Proprietary rights in land - Rules for passing the benefit a...

Learning Outcomes

This article examines the rules for passing the benefit and burden of freehold covenants, including:

• the distinction between positive and restrictive covenants and the “substance” test for negativity in equity
• non-running of the burden at common law and equity’s enforcement of restrictive covenants against successors (Tulk v Moxhay criteria)
• the touch-and-concern test for benefits and burdens (including P & A Swift) and statutory intention under LPA 1925 ss 78 and 79
• passing of the benefit at law (assignment and implied assignment) and in equity (express/statutory annexation, assignment, building schemes)
• enforceability limits of positive covenants and practical workarounds (chain of indemnity, benefit-and-burden, estate rentcharges, long-lease structures, commonhold)
• registration requirements in registered and unregistered land and consequences of non-registration (including Midland Bank Trust v Green)
• criteria for building schemes, mutual enforceability, and routes to modification or discharge of restrictive covenants
• remedies and judicial discretion, including injunctions and damages in lieu (Coventry v Lawrence)

SQE1 Syllabus

For SQE1, you are required to understand how the benefit and burden of freehold covenants pass to successors at law and in equity, with a focus on the following syllabus points:

• the nature of freehold covenants, the distinction between positive and restrictive covenants, and the “hand-in-pocket” test
• burden cannot run at common law; equity’s enforcement of restrictive covenants (Tulk v Moxhay) and its limits
• passing the benefit at law (assignment/statutory implied passing) and in equity (express/statutory annexation under s 78 LPA 1925; assignment; building schemes)
• mutual benefit and burden (Halsall v Brizell; Rhone v Stephens; Thamesmead Town v Allotey) and chains of indemnity
• registration requirements: notices in registered land (LRA 2002) and Land Charges in unregistered land (Class D(ii)), including effects of mis-registration or failure to register
• building schemes (criteria, operation, modern flexibility) and the possibility of modifying/discharging covenants (s 84 LPA 1925)
• remedies: injunctions and damages in lieu; equitable defences and discretion

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is required for the burden of a restrictive covenant to bind a successor in title in equity?
   1. The covenant must be positive in substance.
   2. The benefit must be expressly assigned.
   3. The covenant must touch and concern the land.
   4. The covenant must be registered as a notice in registered land.

2. True or false? The burden of a positive covenant can run with the land in equity.

3. What is the effect of failing to register a restrictive covenant as a land charge in unregistered land?

4. Which method allows the benefit of a covenant to be permanently attached to land so that it passes automatically to successors?

Introduction

Freehold covenants are promises made by one landowner to another, regulating the use of land. These covenants can shape the character and value of land for generations. Understanding how the benefit and burden of these covenants pass to successors is essential for SQE1.

A key distinction exists between positive covenants (requiring action or expenditure) and restrictive covenants (requiring the landowner to refrain from doing something). The enforceability of covenants against successors depends on whether the covenant is positive or restrictive, and whether the requirements of law or equity are satisfied.

Key Term: freehold covenant
A promise made by deed between landowners, regulating the use of land, which may be positive or restrictive.

Types of Freehold Covenant

A positive covenant requires the covenantor to do something, such as maintain a fence or contribute to repairs. A restrictive covenant requires the landowner to refrain from doing something on the land.

A useful aid for classification is the “hand-in-pocket” test: if compliance requires expenditure of money, time, or effort, it is positive; if compliance by doing nothing suffices, it is restrictive. Mixed covenants can sometimes be severed so the negative component may be enforced in equity.

Key Term: positive covenant
A covenant requiring the landowner to perform an act or spend money.

Key Term: restrictive covenant
A covenant requiring the landowner to refrain from doing something on the land.

Passing the Burden of Covenants

Common Law

At common law, the burden of a covenant does not run with the land. Successors in title to the covenantor are not bound by the covenant. This rule was established in Austerberry v Corporation of Oldham and confirmed in Rhone v Stephens. If only common law applies, the original covenantor remains liable, but successors do not bear the burden.

Equity: Restrictive Covenants

Equity allows the burden of a restrictive covenant to run with the land if certain conditions are met. The leading case is Tulk v Moxhay.

Key Term: restrictive covenant
A covenant that restricts the use of land, enforceable in equity against successors if conditions are met.

Requirements for the Burden to Run in Equity

For a restrictive covenant to bind successors in title in equity, all of the following must be satisfied:

1. The covenant must be negative (restrictive) in substance.
   • Use the “hand-in-pocket” test. If a covenant looks negative but compliance actually requires expenditure, it is positive. Where a covenant is mixed, severance may allow enforcement of the negative element only.
2. The covenant must benefit land retained by the covenantee at the time of creation.
   • The covenantee must own identifiable dominant land when the covenant is made. If no land is retained, equity will not enforce (London County Council v Allen).
3. The covenant must touch and concern the benefited land.
   • It must affect the nature, quality, mode of user, or value of the land and not be merely personal (P & A Swift Investments v Combined English Stores Group plc).
4. The parties must have intended the burden to run with the land.
   • Intention is normally implied by statute (s 79 LPA 1925), unless excluded expressly in the deed.
5. The successor must have notice of the covenant (actual or constructive), which in practice means proper registration.
   • In registered land, a notice on the charges register is required; in unregistered land, a Class D(ii) land charge must be registered against the original covenantor’s name.

Key Term: touch and concern
The covenant must affect the use, value, or enjoyment of the land itself, not just confer a personal benefit.

Worked Example 1.1

A sells part of her land to B, including a covenant that B must not build above two storeys. B sells to C, who plans to build a third storey. Is C bound?

Answer:
Yes, if the covenant is restrictive, benefits land retained by A, touches and concerns the land, and is properly registered, C will be bound in equity.

Registration Requirements

• In registered land, a restrictive covenant must be protected by a notice on the charges register to bind a purchaser for value (LRA 2002 s 32). Restrictive covenants are not overriding interests on subsequent dispositions.
• In unregistered land, a restrictive covenant must be registered as a Class D(ii) land charge against the original covenantor’s name. If not registered, it is void against a purchaser of a legal estate for money or money’s worth, even where the purchaser knew about it (LCA 1972 s 4(6); Midland Bank Trust v Green).

Exam Warning In unregistered land, failure to register a Class D(ii) land charge makes the restrictive covenant void against a purchaser for value, regardless of actual notice. In registered land, failure to enter a notice usually leaves a purchaser for value free of the covenant.

Passing the Benefit of Covenants

The benefit of a covenant must also pass to the claimant for them to enforce it. The rules differ at law and in equity. Remember that unless both the benefit and burden reach the current parties in the same jurisdiction (law/equity), enforcement fails.

At Common Law

The benefit of a covenant can pass at common law if:

1. The covenant touches and concerns the land.
2. The original covenantee held a legal estate in the benefited land when the covenant was made.
3. The benefit was intended to run with the land (expressly or impliedly; often via s 78 LPA 1925 for restrictive covenants).
4. The successor derives title from the original covenantee (chain of title).

Common law assignment may also be available if in writing and notified to the covenantor; in addition, implied passing can occur for covenants touching and concerning the land.

Key Term: annexation
The process by which the benefit of a covenant is permanently attached to land, so it passes automatically to successors.

Key Term: assignment
The transfer of the benefit of a covenant to a successor at the time of transfer of the land.

In Equity

The benefit of a covenant can pass in equity by:

• Express annexation: The deed states the benefit is for the land and its successors. Clear identification of the benefitted land is needed.
• Statutory annexation: Section 78 LPA 1925 automatically annexes the benefit to the land for restrictive covenants unless expressly excluded. Federated Homes held that s 78 annexes to each and every part of the land, subject to identification of the benefitted land (Crest Nicholson v McAllister).
• Assignment: The benefit is expressly assigned to the successor at the same time as the land is transferred (ensure contemporaneous assignment to maintain a continuous chain).
• Building scheme: Where land is sold in plots with mutual covenants intended to be enforceable by and against all plot owners, provided recognised criteria are present.

Worked Example 1.2

D owns land and covenants with E not to use it for business. E sells the benefited land to F. Can F enforce the covenant?

Answer:
Yes, if the benefit has been annexed to the land (expressly or by statute), or assigned to F at the time of transfer, F can enforce the covenant. If statutory annexation under s 78 applies and the benefitted land is identifiable, the benefit passes automatically unless expressly excluded.

Positive Covenants: Enforcement Limitations

The burden of a positive covenant does not run with the land at law or in equity. Only the original covenantor is bound. This creates practical problems for obligations like contributing to shared repairs.

Workarounds for Positive Covenants

• Chain of indemnity covenants: Each buyer covenants to indemnify the seller for breaches, but the chain can break.
• Mutual benefit and burden: If a successor takes a benefit (e.g., right of way), they may be required to accept a related positive burden (e.g., pay for maintenance), but only if the benefit and burden are closely linked and the successor has a genuine choice to accept or reject the benefit (Halsall v Brizell; Rhone v Stephens; Thamesmead Town v Allotey).
• Estate rentcharges: An annual payment secured on land, enforceable if unpaid, sometimes used to secure performance of positive obligations in freehold estates (subject to statutory controls in the Rentcharges Act 1977; estate rentcharges remain lawful).
• Long lease structure: Creating a long lease with positive covenants enforceable between landlord and tenant, then granting leasehold interests across the estate. In limited circumstances, leasehold enlargement techniques may be used later, but this is complex and fact‑sensitive.
• Commonhold: Positive obligations can run with commonhold units under the Commonhold and Leasehold Reform Act 2002, although adoption is rare in practice.

Worked Example 1.3

G and H own neighbouring houses with a shared driveway. G covenants to maintain the drive. G sells to J, who refuses to pay for repairs. Can H enforce the covenant against J?

Answer:
No, the burden of a positive covenant does not run. H can only sue G. If a chain of indemnity covenants exists, H may recover from G, who can then recover from J if J gave an indemnity. Alternatively, if J continues using a right of way over the drive, mutual benefit and burden might allow H to require payment, but only if the right of way benefit is genuinely linked and can be declined.

Worked Example 1.4

K buys a house in an estate with a deed granting rights to use communal gardens, paths, and a residents’ hall. The deed requires a yearly contribution to maintain these facilities. K stops paying but continues to use the amenities. Can enforcement of the payment obligation succeed against K’s successors?

Answer:
It may, via mutual benefit and burden, because the obligation to contribute is closely linked to the enjoyment of the rights. A successor who takes the benefit of the rights must accept the burden of paying for their upkeep, provided the benefit and burden are relevantly linked and the successor has a real choice (Thamesmead Town v Allotey). Using an estate rentcharge is a more robust mechanism.

Registration and Enforceability

Proper registration is essential for enforceability against successors:

• In registered land, enter a notice on the charges register to protect restrictive covenants (LRA 2002 s 32). Without a notice, a purchaser for value will take free.
• In unregistered land, register as a Class D(ii) land charge against the original covenantor’s name. Failure to register renders the covenant void against a purchaser for value (LCA 1972 s 4(6)), even where the purchaser has actual knowledge (Midland Bank Trust v Green).
• Search issues: Land Charges are indexed by names. Errors or variant spellings can defeat protection. The search certificate is conclusive in favour of a buyer who searches correctly.

Exam Warning If a restrictive covenant is not properly registered, it will not bind a purchaser for value, even if they know about it. Restrictive covenants are not overriding interests on subsequent dispositions in registered land.

Worked Example 1.5

L sells unregistered land to M with a restrictive covenant not to run a workshop. L does not register a Class D(ii) land charge. M sells to N for full value, who knows of the covenant. Is N bound?

Answer:
No. In unregistered land, failure to register a Class D(ii) land charge makes the covenant void against a purchaser for money or money’s worth, regardless of actual knowledge (LCA 1972 s 4(6); Midland Bank Trust v Green).

Building Schemes

A building scheme allows mutual enforcement of covenants between all plot owners in a defined area, provided:

• There is a common intention that all plots are sold subject to the same restrictions for the benefit of all plots.
• The plots are laid out in a defined area (typically shown on a plan).
• The covenants are intended to be mutually enforceable by and against all plot owners (reciprocity).
• Historically, a single common owner (vendor) selling all plots was required (Elliston v Reacher), but modern authority recognises flexibility where the scheme is otherwise clear (Re Dolphin’s Conveyance; Birdlip Ltd v Hunter emphasises clear evidence of reciprocity and a defined scheme).

Key Term: building scheme
A development arrangement where plots are sold subject to common restrictions intended to be mutually enforceable by and against all plot owners within a defined area.

Under a valid building scheme, each plot owner can enforce qualifying covenants against any other plot owner, even if the original vendor no longer owns land.

Worked Example 1.6

A developer sells a 50‑plot estate in phases with identical covenants (no business use; no caravans in front gardens), shown on a site plan. The developer later sells the last plots via a subsidiary. One owner starts operating a car‑valeting business. Can other owners enforce the covenant?

Answer:
Yes, if a building scheme exists: the covenants are reciprocal, intended to benefit all plots, and the estate is laid out in a defined area. A single vendor is not essential if the scheme’s intention and reciprocity are clear (Re Dolphin’s Conveyance). The fact of phased sales or use of a subsidiary does not necessarily defeat the scheme.

Modifying or Discharging Restrictive Covenants

Restrictive covenants can be modified or discharged by agreement with those entitled to their benefit, or by application to the Upper Tribunal (Lands Chamber) under s 84 LPA 1925 on grounds such as:

• the covenant is obsolete due to changes in the character of the property or neighbourhood
• the covenant impedes reasonable use of the land and modification would not injure those entitled to the benefit
• those entitled to the benefit have agreed to modification or discharge
• the proposed modification will not cause injury, with compensation available where appropriate

This route is independent of enforceability rules and may be relevant when a covenant remains binding but is impractical in modern circumstances.

Remedies for Breach

A claimant with the benefit and against a defendant with the burden in equity may seek:

• Injunction: the primary remedy to restrain breach of a restrictive covenant. The court retains discretion; modern guidance from Coventry v Lawrence emphasises considering the overall justice rather than rigid Shelfer factors alone.
• Damages in lieu of injunction: awarded where an injunction would be oppressive or the injury is small, quantifiable, and adequately compensable by money. Equitable principles apply; delay or acquiescence may affect relief.
• Damages against the original covenantor at common law for breach of a positive covenant (as the burden does not run), and possibly specific performance against the original covenantor where appropriate.

Equitable defences (clean hands, delay, acquiescence) can reduce or bar relief. Where the breach has proceeded despite warnings, the court may be less sympathetic to arguments of oppression.

Worked Example 1.7

P owns the dominant land benefitted by a covenant “not to build above two storeys.” Q, a successor to the burdened land, constructs a third storey after being warned by P. Should an injunction be granted?

Answer:
Likely yes. The covenant is restrictive, binding in equity, and a mandatory injunction to remove or a prohibitory injunction to stop use may be ordered. Coventry v Lawrence supports granting injunctions where breach continues despite warnings; damages may be inappropriate where continuing harm to the benefit is significant.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The burden of a restrictive covenant can run in equity if the Tulk v Moxhay conditions are met, including negativity in substance, benefit to retained dominant land, touch and concern, intention (s 79), and proper notice/registration.
• The burden of a positive covenant does not run with the land at law or in equity. Only the original covenantor is directly liable.
• The benefit of a covenant can pass at law or in equity by annexation (express/statutory under s 78, subject to identification and exclusion), assignment, or a building scheme.
• Proper registration is essential: notices in registered land (LRA 2002 s 32) and Class D(ii) land charges in unregistered land. Failure to register in unregistered land renders the covenant void against purchasers for value, even with actual knowledge.
• Mutual benefit and burden can indirectly require successors to perform positive obligations linked to the exercise of rights, but only where the benefit and burden are closely connected and the successor has a genuine choice.
• Building schemes allow mutual enforcement of covenants between plot owners in a defined area; modern cases emphasise clear evidence of reciprocity and a defined scheme.
• Restrictive covenants can be modified or discharged by agreement or via s 84 LPA 1925; courts weigh reasonableness and potential injury to those entitled to the benefit.
• Remedies are discretionary: injunctions remain primary for restrictive covenants; damages in lieu are possible where appropriate, with modern guidance from Coventry v Lawrence.

Key Terms and Concepts

• freehold covenant
• positive covenant
• restrictive covenant
• touch and concern
• annexation
• assignment
• building scheme