6. Covenants

Question 1

What is a “covenant”?

Answer 1

A covenant is an agreement or a promise within a deed, used by landowners to control the use of land.

Question 2

Who is the “covenantor” and “covenantee”? Which is the “burdened” and “benefitted” land?

Answer 2

The person who makes the promise, so takes on the burden, is called the covenantor.
The person who receives the benefit of the covenant, so of the promise, is called the covenantee.

Question 3

What is used instead of public planning permission when dealing with smaller developments?

Answer 3

Covenants can be used as a form of private planning control to regulate these smaller developments of land.

Question 4

What does the expression “run with the land” mean?

Answer 4

If a covenant ‘runs with the land’ it means it is attached to the land and will pass with each sale of the property.

Question 5

How is privity of contract relevant when discussing whether a covenant ‘runs with the land’?

Answer 5

If a covenant is agreed between a covenantor and a covenantee, privity of contract ensures that the agreement applies to only them, as they entered into an agreement without third parties.

Question 6

What are positive covenants?

Answer 6

Positive covenants tell the covenantor what they must do (imposes an obligation to perform), though they may be so worded as to read – at first glance – like a negative obligation. For example, a covenant not to allow a party wall to fall into disrepair is, in fact, a positive covenant to keep it in repair.

Question 7

What are restrictive covenants?

Answer 7

Restrictive covenants tell the covenantor what they must not do (restricts the use of the land). They are usually in order to maintain the character of a property. A common covenant employed in “open plan” developments is that the covenantor shall not erect any boundary wall or fence which is more than one foot high.

Question 8

Can restrictive easements be legal or equitable?

Answer 8

Restrictive easements can only exist in equity. They cannot be legal.

Question 9

What are the remedies for breaching restrictive easements?

Answer 9

Damages or an injunction, to stop the breach.

Question 10

Who has the power to modify or discharge a covenant?

Answer 10

The Upper Tribunal (Lands Chamber)

Question 11

Where is the burden of a restrictive covenant noted on the title register in registered land?

Answer 11

It is noted on the charges register as an agreed or unilateral notice.

Question 12

What is a personal covenant?

Answer 12

A personal covenant is not intended to run with the land and simply bind the parties who have made the promises to each other. They are only enforceable against the person entering the covenant.

Question 13

If the covenantee sells their interest in the land, can they still sue the covenantor if they breach the covenant?

Answer 13

Yes, but as they have sold the land, they have not suffered any ‘loss’ - that is suffered by the present owner (the successor in title). They will only receive nominal damages due to the broken promise.

Question 14

Can an owner of the benefitted land who was not party to the original agreement, enforce the covenant against the current owner of the burdened land (whether the original party or a successor in title)?

Answer 14

Yes, s56(1) Law of Property Act 1925 (LPA 1925) states that a person can take the benefit of a covenant even though they were not a party to it.

Question 15

Who can s56(1) LPA 1925 benefit?

Answer 15

s56 can only benefit persons who are in existence and identifiable when the covenant is made and they were not named expressly as parties to it.

Question 16

When making a covenant, why must you use ‘with’ instead of ‘for’ them?

Answer 16

The covenant must be made “with” them and not just “for” them, so the wording must say, for example, “I covenant with Z and with the owners for the time being of the lands adjoining”. The effect is that the people identified are seen as parties to the covenant even though they may not necessarily know that such a covenant has been made!

Question 17

Which piece of legislation has relaxed the doctrine of privity of contract and what does it state?

Answer 17

Contract (Rights of Third Parties) Act 1999. The third party wishing to enforce a term in the contract must be expressly identified in the contract by name, or as a member of a class or answering to a particular description, but need not be in existence when the contract is entered into. Remember that this Act applies only to contracts made after May 2000.

Question 18

How are restrictive covenants discovered in unregistered land?

Answer 18

The restrictive covenant must be registered as a D(ii) land charge if it is to bind a buyer.

Question 19

Is there a need, at common law, for burdened land in positive or restrictive covenants?

Answer 19

No, the covenantor does not need to have any land to carry the burden. However, there is a need in equity.

Question 20

Does the benefit of a positive and restrictive covenant run with the land at common law?

Answer 20

Yes, but only if the following four requirements are satisfied:

1) The covenant must touch and concern the land of the covenantee
2) The covenantee must own the legal estate in the land to be benefitted when the covenant was made
3) The successor of the covenantee must have a legal estate
4) The original parties must have intended that the covenant should run with the covenantee’s land

Question 21

What is meant by ‘the covenant must touch and concern the land of the covenantee’?

Answer 21

The covenant must affect the use of the land, its value or how it is used. The benefit of purely personal covenants will not run with the land. See the working test in P&A Swift Investments Ltd v Combined English Stores Group plc [1989] which will apply for this and leasehold covenants.

Question 22

What is meant by ‘The covenantee must own the legal estate in the land to be benefitted when the covenant was made’?

Answer 22

It means that the common law believes that the covenant attaches to the legal estate and passes with it. Therefore, it is essential that, at the time the covenant was made, the covenantee was the owner of the legal estate in the land upon which the benefit was to be conferred.

Question 23

What is meant by ‘the successor of the covenantee must have a legal estate’?

Answer 23

Smith and Snipe’s Hall Farm held that the effect of s78 LPA 1925 was that successors did not need to have the same legal estate as the original covenantee, so long as they derived title from the original covenantee. Therefore, both a transferee of the covenantee’s freehold estate and the transferee’s tenant under a lease could enforce a covenant.

Question 24

What is meant by ‘the original parties must have intended that the covenant should run with the covenantee’s land’?

Answer 24

Intention is necessary - s78(1) LPA 1925 implies the intention when a covenant is made for the benefit of the covenatee’s land.

Question 25

Does the burden of a covenant pass to third parties at common law?

Answer 25

No, it does not. This means that neither the seller of the benefitted land, nor their successors in title, can enforce the covenant against a buyer of the burdened land or their successors in title. Only the benefit passes at common law.

Question 26

What are the exceptions to the rule that the burden of a covenant cannot pass at common law?

Answer 26

s153 LPA 1925
Creating a chain of (indemnity) covenants
The doctrine of ‘mutual benefit and burden’ or the rule in Halsall v Brizell [1957]
An estate rentcharge
Granting a lease
Commonhold

Question 27

Explain the s153 LPA exception to the rule that the burden of a covenant cannot pass at common law?

Answer 27

s153 LPA 1925 - a 300 year lease with 200 years left on it and without rent enlarges to a freehold estate, but is subject to the same covenants that were in the lease. Positive covenants can run with the lease.

Question 28

Explain the ‘creating a chain of covenants’ exception to the rule that the burden of a covenant cannot pass at common law?

Answer 28

Creating a chain of (indemnity) covenants - successive buyers of covenantor land indemnifies immediate predecessor in title. Original covenantor remains liable due to privity of contract, but suing would create a chain (X sues Y, Y sues Z) Weaknesses are original coventator dying or breaking of chain where no indemnity is obtained. Dominant can only claim damages, without resolving breach.

An alternative is that the covenantee requires the covenantor to ask for the covenantee’s consent to sell the burdened land. Consent would only be given if the buyer of the burdened land entered into a new covenant with the covenantee or their successors in title. Registered land - restriction entered on register.

Question 29

Explain the ‘doctrine of ‘mutual benefit and burden’ or the rule in Halsall v Brizell [1957]’ exception to the rule that the burden of a covenant cannot pass at common law? Which is the relevant case?

Answer 29

The rule only allowed the enforcement of a burden which was directly related to the benefit being enjoyed. E.g. if a conveyance of land on a housing estate gives the buyer the right to use the estate road, but also imposes costs on them for its upkeep, a successor in title can’t use the road without paying contributions. Davies v Jones [2009] gives three requirements for this doctrine to be upheld.

Question 30

In Davies v Jones [2009], what are the three requirements for the doctrine of mutual benefit and burden to be upheld?

Answer 30

In Davies v Jones [2009], the court emphasised the three requirements for the doctrine to be upheld.

(a) The burden must be conferred in or by the same transaction as the benefit.
(b) The benefit must be conditional on, or reciprocal to, the burden.
(c) The person who has the burden must have had the opportunity of rejecting or disclaiming the benefit, not merely the right to receive the benefit.

Question 31

Explain the ‘estate rentcharge’ exception to the rule that the burden of a covenant cannot pass at common law? Which is the relevant case?

Answer 31

An estate rentcharge is a periodical payment in respect of land. The rentcharge is coupled with a right of re-entry, which means that, if the covenantor does not carry out their positive obligations, whether to pay the rent or to carry out the other covenants, they may forfeit the land. The right of re-entry can bind buyers of the burdened land.

Estate rentcharges are excluded from the prohibition on the creation of new rentcharges under the Rentcharges Act 1977.

Question 32

Explain the ‘lease’ exception to the rule that the burden of a covenant cannot pass at common law? Which is the relevant case?

Answer 32

By granting a lease rather than a fee simple absolute, the buyer of leasehold land will generally be bound by both positive and negative covenants. The difficulty is that the leasehold covenant is enforceable only by the landlord, not by other tenants.

Question 33

Explain the ‘commonhold’ exception to the rule that the burden of a covenant cannot pass at common law? Which is the relevant case?

Answer 33

The common method of granting long leases with a view to enforcing obligations in such cases can be replaced by the freehold ownership of individual units in such properties. The rights and obligations of each unit holder are governed by a commonhold community statement in respect of the property and become mutually binding by force of statute, regardless of any subsequent change in the ownership of the individual unit.

Whilst commonhold is a method of avoiding the problem that the burden of a positive covenant does not run with the land, it is rarely used and few commonholds have been created.

Question 34

Can the burden of a covenant run in equity?

Answer 34

Although the burden of a covenant cannot run at law, it may run in equity providing certain requirements are met.

Question 35

In which case was the binding effect of a restrictive covenant in equity first recognised?

Answer 35

Tulk v Moxhay [1848] marked the invention by the courts of a major new interest in land. The case involved a covenant not to build on Leicester Square. This covenant clearly bound the covenantor; however, the Lord Chancellor said it also bound their successors in title.

Question 36

What is the general effect of the rule in Tulk v Moxhay?

Answer 36

The general effect of the rule in Tulk v Moxhay is that, subject to certain conditions, a covenant which is negative (restrictive) in substance will run with the land so as to bind successors in title to the servient owner. (In equity)

Question 37

What are the five requirements for the burden of a covenant to run in equity?

Answer 37

1) Must be negative (restrictive) in nature
2) There must be benefitted and burdened land (and must be close together)
3) The covenant must touch and concern (benefit*) the benefitted land
4) Must have been intended to run with the convenantor’s land**
5) It is equitable because it doesn’t come within the category of interests capable of being legal under s1(2) LPA 1925.

*a benefit is something which affects either the value of the land or its use or enjoyment.
**if made before 1926, wording must be in the deed. Otherwise s79(1) LPA 1925, unless there is contrary intention.

Question 38

Will the burden of a restrictive covenant ever have overriding status in equity?

Answer 38

No, it can never have overriding status under Schs 1 and 3 LRA 2002 as there will be no actual occupation.

Question 39

What are the two conditions for the passing of the benefit in equity?

Answer 39

The covenant must have touched and concerned the covenatee’s land.
The original parties must have intended the benefit to run with the land.

Question 40

What are the three ways in which the intention to allow the benefit of a covenant to run with the land is shown in equity?

Answer 40

Annexation
Assignment
Under a building scheme

Question 41

What is annexation?

Answer 41

Annexation is a process where the original parties to the covenant show an intention to attach the benefit to the land through the words used in the covenant.

Question 42

In annexation, does it matter if the buyer does not know about the covenant at the beginning, but then wants to enforce it later?

Answer 42

No, the benefit will pass automatically.

Question 43

What are the 3 types of annexation?

Answer 43

Express
Implied
Statutory

Question 44

Which has stricter rules; passing a benefit of a covenant in common law or in equity?

Answer 44

In equity, The Court of Chancery regarded attachment as important, so laid down stricter rules.

Question 45

What are the rules for annexation to exist?

Answer 45

In the deed, one of the following two phrases are required:
a) that the covenant was taken for the benefit of certain land
b) that the covenant was made with the covenantee in their capacity as owner of the dominant land.

In both cases, the dominant land must be identified in the deed or be ascertainable from the terms of the deed. Unless (a) or (b) was proved, the courts would hold that the covenant had not been attached.

Question 46

If a covenant is attached to the land, but only benefits part of the land, will it be held?

Answer 46

Yes, once a covenant is annexed, it benefits each and every part of the dominant land.

Question 47

Can a restrictive covenant be annexed by implication from the circumstances?

Answer 47

Yes, there are a few cases where the court was prepared to find that there could be an implied annexation of the benefit.

Question 48

Which piece of legislation changed the way s78 LPA 1925 was interpreted?

Answer 48

Federated Homes Ltd v Mill Lodge Properties Ltd [1980]. Originally thought to be a word-saving provision to avoid having to use express words of annexation, Federated Homes changed s78 to imply an automatic intention that the benefit of the covenant will be annexed to the land for covenants after 1926 if the covenant touched and concerned the land.

Question 49

When Federated Homes changed the way s78 LPA 1925 was seen, what two questions were raised?

Answer 49

How does the land benefitting from the covenant need to be described? If not in express words, by implication using evidence outside the document or evidence outside the conveyance (to identify the benefitted land if it wasn’t mentioned in the conveyance)?
Answer: the land which is to benefit from the covenant must be sufficiently defined within the conveyance so as to be identifiable in order for annexation to take place, although outside evidence could be used in support such as a plan.
Can automatic annexation under s78 be excluded?
Answer: Yes, subject to the wording used in the conveyance. E.g. it can be excluded by stating expressly that the benefit of the covenant could be transferred only in a specific manner.

Question 50

When using s78 LPA 1925 to annex a benefit of a covenant, how does the land benefitting the covenant need to be defined?

Answer 50

It must be defined within the conveyance so as to be identifiable in order for annexation to take place, although outside evidence could be used in support such as a plan.

Question 51

Can automatic annexation under s78 LPA 1925 be excluded?

Answer 51

Yes, subject to the wording used in the conveyance. E.g. it can be excluded by stating expressly that the benefit of the covenant could be transferred only in a specific manner.

Question 52

What is assignment?

Answer 52

Assignment is assigning the benefit of a covenant (usually by the use of express words of assignment in the conveyance executed by the covenantee) in favour of their successors in title, or by such successors in favour of later buyers from them.

Question 53

What are the equitable rules under which an express assignment is allowed?

Answer 53

(1) The covenant must benefit – “touch and concern” – the dominant land. As with easements, restrictive covenants in equity cannot exist in gross. There must be both a dominant and a servient tenement.
(2) The land must be indicated in the conveyance or have been otherwise shown with reasonable certainty.
(3) The assignment of the covenant and the conveyance of the land to which it relates must be contemporaneous.
(4) The land must be retained in whole or in part by the claimant and be capable of benefitting from the covenant.

The chain of assignment must, however, be unbroken in order to be enforceable.

Question 54

What is another name for a building scheme?

Answer 54

A scheme of development.

Question 55

When does a building scheme arise?

Answer 55

A building scheme, or scheme of development, arises where a property developer who intends to build an estate of properties and wishes to impose restrictions on the buyers of each of the plots of land in order to retain the overall characteristics of the estate and to maintain the values of the properties on it for the mutual benefit of all buyers.

Question 56

Are restrictive covenants allowed in a building scheme?

Answer 56

Yes, equity enables restrictive covenants which relate to each plot on the estate to be enforced by all who currently own any land within the scheme.

Question 57

As well as building schemes, where else does the principle of restrictive covenants being enforced by all who own land in the scheme apply?

Answer 57

Not only usual housing developments, but also to units in a shopping precinct.

Question 58

What case lays down the essential elements of a building scheme and what are they?

Answer 58

The essential elements of a building scheme were laid down in Elliston v Reacher [1908]?

(1) Both the claimant and defendant must obtain title from a common owner.
(2) The common owner must have laid out a definite scheme of development prior to the sales of the plots now owned by the claimant and defendant.
(3) There was an intention to impose a scheme of mutually enforceable restrictions upon all buyers of land within the development and their successors in title.
(4) Every buyer bought their land knowing of the scheme and intending to be bound by the mutually enforceable restrictions.
(5) (Added in Reid v Bickerstaff 1909) The area affected by the scheme must be clearly defined.

Question 59

What are the characteristics of a building scheme?

Answer 59

In, Birdlip v Hunter [2016], a Court of Appeal case, set out the characteristics of a building scheme.

(a) It applies to a defined area.
(b) Owners of properties within that area have purchased their properties from a common owner.
(c) Each of the properties is burdened by covenants which were intended to be mutually enforceable as between the several owners.
(d) The limits of that defined area are known to each of the buyers.
(e) The common owner is themself bound by the scheme, which crystallises on the occasion of the first sale of a plot within the defined area, with the consequence that they are not entitled to dispose of plots within that area otherwise than on the terms of the scheme.
(f) The effect of the scheme will bind future buyers of land falling within the area, potentially forever.

Question 60

What are the two most important prerequisites for a scheme of mutual covenants?

Answer 60

The need for identification of the land bound by the scheme and mutual reciprocity of the covenants.

Question 61

If there is a benefit in common law and a burden in equity, can both be upheld in one scenario?

Answer 61

No, you must use the rules in the same jurisdiction when looking at both sets of rules.

Question 62

Outline the difference between passing the benefit of a covenant in common law vs equity?

Answer 62

Common Law:
- covenant touches and concerns the land of the covenantee;
- covenantee owns the legal estate in the land;
- the successor of the covenantee must have a legal estate;
- original parties must have intended that the covenant should run with the covenantee’s land (s78 LPA 1925).

Also note:
— s56 LPA 1925;
— Contracts (Rights of Third Parties) Act 1999.

Equity:
- the covenant must touch and concern the land;
- covenantee must have owned land capable of benefitting from the covenant;
- the benefit of the covenant must have passed to the successor in title in one of three ways:
— annexation to land – express, implied or statutory under s78 LPA 1925;
— assignment of the covenant;
— building schemes and schemes of development.

Question 63

Outline the difference between passing the burden of a covenant in common law vs equity?

Answer 63

Common Law:

• burden of the covenant does not pass at common law;
• examples of exceptions to this are:
  — a chain of indemnity covenants;
  — conveyance contains a rentcharge;
  — under the principle in Halsall v Brizell.

Equity:

• assignee of burdened land is bound by covenant if:
  — the covenant is negative in nature;
  — there is a benefitted and burdened land;
  — the covenant touches and concerns the benefitted land;
  — the burden of the covenant was intended to run with the land (s79 LPA 1925);
• restrictive covenant protected in the appropriate way in either unregistered or registered land.

Question 64

What must you do if you are acting on a purchase about covenants?

Answer 64

Establish whether a covenant has been reached in the past either by the seller or a previous owner. You must find out what your buyer client intends to do with the property.

Question 65

What happens if a covenant has been breached, what does the buyer expect?

Answer 65

If a covenant has been breached, the buyer will expect the seller to provide indemnity insurance on completion.

Question 66

Is it possible to get indemnity insurance for a future breach, i.e. action not yet taken?

Answer 66

It is generally not possible to obtain indemnity insurance for a future breach, that is, for action which a prospective buyer is yet to take up property.

Question 67

Why must none of the parties involved approach anyone who might have the benefit of a restrictive covenant period?

Answer 67

In all cases where indemnity insurance might be required, it is essential that none of the parties involved make any approaches to anyone who might have the benefit of a restrictive covenant period if such an approach is made, this will either invalidate an existing indemnity insurance policy or make it very difficult (or expensive) to obtain an indemnity insurance policy.

Question 68

What enforcement action can be taken for breach of covenant?

Answer 68

Damages or an injunction.

Question 69

What might defeat a claim for breach of a restrictive covenant?

Answer 69

Delay, as equitable remedies are discretionary.

Question 70

How can covenants be released?

Answer 70

• Expressly, waived by the person with the benefit of the covenant.
• Through abandonment or estoppel where the covenant has been breached for a long time but no action has been taken by the person entitled to the benefit of the covenant.
• Under s84 LPA 1925.

Question 71

How can covenants be modified or discharged under s84 LPA 1925?

Answer 71

Under s84(2) LPA 1925 a person selling or leasing land to a person who requires an assurance that they are in no danger from a covenant can apply to the court for a declaration as to its validity.

Question 72

Apart from the person with the benefit of the covenant, who else can discharge a covenant?

Answer 72

The Lands Chamber of the Upper Tribunal, with its power given by s84(1) LPA 1925. (Used to be called Lands Tribunal, abolished in 2007).

Question 73

What does s84(7) prevent?

Answer 73

It prevents the use of the whole section when the land with the burden of the covenant has not been conveyed for any consideration (money). I.e. cannot be a gift.

Question 74

What must the applicant to the Lands Chamber of the Upper Tribunal show to modify or discharge a restrictive covenant under s84(1) LPA 1925?

Answer 74

To modify or discharge a restrictive covenant under s84(1), the applicant must show that:

• by reason of the change in character of the neighbourhood or of the property or other material circumstances, the restriction is obsolete; or
• the continuance of the restriction would impede the reasonable user of the land for public or private purposes without securing a practical benefit to other persons; or
• the persons entitled to the benefit of the covenant have agreed either expressly or by implication to its modification or discharge; or
• the proposed modification or discharge will not injure persons entitled to the benefit of the covenant; and
• the applicant can be ordered to pay compensation to the person entitled to the benefit either to make up for any loss suffered as a result of the discharge of the covenant or a sum to make up for the effect the restriction had on the value of the land when it was imposed.

Question 75

According to Bass Ltd’s Application [1973], what were the proper questions to ask the Lands Chamber of the Upper Tribunal?

Answer 75

(1) Is the proposed user reasonable?
(2) Does the covenant impede that user?
(3) Does impeding the proposed user secure practical benefits to the objectors?
(4) If yes, are those benefits of substantial value or advantage?
(5) Is impeding the proposed user contrary to the public interest?
(6) Would money be an adequate compensation?

Question 76

Is the Lands Chamber of the Upper Tribunal required to take into account planning considerations or planning permission when making its decisions?

Answer 76

Whilst the Lands Tribunal is required to take into account planning considerations and any grants of planning permission, it is not bound to discharge or modify a covenant merely because of such considerations or grant.

Question 77

How likely is an application to remove a covenant to succeed when the covenant was created 4 years ago?

Answer 77

It is not likely, as the time and the context of when the covenant was created must be taken into account, according to s84(1B).

Question 78

How likely is an application to remove a covenant to succeed when the public interest is against the application?

Answer 78

Very unlikely, see The Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020], where it had built knowingly in breach of restrictive covenants and also knowing that there were objections from the owner of part of the land benefitted by the covenants. It was in the public interest that contracts should not be breached and that property rights should be upheld.

Question 79

Is compensation under s84 based on the loss caused by the fall in value of the objector’s property or the loss of the objector’s financial bargaining position?

Answer 79

The former, the fall in value of the objector’s property.

Question 80

How often are lawyers dealing with the release of a covenant via s84?

Answer 80

Note that in practice, dealing with the release of a covenant via s84 is rare. You can see from the cases that this tends to be used when development of land is contemplated. In a straightforward residential conveyancing transaction, this remedy will usually be too expensive to be practical to pursue.

Question 81

How can s610 Housing Act 1985 be used to vary a covenant?

Answer 81

s610 Housing Act 1985 can be used to vary a covenant when there is a proposal to convert a single dwelling into two or more dwellings and the covenant prevents the development. In Lawntown Ltd v Camenzuli [2007], it was held that the court had to look at all the factors when making a decision, including those factors already considered by the planning authority.

Question 82

What are the exceptions to the rule that a restrictive covenant will be extinguished if the benefitted and burdened land come into common ownership?

Answer 82

• covenants relating to land under a building scheme, or
• If both lands were transferred to a trustee who held it on different trusts or purposes (or public body holding for different statutory purposes, i.e. education and housing).