would then be able to be passed on to any purchasers of smaller parts of the land.

However, recent case law has shown a growing trend in a relaxation of this rule, allowing an annexation of the whole of the dominant land to be effective even where the servient land is small. For example, in the case of Wrotham Park Estate v Parkside Homes [1974] 1 WLR 798. In this case, there was conflicting expert evidence as to whether or not the covenant benefitted the whole of the dominant land. The judges decided that if there was any doubt, the decision should be made in favour of the dominant land, and the annexation will be valid, meaning the covenant is enforceable. Therefore, when faced with a question of this kind, if there is any doubt, cite this case as authority that the courts would likely decide in favour of the dominant land.

Subdivision of dominant land

Where there has been a successful annexation to a dominant land, then the dominant land is subdivided and sold on, the owners of the subdivided land cannot enforce any covenants attached to the original dominant land. This was confirmed in the case of Russell v Archdale [1964] Ch 38, where the court held that an annexation to the whole of the land would not extend to any subdivided and sold land. However, if the covenant is an annexation to each and every part of the land, the covenant will be enforceable.

Therefore, consider whether the annexation is to the whole or each and every part of the dominant land. If it is to the whole, and the land is subdivided, the owners of the new divided land will not be able to enforce any covenants. However, the covenantee who owns part of the original land will still be able to enforce the covenants.

Disadvantages of annexing to each and every part of the dominant land

After we have discussed the disadvantages of annexing as a whole, it would seem that the obvious choice would be to annex to each and every part. However, as you can imagine, the number of dominant owners could end up being extremely large, which may create problems in itself.

Imagine a situation in which the servient land is subject to a covenant to the dominant land, and the dominant land is then subdivided into smaller plots closer to the servient land. If the owner of the servient land wishes to negotiate with the owner of the dominant land to remove the covenant for a fee, they may do so. However, if they agree a fee and the covenant is lifted, the owners of the smaller plots of land on the dominant land will still be able to enforce the covenant. The only solution to this would be to negotiate with each and every owner of the parts of the dominant land with the benefit of the covenant - time consuming and a lot more expensive! This would not be an issue if the annexation was only to the whole of the dominant land.

The case of Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 meant that any restrictive covenant entered into after 1925 resulted in an automatic annexation to each and every part of land owned by the covenantee at that point. The case of Crest Nicholson v McAllister [2004] 1 WLR 2409 rejected the Federated Homes reading and held that the dominant land must be mentioned in the conveyance, or identifiable from the surrounding circumstances. It was held that any annexation would be to the whole of the dominant land unless there was an express mention of the covenant being for each and every part.

Assignment of the benefit

The rules of assignment are relevant and helpful where annexation has failed, either through a failure of valid annexation, or where the dominant land has been subdivided where the annexation was only to the whole of the dominant land.

If some kind of assignment seems to have taken place, the requirements of Miles v Easter [1933] Ch 611 need to be met:

1. The covenant is for the benefit of some identifiable land
2. The identifiable land must be benefitted
3. The assignee must acquire some of the identifiable land
4. The assignment of the restrictive covenant must be simultaneous with the conveyance of the land

The covenant is for the benefit of some identifiable land

This is satisfied if the document conveying the covenant expressly mentions the dominant land, or as per Newton Abbot Co-operative Society discussed earlier in the chapter, if you can identify the dominant land from the surrounding circumstances

The identifiable land must be benefitted

The case of Earl of Leicester v Wells-next-the-Sea [1972] 3 All Er 77 ruled that the whole of the identifiable land must be benefitted. The judges have set a low threshold for this, with large areas of land being benefitted.

The assignee must acquire some of the identifiable land

The assignee need not acquire the whole of the land, but some will be sufficient. This was confirmed in Stilwell v Blackman [1967] 3 All ER 514.

The assignment of the restrictive covenant must be simultaneous with the conveyance of the land

This requires that when the piece of land is transferred, there should be an express clause in the transfer document that assigns the benefit of the covenant. However, there are some exceptions to this requirement.

1. If equity can enforce the maxim ‘equity looks on as done that which ought to be done’ - in other words, where both parties intended to include the assignment clause but forgot - Northbourne v Johnstone [1922] 2 Ch 309
2. Where the owner of the dominant land dies and it devolves to the next owner, the new owner can enforce the covenants benefitted the land as if it had been expressly assigned - Leicester v Wells-next-the-sea

Building schemes

A building scheme is where land is sold or leased in lots/plots, and these pieces of land are subject to benefits and burdens of covenants which the purchasers are subject to and will be mutually enforceable between the current owners. When validly created, all properties are servient and dominant.

Taking our examples between Party A, B and C who had the covenant of keeping the grass cut short. If this was a building scheme, each party would be able to enforce the covenant against each other.

The requirements for a building scheme were set out in Elliston v Reacher [1908] 2 Ch 374, and a fifth was added in Reid v Bickerstaff [1909] 2 Ch 305

1. Both parties derive title from the same seller
2. Prior to selling, the seller set out the land for sale in lots
3. The restrictions were to be for the benefit for all of the lots
4. Both parties purchased the lots under the impression that the restrictions were for the benefit of all of the lots
5. The creator of the building scheme must have set up a scheme for a defined area of land

Remedies

Contractual remedies

If a covenant is broken, the regular remedies for breach of contract of damages for breach and an injunction preventing breach can be sought under most circumstances. However, a claim for damages cannot be brought against a successor in title because there is no privity of contract as per Rhone v Stephens [1994] 2 AC 310. This can be circumvented by a claim under the Senior Courts Act 1981, where an injunction or damages can be sought, but damages are usually reduced significantly - Small v Oliver & Saunders (Developments) Ltd [2006] 3 EGLR 141

Avoidance of delay

If an individual is seeking an equitable remedy, there must not be any delay when making a claim. Silence to a breach can be considered acquiescence and the right to any remedies under a breach may be lost. This was illustrated in Gafford v Graham(1998) 77 P&CR 73. Therefore, dominant owners should not tolerate breaches and should ensure to apply for a remedy as soon as possible.

The Law of Property Act 1925 S84(2) declaration

Often the difficult with a covenant is not determining whether it has been breached or not, but rather whether it is enforceable or not. A declaration under S84(2) will establish whether or not a covenant is binding on a person, or the person seeking to enforce it is able to enforce it.

Reform of the law

Issues with the current law

• The burden of a restrictive covenant does not run at law, but does in equity
• The rules under equity are complicated
• The benefit of a covenant runs at law and equity but under different rules
• The rules are more complicated than the burden rules
• The annexation and building scheme rules are technical and difficult to apply sometimes

The potential solution

‘Land obligations’ have been suggested as a new type of interest in the land. These obligations may be positive or negative, and they will be registrable interests. This would make them more akin to easements, meaning they will pass with the property and there would be less complications when ascertaining whether they are enforceable or not. The Law commissions 2011 report - ‘Making Land Word: Easements, Covenants and Profits à Prendre, Law Com No. 327 gives an in-depth explanation of this solution.

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