Rules for passing the benefit and burden of freehold covenants

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Harriet inherited a large farmland from her late uncle and retained a portion after selling the rest to Grace. Harriet included two covenants in the sale agreement: one requiring Grace to maintain a boundary fence at Grace's expense, and another prohibiting any industrial structures on the sold portion. Grace later conveyed the land, including these covenants, to Ingrid. Ingrid subsequently transferred the land to Jack, who is now occupying the property. Harriet wants to enforce both covenants against Jack, assuming they automatically run with the land.


Which statement best defines Harriet’s legal position regarding the enforcement of these covenants against Jack?

Introduction

Freehold covenants are legally binding agreements between landowners that impose obligations or restrictions on the use of land. They significantly influence property rights by dictating permitted uses and activities on a property. Understanding the rules governing how the benefits and burdens of these covenants pass to successive owners is essential in land law. This article examines the legal principles determining the transmission of freehold covenants, supported by key doctrines and landmark case law.

Defining Freehold Covenants

At their core, freehold covenants are promises made by one landowner (the covenantor) to another (the covenantee) regarding the use of land. These covenants can be either positive, requiring the covenantor to perform some action—like maintaining a fence—or restrictive (negative), preventing the covenantor from doing something on the land, such as building above a certain height.

The Importance of Covenants in Land Law

Freehold covenants play a significant role in maintaining the intended character and use of land over time. They can affect not just the original parties but also future owners, influencing community development and property values.

Passing the Benefit and Burden of Covenants

Understanding how the benefits and burdens of covenants transfer to new owners involves exploring both common law and equitable principles.

Passing the Benefit at Common Law

At common law, the benefit of a covenant can pass to successors in title if certain conditions are met:

  1. Touch and Concern the Land: The covenant must affect the land itself, improving its value or utility, rather than conferring a mere personal benefit.

  2. Intention for the Benefit to Run: There must be an intention, express or implied, that the benefit should run with the land to successors.

  3. Original Covenantee Held a Legal Estate: The original covenantee must have held a legal estate in the land at the time of the covenant.

If these conditions are satisfied, the benefit can pass to a successor at common law, allowing them to enforce the covenant.

Passing the Burden at Common Law

Under common law, the burden of a covenant does not generally pass to successors in title. This rule, established in Austerberry v Corporation of Oldham (1885), means that a new owner is not bound by the obligations of a covenant simply by acquiring the land. This principle primarily affects positive covenants, which require the expenditure of money or the performance of an action.

The Role of Equity in Passing the Burden

Equity intervenes to allow the burden of restrictive (negative) covenants to bind successors. The landmark case Tulk v Moxhay (1848) established conditions under which a restrictive covenant can be enforced against subsequent owners:

  1. Covenant Must Be Negative in Substance: The covenant restricts the use of the land rather than imposing a positive obligation.

  2. Intended to Run with the Land: The original parties intended that the covenant should bind successors.

  3. Covenantee Owned Land Benefited by the Covenant: There must be a dominant tenement that benefits from the covenant.

  4. Notice: The successor must have had actual or constructive notice of the covenant.

When these conditions are met, equity enforces the burden against successors, ensuring that restrictive covenants continue to shape the use of land over time.

Passing the Benefit in Equity

In equity, the benefit of a covenant can pass to successors if:

  1. Covenant Touches and Concerns the Land: Similar to the common law requirement, the covenant must affect the nature, quality, or value of the benefited land.

  2. Benefit is Annexed to the Land: The benefit must be attached to the land either expressly, by implication, or through statutory annexation.

Statutory annexation under Section 78 of the Law of Property Act 1925 can automatically annex the benefit of a covenant to the land.

Positive Covenants and Their Enforcement

Positive covenants, which require the performance of an act, generally do not bind successors at common law or in equity. This presents challenges when trying to enforce obligations like maintenance of shared facilities or contributing to communal expenses.

Mechanisms to Circumvent the Rule

Various methods have been developed to enforce positive covenants against successors:

  • Chain of Indemnity Covenants: Each successor agrees to indemnify the previous owner against breaches, creating a chain of contractual obligations. However, if the chain is broken—for instance, if an owner fails to obtain an indemnity covenant from their buyer—the enforcement becomes problematic.

  • Rentcharges: Imposing a rentcharge can enforce positive obligations, but the creation of new rentcharges is now restricted under the Rentcharges Act 1977. Existing rentcharges continue to operate, but their use is limited.

  • Building Schemes: In certain developments, a scheme of mutual covenants binds all purchasers within the scheme. This allows positive obligations to be enforced mutually among the owners.

  • Commonhold: Introduced by the Commonhold and Leasehold Reform Act 2002, commonhold allows positive obligations to be enforced through a commonhold association, enabling the management of shared facilities and common areas.

The Role of Land Registration

Land registration plays a key role in covenant enforcement. Under the Land Registration Act 2002:

  • Notices: Restrictive covenants should be protected by entering a notice on the register. This ensures that successors have constructive notice of the covenant and that it binds them.

  • Overriding Interests: While some unregistered interests can bind successors as overriding interests, reliance on this is risky. Proper registration is essential to maintain the enforceability of covenants against successive owners.

With the modernization of land registration systems, electronic records have made the process of registering covenants more efficient. This transparency supports the enforceability of covenants and ensures greater certainty in property transactions.

Examples Illustrating the Principles

Example 1: The Height Restriction Covenant

Consider a homeowner, Alice, who sells part of her land to Bob with a covenant that Bob will not build any structure over two stories high to preserve Alice's view. This restrictive covenant touches and concerns the land and is negative in substance.

If Bob sells the land to Carol, equity can enforce the covenant against Carol, provided the conditions in Tulk v Moxhay are satisfied and the covenant is properly registered. Carol would be bound by the covenant not to build above two stories, thereby preserving the intended character of the area.

Example 2: The Maintenance Covenant

Suppose David and Emma own adjoining properties with a shared driveway. David covenants to maintain the driveway, a positive covenant. If David sells to Frank, the burden of maintaining the driveway does not automatically pass to Frank under common law or equity.

To address this issue, when selling, David could require Frank to enter into an indemnity covenant, promising to maintain the driveway and indemnify David for any breaches. However, if Frank later sells the property without securing a similar covenant from his purchaser, the chain is broken, and enforcement becomes challenging.

Interaction of Common Law and Equitable Principles

The distinction between common law and equity is essential in the context of covenants. While common law restricts the passing of burdens, equity steps in to prevent injustice, particularly with restrictive covenants.

For instance, a restrictive covenant may not bind a successor at common law due to the "burden does not run" rule, but equity enforces it if the conditions from Tulk v Moxhay are met. This interplay ensures that the intentions of the original parties are honored and that the use of land remains consistent with agreed restrictions.

Modern Developments and Proposed Reforms

Law Commission Proposals

The challenge of enforcing positive covenants against successors has prompted proposals for legal reform. The Law Commission has suggested creating "land obligations" to replace restrictive and positive covenants. These would be legal interests capable of binding successors in title, allowing positive obligations to run with the land similarly to easements.

Implementing such reforms could simplify the law, making it more coherent and reducing reliance on complex mechanisms like chains of indemnity covenants.

Implications for Property Transactions

If positive covenants could run with the land, it would facilitate the development and management of modern estates, where shared facilities and communal obligations are common. It would also bolster the ability to enforce maintenance obligations, ensuring that properties and shared amenities are properly cared for over time.

Conclusion

The enforcement of freehold covenants against successors in title hinges on a delicate balance between common law and equitable principles. Positive covenants generally do not bind successors due to the rule established in Austerberry v Corporation of Oldham, where the burden does not run with the land at common law. Equity, however, permits the burden of restrictive covenants to pass, as demonstrated in Tulk v Moxhay, provided certain conditions are met.

The mechanisms developed to enforce positive covenants, such as chains of indemnity covenants, highlight the complexities involved in property law. These methods often depend on continuous compliance by successive owners, and any break in the chain can render enforcement difficult.

Picture a scenario where a restrictive covenant limits commercial use of a property in a residential area. The covenant runs with the land, binding future owners and preserving the residential character of the neighborhood. This reflects how covenants influence land use over time, balancing individual property rights with community interests.

Understanding the interaction between legal principles and their practical application is essential for managing property transactions effectively. It ensures that the rights and obligations associated with land are appropriately respected and enforced, maintaining both the intentions of original parties and the integrity of property law.

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