4 - Freehold Covenants

Question 1

What is a covenant?

Answer 1

A covenant is a promise to do or not do something. For example, a promise not to build
on land.

Covenants are usually imposed when a person sells part of their land. Covenants can be
imposed for a variety of reasons, but their purpose is usually to maintain or enhance the value and/ or amenity of the land retained by the seller.

Question 2

Is a covenant capable of being legal?

Answer 2

Covenants are not capable of being legal interests in land. They are not listed in s 1(2) LPA 1925 and are therefore equitable by nature – s 1(3) LPA 1925

Question 3

What are the formalities required for a valid covenant?

Answer 3

As covenants are equitable by nature, the relevant formality is in writing and signed (s 53(1) LPA 1925). This means that it is possible to create a covenant by contract.

However, it is usual that a covenant will be created by deed. This is because covenants tend to be created on sale of part land and are included in the transfer

Question 4

Key terminology used when discussing covenants.

Answer 4

Covenantor - The person who makes the promise and who has the burden of the covenant.

Covenantee - The recipient of the promise and who has the benefit of the covenant.

Servient land - (Or burdened land) – the land bound by the covenant owned by the covenantor.

Dominant land - (Or benefited land) – the land with the benefit of the covenant owned by the
covenantee.

Annexation - This means that the benefit of the covenant is attached to the land of the
covenantee and the benefit passes
automatically to any successor in title of the
covenantee.

Assignment - An express transfer of the benefit of the covenant to a successor in title to the
covenantee.

Question 5

What is the difference between positive and restrictive covenants?

Answer 5

• A positive covenant requires some effort or expenditure to perform the obligation.
• A restrictive covenant requires no such effort or expense.

It is the substance of the covenant that defines whether it is positive or restrictive, rather than its wording.

Example:
Positive Covenants:
- To paint the exterior of the property every five years (requires effort).
- To contribute towards the cost of the maintenance of the shared driveway (requires expenditure).
- Not to let the property fall into disrepair (substance is positive but framed as restrictive).

Restrictive Covenants:
- Not to divide the property into flats (requires no effort or expense).

Question 6

How do original parties in a covenant relationship operate under contract law?

Answer 6

The original covenantor and the original covenantee are parties to a contract governed by contract law principles.

The original covenantor is bound by privity of contract, which means their liability can last indefinitely, even after the land has been sold.

The covenantor may covenant on behalf of themselves and their successors in title, either expressly within the relevant document (usually a deed) or implicitly through s 79 LPA 1925, provided the covenant relates to the land.

The obligation of the original covenantor applies to both positive and restrictive covenants.

Question 7

Can the benefit and burden of covenants pass at common law AND equity?

Answer 7

The benefit of a covenant refers to the person who benefits from the covenant (covenantee) (and successors in title), whereas the burden of a covenant refers to the rights of the person who makes the promise and burdens from the covenant (covenantor) (and successors in title).

Benefit:
- The benefit of a covenant can pass at common law for positive covenants and restrictive covenants.
- The benefit of only a restrictive covenant can pass at equity.

Burden:
- The burden of a covenant cannot pass at common law, whether positive or restrictive.
- The burden of a covenant can pass at equity for only restrictive covenants.
- There are alternative methods available for positive covenants including creating a lease, creating an indemnity covenant, or the doctrine of mutual benefit and burden.

Question 8

What is the rule regarding the running of the burden of covenants at common law?

Answer 8

The burden of a covenant, whether positive or restrictive, cannot pass at common law.

This principle is based in contract law, where the rule is that only the benefit of a contract can be assigned, not the burden.

If the burden of a covenant (whether positive or restrictive) is to pass to successors in title, it must therefore do so in equity.

Question 9

What conditions must be met for the burden of a restrictive covenant to run in equity?

Answer 9

The burden of a restrictive covenant may pass in equity under the doctrine in Tulk v Moxhay if the following requirements are satisfied:

1. The covenant must be negative (restrictive) in substance.
2. At the time of the covenant’s creation, it must have been made to benefit dominant land retained by the covenantee.
3. The covenant must touch and concern the dominant land.
4. The covenant must be made with the intent to burden the servient land.
5. The owner of the servient land must have notice of the covenant for it to bind them.

Example: Mark, who owns 6 and 8 Tennyson Avenue, sells 8 Tennyson Avenue (‘the Property’) to Stella.
The transfer to Stella contained a clause stating that the Buyer and her successors in title covenants to:
(a) paint the exterior of the Property every five years; and
(b) not use the Property for any purpose other than a private dwelling house.

When Stella sold the Property to Emma, the burden of the covenants could not run at common law but may run in equity if the requirements in Tulk v Moxhay are met.

The covenant regarding painting requires effort/expenditure, making it positive, and therefore the burden does not run in equity.

However:
- The covenant related to the use of the Property is negative/restrictive in substance, thus it can run in equity.
- Mark retained ownership of 6 Tennyson Avenue, which benefits from the covenant.
- The restrictive covenant is advantageous to any owner of the dominant land (6 Tennyson Avenue) and enhances its mode of use and value.
- The transfer includes an express intention for the burden of the covenant to run, stating, ‘The Buyer and her successors in title…’.
- Provided Emma has notice of the restrictive covenant, she will be bound by it.

Question 10

How to show that the covenant was made to benefit dominant land retained by the covenantor?

Answer 10

• The covenant must, at the time of the creation of the covenant, have been made to benefit dominant land retained by the covenantee.
• There must be identifiable dominant land owned by the covenantee at the time the covenant is created.
• As most covenants are created when a part of land is sold, this means that the seller must retain land.

For example, in London County Council v Allen [1914] 3 KB 642, the County Council sold land subject to a covenant not to build on it.
Mrs Allen was a successor to the original covenantor and started to build on the land.
The County Council could not prevent her from building as it had failed to retain any dominant land.

Question 11

What does it mean for a covenant to “touch and concern” the dominant land?

Answer 11

A covenant “touching and concerning” the dominant land must meet the following criteria:

1. It must benefit only the dominant owner for the time being, ceasing to be advantageous if separated from their land.
2. It must affect the nature, quality, mode of user, or value of the land of the dominant owner.
3. It must not be expressed to be personal, meaning it cannot be limited to one specific dominant owner.

This principle is illustrated in P & A Swift Investments v Combined English Stores Group plc.

Question 12

How can intention to burden the servient land be established in covenants?

Answer 12

The intention to burden the servient land can be established through:

Express intention: Clearly stated in the covenant document (e.g., a clause specifying the burden for the buyer and their successors).

Implied intention: Under s 79(1) LPA 1925, unless a contrary intention is expressed, a covenant is deemed made by the covenantor on behalf of themselves and their successors in title. It also implies this wording into covenants to make original covenantor liable for all breaches by any successor

Example: In a covenant stating the buyer agrees to use the property only as a private dwelling, express intention is present.

Question 13

How can notice to the owner of the servient land of the covenant be established?

Answer 13

The owner of the servient land must have notice of the covenant for it to bind them.
Whether the successor covenantor is deemed to have notice of the covenant depends on whether it has been properly protected by registration.

Registered: The covenant must be protected by the entry of a notice in the charges register of the servient title (LRA 2002, s 32)

Unregistered: The covenant must be protected by a Class D(II) Land Charge.

In either case, if not done, a purchaser for value of the burdened land will not be bound, but a donee (someone who inherits of is gifted the estate) would be.

Question 14

What are the three alternative methods of enforcing the burden of a positive covenant, as they cannot run with the land at common law or equity?

Answer 14

The burden of positive covenants cannot run with the land, either at common law or in equity, and are therefore not enforceable against a successor in title to the covenantor.

There are three devices that have evolved at common law where positive covenants can be enforced against successors in title of the servient/burdened land (either directly or indirectly):
- Create a lease.
- Indemnity covenant.
- The doctrine of mutual benefit and burden: Halsall v Brizzell.

Question 15

How does creating a lease pass the burden of a positive covenant to a successor in title?

Answer 15

• Instead of selling the land freehold, the landowner can create a lease.
• Both restrictive and positive covenants are binding on a successor in title to a tenant.
• This ensures that positive covenants are enforceable, but leases are less attractive to a buyer than the purchase of freehold land.

Question 16

How does creating an indemnity covenant work in relation to positive covenants?

Answer 16

An original covenantor remains bound by their promise as a consequence of privity of contract.

Upon the sale of the servient land (the land burdened by the covenant), it is normal conveyancing practice to require the buyer to enter into an indemnity covenant promising to observe positive covenants and indemnifying the seller for any loss incurred as a consequence of any breach.

An indemnity covenant is then sought from each subsequent buyer of the servient land, creating a chain of indemnity covenants.

This enables the original covenantor to sue their successor on the indemnity and so on down the line, but does not enable the original covenantor to sue the current owner who is in breach as there is no privity of contract between them.

A chain of indemnities is only as strong as its weakest link. If one person in the chain cannot be found or is insolvent then the chain is of little value and the entire burden would then fall on the last person in the chain.

Question 17

How does the doctrine of mutual benefit and burden work in relation to positive covenants?

Answer 17

The doctrine of mutual benefit and burden, established in Halsall v Brizell, states that to benefit from a service or facility, a person must also comply with related obligations.

Two preconditions (from Thamesmead Town Ltd v Allotey) include:
(i) The burden must be ‘relevant to the exercise of the rights which enable the benefit to be obtained’; there must be a clear correlation between the benefit and the linked burden.

(ii) The covenantor’s successors in title must have the opportunity to elect whether to take the benefit (and accept the related burden) or to renounce it (and escape the related burden).

(iii) The benefit and burden must be conferred in the same transaction.

This doctrine does not directly enforce positive covenants but allows owners of benefited land to prevent the use of rights until maintenance costs are paid. For example, if a right of way is granted subject to a maintenance contribution, the owner can deny access if the payment is not made.

E.g., A covenant to contribute towards the costs of the maintenance of a tennis courts, which the the servient land owner has a right to use and chooses to use - The is a mutual benefit - the right to use the tennis court, which the servient land owner is choosing to take. Therefore, the burden will pass using the rule in Halsall v Brizell.

Question 18

What are the annexation rules for the running of the benefit at common law?

Answer 18

The original covenantee can enforce a covenant in contract.

If the land benefiting from the covenant is sold, the covenantee’s successor can enforce the covenant at common law if the following rules are complied with:

(a) The covenant must touch and concern the land.

(b) There must have been an intention that the benefit should run with the estate owned by the covenantee.
(This will either be by express words or implied by s 78 LPA 1925).

(c) The covenantee must have a legal estate in the benefited land. (Therefore no benefit can pass where the original covenantee held an equitable interest).

(d) The buyer of the benefited land must also take a legal title in the benefited land. (e.g., could pass to the tenant of a legal lease, does not need to be an identical estate).

Question 19

What are the assignment rules for the running of the benefit at common law?

Answer 19

It is possible for the benefit of a covenant to pass to a successor by express assignment.

This must take place at the same time as the transfer of the land.

It must be in writing and signed by the assignor (the original covenantee).

Written notice of the assignment must be given to the person with the burden of the covenant (s 136 LPA 1925).

Question 20

What are the three sets of rules for the running of the benefit in equity?

Answer 20

The three sets of rules for the running of the benefit in equity are:
- Annexation
- Assignment
- Building schemes

This only applies to the running of the benefit of a restrictive covenant.

Question 21

What is annexation in the context of covenants, and how does it enable enforcement of a the benefit of a restrictive covenant?

Answer 21

Annexation refers to the permanent attachment of the covenant to the dominant land. It enables any owner of the dominant land to enforce the covenant.

The three methods of annexation are:
- Express annexation.
- Implied annexation.
- Statutory annexation.

Question 22

What is express annexation, and how does it allow the benefit of a restrictive covenant to run with the land?

Answer 22

Express annexation requires the covenant to express an intention to benefit a defined piece of land.
- It is not sufficient for the covenant to be made for the benefit of the covenantee and their successors in title, as seen in Renals v Colishaw.
Clear words and a well-defined piece of land must be used.
- The annexation should apply to the whole of the dominant land, no matter how extensive, and standard practice includes the words ‘each and every part’ to ensure future division into smaller plots is covered.
- In Federated Homes Ltd v Mill Lodge Properties Ltd, obiter comments suggest these words may no longer be needed.

Example: Amelie, the freehold owner of 12 and 14 Trent View Gardens, sells number 14 to Bradley with a covenant for the benefit and protection of 12 Trent View Gardens, including “each and every part thereof.” Christa, the new owner of part of number 12, enjoys the benefit of the covenant as it has been annexed to the Garden Land.

Question 23

What is implied annexation, and how does it allow the benefit of a restrictive covenant to run with the land?

Answer 23

Implied annexation may apply where the court is willing to imply annexation based on an obviously intended and justifiable intention.

This intention must be evident in the transfer, considering all surrounding circumstances (Marten v Flight Refuelling Ltd).

However, the decision in Federated Homes likely makes this line of cases redundant, with statutory annexation being considered a priority.

Question 24

What is statutory annexation, and how does it allow the benefit of a restrictive covenant to run with the land?

Answer 24

Statutory annexation automatically annexes a freehold covenant to each part of the covenantee’s land under s 78 LPA 1925, provided:
- The covenant was created after 1925 (post-implementation of the LPA).
- The covenant touches and concerns the land, using the test from P & A Swift Investments v Combined English Stores Group
plc.

The broad application from Federated Homes has been limited by:
- The original covenanting parties’ ability to exclude the effect of s 78 LPA (Roake v Chadha).
- The need for the land benefiting from the covenant to be identifiable from a description, plan, or external evidence (Crest Nicholson v McCallister).

Example: Joeeta sells number 8 Woodbury Road to Cameron with a covenant stating it is for the benefit of Joeeta. Since the land benefiting from the covenant (number 6) is identified and the covenant was created post-1925, statutory annexation applies, allowing Matthew (the new owner of number 6) to enforce the covenant in equity.

Question 25

How does the benefit of a covenant pass in equity through assignment?

Answer 25

The benefit of a covenant can pass in equity by express assignment, provided the same conditions apply as for the passing of the benefit at common law:
- The assignment must take place at the same time as the transfer of the land.
- It must be in writing and signed by the assignor (the original covenantee).
- Written notice of the assignment must be given to the person with the burden of the covenant (s 136 LPA 1925).

Question 26

What are the characteristics of a building scheme for allowing the benefit of covenants to run with the land?

Answer 26

When a new housing estate is built, all houses are sold subject to the same covenants. New owners who wish to enforce a covenant against a neighbour may struggle to show that the benefit of a particular covenant has passed to them.

Building schemes resolve this problem relating to restrictive covenants only.
- If the conditions of a building scheme are met, the covenants are treated as a set of by-laws enforceable by and against all owners. It is not necessary to show specifically that the benefit of a particular covenant has passed to a claimant.

The conditions are set out in Ellison v Reacher [1908] 2 Ch 374
- All buyers buy from the same seller
- The seller divided the estate into plots
- The covenants were intended to benefit all plots
- Each buyer buys on the understanding that the covenants are intended to benefit all plots

Later cases have interpreted these rules as guidelines rather than strict requirements.
A court will need to be satisfied that it was the intention of the parties to create a scheme of mutually enforceable obligations.

Question 27

How does the matching of the benefit and burden apply to restrictive covenants?

Answer 27

For restrictive covenants, when both dominant and servient land change hands:
- The burden of a restrictive covenant cannot pass at common law but may pass in equity if the criteria in Tulk v Moxhay are met.
- The successor to the covenantee must show that they have the benefit of the covenant in equity to enforce it.

Question 28

What are the remedies available for breach of a positive covenant?

Answer 28

Damages are the usual remedy at common law for breach of a positive covenant.
- They can be claimed by the original covenantee or their successor in title if the benefit of the covenant has passed to them.
- Damages provide a monetary solution and may include compensation for future loss.
- The original covenantee cannot claim damages after disposing of the land benefiting from the covenant as they cannot show a loss.

Specific performance may be sought for breach of a positive covenant by the original covenantor but not by their successor in title.
- However, the original covenantor cannot directly perform the obligation after selling the land but can pay for the breach.

Question 29

What remedies are available for breach of a restrictive covenant?

Answer 29

A restrictive covenant only runs with the land in equity, so the main remedy is an injunction.
- An injunction restrains the breach and can be applied for in anticipation of a breach or in response to an existing one.
- An injunction is an equitable remedy, so the court has discretion in granting it.
- Typically, if the breach is threatened or ongoing, the claimant can apply for a prohibitory injunction, ordering the breach to cease.
- If the breach has already occurred, the claimant can apply for a mandatory injunction, ordering the person in breach to do something.

Damages may be awarded instead of an injunction where:
- The injury to the claimant’s rights is small.
- The loss can be estimated in money.
- Money can adequately compensate the claimant.
- It would be oppressive to grant an injunction (Shelfer v City of London Electric Lighting Co (1895)).
- Oppression may occur where homes have been built and sold in breach of a covenant, in which case the court may favour damages.
- If the breach is in flagrant disregard of the covenant, the court may be less sympathetic to the argument of oppression.

An injunction will not be awarded if:
- The claimant has delayed taking action (Gafford v Graham [1999]).
- The claimant has acted inequitably (‘he who seeks equity must do so with clean hands’).
- A claim against the original covenantor may be possible based on privity of contract, but this would only be for damages.

Question 30

What are the methods for removing or limiting the effect of a restrictive covenant?

Answer 30

Express release:
- The covenantee(s) may agree to release or modify a restrictive or positive covenant.
- This requires a deed between the owners of the servient and dominant land, with payment or value often negotiated.

Common ownership (unity of seisin):
- When the servient and dominant lands come into common ownership, the covenant (restrictive or positive) is extinguished.

Section 84 LPA 1925:
Only applies to restrictive covenants.

An application can be made to the Lands Chamber of the Upper Tribunal to discharge or modify the covenant.
The Lands Chamber may discharge or modify the covenant if:

1. The covenant is obsolete.
2. The covenant impedes reasonable use of the land and:
   - Does not provide a practical benefit or value to those it benefits.
   - Is contrary to the public interest.
   - Money would adequately compensate in either case.
3. Those entitled to the benefit have agreed to the discharge (expressly or impliedly).
4. The discharge will not harm those entitled to the benefit.

A preliminary application can be made under s 84(2) LPA 1925 to establish the identity of dominant owners if unknown.

Insurance:
- Insurance is available for restrictive covenants.
- A one-off premium is paid for a policy where the insurer assumes the financial risk of enforcement by dominant owners.

Question 31

Provide a summary of freehold covenants.

Answer 31

• Covenants are not capable of being legal.
• Covenants can be created by being in writing and signed.
• A covenant that requires effort or expense for its performance is positive in substance.
• The original covenantor is bound by privity of contract.
• The burden of a positive covenant cannot pass to a successor in title to the original
  covenantor.
• The burden of a restrictive covenant can pass in equity if the criteria in Tulk v Moxhay is met.
• Positive covenants may be indirectly enforced using the doctrine of mutual benefit and
  burden or a chain of indemnity covenants.
• The benefit of a covenant can pass at common law.
• The benefit of a covenant can pass in equity (relevant for restrictive covenants).
• If the burden has passed in equity it must be matched by the benefit passing in equity
  (restrictive covenant).
• If a successor to the original covenantee wishes to purse the original covenantor for
  breach of a covenant, they must show they have the benefit at common law.
• Remedies for the breach of a positive covenant are damages and possible specific
  performance.
• Remedies for the breach of a restrictive covenant are injunction or damages in lieu of an injunction.
• Covenants can be released or modified by agreement, common ownership or (in the case
  of restrictive covenant) by an application to the Lands Chamber.