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A covenant is a promise contained in a deed. Covenants are relevant to land law where they affect the use and occupation of land – e.g. a landowner may give to another a covenant to keep in repair the fence forming a common boundary line and/or a covenant restricting the use of the land for building purposes. At common law a covenant is governed by rules relating to privity of contract to the effect that only parties to a contract can sue or be sued on the contract. Generally, the person making the promise (the covenantor) is personally liable to the person to whom the promise is given (the covenantee), even after the covenantor has disposed of the land.
How then does a covenantor protect himself against future liability? Note however that as with most contract, the benefit of a covenant can be assigned. At common law the benefit can also pass automatically with ownership of the land provided that:
The covenantee had a legal estate in the land when the covenant was given to him.
It was the intention that the benefit of the covenant should run with the land so that it could be enjoyed by the covenantee’s successors after he sold it (i.e. it was not intended to be personal to the covenantee). This is trite taking into consideration the liquid provision of Section 78 Law of Property Act 1925, which provides that covenants are to be deemed to be made with both the covenantee and his successors.
The covenant touches and concerns the land of the covenantee, i.e. in some way it benefits the use and enjoyment of the covenantee’s land.
As for the burden, it was and remains a feature of the common law that the burden of an obligation, whether positive or negative, cannot be passed on to another party. It follows that if the covenantor sells the land afflicted with the burden of the covenant, the covenantee (or his successors) cannot sue the covenantor’s purchaser for any breach. The original purchaser/covenantor remains liable under his covenant. He can protect himself by taking an indemnity from the purchaser, who in turn should take an indemnity when the property is sold for a second time etc. This however is of no benefit to the covenantee. It should also be remembered that chains of indemnity can break down on the death or disappearance of a link in chain.
The equitable approach is encapsulated in what is commonly referred to as the rule in Tulk v. Mothay. Equity will allow the burden of a covenant to pass with the land so as to be enforceable directly against the current owner provided the following four conditions are satisfied.
The covenant is negative. This will depend on whether compliance with the covenant involves expenditure of money. For instance, a covenant to keep an open space is negative. This will be in the nature of a covenant not to build. However a covenant not to allow to fall into disrepair is positive as it involves expenditure of money on repair.
There must be two pieces of land. The covenantor must have land which he intended to bind, and the covenantee must have retained land which is intended to benefit. This un-operative restrictive covenant in the above context will be in the nature of a contract between two neighbouring landowners by which the covenantee, anxious to maintain the saleable value of his property or to preserve the amenities of residence, acquires the right to restrain the covenantor from putting his land to certain specified uses. See L & S.WRY v. Gomm (1882) 20 ch D. 562.
The covenant must benefit the covenantee’s land – to the effect that breach of the covenant must in some way injuriously affect the use of the covenantee’s land. Therefore if there is a covenant, the breach of which could not interfere with or affect the covenantee’s land, a successor from the covenantor will not be liable.
A purchaser must have notice. A purchaser of a legal estate without notice is not bound. This is quite consistent with the principle that an equitable right will not bind a bonafide purchaser of the legal estate without notice. Remember that notice of restrictive covenant affecting unregistered land is normally given by registration of the covenant as a land charge and note that if it is not registered, it is void against a purchaser for money or money’s worth of a legal state or interest. Where however the title is registered, protection is by notice on the charges register of the burdened title. Thus the fact remains that at common law, as far as benefits and burdens of restrictive covenants are concerned, while benefits may run, burden does not run with the land so as to bind the assigns of the covenantor. See Austerberry v. Corporation of Oldham (1885) 29 ch. D750.
Thus, if the covenantor’s land changes hands, the burden can be enforceable by the original covenantee directly against the next owner and all successive owners provided the four conditions are satisfied. Note that the usual method of enforcing a negative or restrictive covenant is by an injunction. Where, however, the covenantee subsequently sells so that both the adjoining owners are strangers to the original arrangement.
Equity insists that the benefit must also pass to the covenantee’s successor. It is not enough to show that the benefit has passed at common law. In Equity, the benefit may pass by:-
- Express assignment
- Annexation
- Under a building scheme.
- We will explain the three seriatim.
Assignment needs no further explanation as benefits can be assigned to third parties under the rule of equitable assignment in Hall v. Dearle.
An Annexation
One can on mere perusal of the words used say that it is patently clear by the words used in the covenant that the benefit is annexed or attached to the land so that it passes automatically on transfer of ownership. Good conveyancing practice will require this to be succinctly drafted in the following phrase e.g. "…For the benefit of the land known as Sea Breeze and for each and every part thereof." Although the importance of the above may seem to be a cosmetic surplusage in view of the provisions of Section 78 Law of Property Act 1925, which says that the benefit of a covenant is deemed to be made with the covenantee and his successors in title. In Federated Homes Ltd v. Mill Lodge Properties Ltd., it was held that the benefit of a restrictive covenant would pass in equity.
Building Schemes
These are appropriate where there is a development of a subdivision or a new estate of houses, and the builder or developer who takes the covenant from the purchasers of the individual houses will cease at the end of the day to have any retained land for the benefit of which the covenants were given. Remember that anybody seeking to enforce the covenant must show that he has a piece of land, which is injuriously affected by a breach. It is technically possible as each plot is sold, for the developer to take covenants for the benefit of the buyers of the plots already sold, but this traditionally involves a requirement under section 56 Law of Property Act 1925 to identity each of the former purchasers individually. As the former purchaser will form a continually expanding class, each conveyance has to be worded differently, thus imposing administrative problems with the risk of error. The problem can be solved by the imposition of a building scheme. A building scheme is simply a serious of local bylaws covering the area of the development under which each individual owner can sue another owner directly in the event of a breach.
The requirements for a building scheme were laid down in Elliston V. Reacher
All purchasers must derive their titles from a common vendor.
The vendor must have laid out his land in separate before selling.
The same restrictions were imposed on all the purchasers.
The covenants were made by each purchaser on the basis that they were to be enforceable by every purchaser and with the intention of the vendor that they were to be for the benefit of all the plots.
The area to which the scheme relates must be clearly defined.
The problem with a building scheme is that the same restrictions must be imposed on all the purchasers. This does not allow flexibility if circumstances or needs change between the sale of the first plots and the subsequent sale of others, for example where a large housing estate is developed. But this is where contracts (rights of third parties) Acts can help. All the existing and future owners can be identified by membership of a class or by description. Thus, although the burden of a contractual obligation remains personal to the original contracting party, but the benefit can be enforced by a non-party if the agreement purports to confer a benefit on that person, either expressly or by implication.
Moreover, the third party to benefit need not necessarily be mentioned by name, but can be identified as a member of a class, or by answering to a particular description. Nor is it necessary for the third party to be in existence when the contract is entered into. Note that the Act will not operate to transmit the burden of positive covenants. The Act only applies to the passing of the benefit not the burden. Thus the burden of positive covenants will remain personal to the covenantor, who will presumably with to take an Indemnity on Sale or transfer.
In practice, a buyer of a house on a new estate or subdivision may also be required to give the covenants, not only for the benefit of the developer, but also for the buyers of other plots, whether past or future.
Extinction And Modification Of Covenants
A covenant can always be modified or cancelled by expressed agreement of the person entitled to the benefit. In addition, if the person who has the benefit ignores a breach of the covenant, equity may regard the delay as acquiescence and treat the covenant as having been extinguished by implication. Besides, if the covenant has outlived its use, for example, has become obsolete as a result of the changed character of the neighbourhood, or impedes the reasonable use of land without conferring any practical benefit, application can be made to the Supreme Court to discharge or vary the covenant. Sufficient notice must be given or served on the parties likely to be affected by the outcome of the application. |
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