This is a sample of our (approximately) 6 page long Freehold Covenants notes, which we sell as part of the GDL Land Law Notes collection, a D package written at Cambridge/Bpp/College Of Law in 2017 that contains (approximately) 455 pages of notes across 58 different documents.
Freehold Covenants Revision
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Land: Freehold Covenants
- Definition: promise contained in a deed extracted by 1 freehold owner (covenantee) from another (covenantor), whereby covenantor promises to do/not to do something over his land. creation: s53(1)(a) LPA 1925 - in writing signed by covenantor.
1. identify: parties (original + successors). dominant + servient land. nature of breaches. issue. creation (s53(1)(a) LPA 1925: in writing signed by grantor) - assume valid.
2. equity: negative covs. (consider equity 1st: burden unlikely to pass at CL (Austerberry v Oldham Corp) + equitable remedies better). burden: 4 requirements (Tulk v Moxhay: negative; accommodate dom. ten.; intention; notice). benefit: touches/concerns land; annexation, assignment or scheme of development.
3. CL: positive covs may pass. burden: generally will not pass; exceptions - indemnity chain. rule in Halsall v Brizell. benefit: express assignment (s136 LPA 1925).
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About The Author
Ryan Turner (Assistant Editor)
Ryan is a King's College London Law graduate, currently working as a corporate paralegal for a firm based in South West England. Ryan is due to begin his BPTC at the University of Law in September 2015, having attained a scholarship from Middle Temple.
Published 11:20, 18 September 2014
There are few topics that cause more headaches for law students than freehold covenants and trying to determine whether the benefit or burden will pass to an assignee. The law commission has tried to reform this unnecessarily complex area several times, most recently in 2011, yet the government has not taken their recommendations forward. The need for change is clear, as the current situation can cause unnecessary problems for individuals who are seeking to either enforce covenants or sell land free from the restrictions that were intended to be temporary or personal to the individual proprietor. In a decade where the British population is set to continue to increase, the need to ensure land can be used effectively and without unnecessary restriction is clear.
A brief introduction to freehold covenants
The layperson’s understanding of what it means to “own” land differs greatly from the legal structure that actually underpins it. When one “buys” a property, they are actually purchasing a freehold interest over the land. Owning a freehold interest, which is often referred to as a ‘bundle of rights’, gives the owner the ability to do what they wish with the land, subject to the usual conditions of the planning system and other areas of law.
Freehold covenants modify the bundle of rights by requiring the owner to perform or forbear from some act, known as positive or restrictive covenants respectively, and are often done for some form of consideration. The agreement to create a freehold covenant will be between the owners of two adjacent freehold plots, and the most common are fencing covenants. These are agreements whereby one party contracts to maintain a fence along the boundary at the request of their neighbour. The issue for this very particular form of property rights is that they are entered into by contract and do not operate in the same way as other property rights. This is due to the fact that the effect of covenants is to modify, create or remove existing property rights of owners of a leasehold or freehold interest in land. Their rules have not undergone significant reform through legislation for decades, but the covenants have constantly come under scrutiny in the courts.
The current law
In the landmark case on positive covenants, Rhone v Stephens  UKHL 3, Lord Templeman stated that the maxim that ‘equity supplements but cannot contradict the common law’ must be observed and thus it was not possible to allow an agreement that was expressly between the current landowners to pass to a third party purchaser who was not involved in the covenant. The strict legal position was accordingly observed and privity of contract was maintained. The claimants in that case attempted to argue that the decision in Tulk v Moxhay  EWHC Ch J34, which allowed the burden of a restrictive covenant to pass to subsequent assignees, should also hold for positive ones.
As noted by Cotton LJ in Tulk:
The covenant to repair can only be enforced by making the owner put his hand into his pocket, and there is nothing which would justify us in going that length.
The maxim applied is long established, but in recent years there has been an increased focus on allowing equity to alter traditional legal relationships and principles. The Law Commission issued a report in 1971 stating that the contradiction between the rules for positive and restrictive covenants is “illogical”. The decision in Tulk v Moxhay is allowed within the traditional legal principle as it is understood that the assignee of a freehold that is subject to a positive covenant is receiving land which is already burdened, rather than having his rights infringed post-assignment. In this sense, equity is not contradicting law and is thus permissible.
Hohfeld, one of the eminent writers on English property law, stated as far back as 1923 that the archaic references to the divide between equity and law were fallacious; instead one should look to the ‘genuine law’which is found by taking an overall view of both elements. As it is, though, Hohfeld’s view is yet to be adopted and the law is still sorely in need of reform.
There are several exceptions to the rule of privity, as applied by Lord Templeman in Rhone, and it depends on whether the covenant is positive or restrictive. In fact, there are no less than thirteen different ways to enforce a covenant when the freehold is passed to an assignee as set out in the table below.
As you can see, there are several rules that can apply in a given situation. Given the recent drive towards simplification and ‘cutting red tape’ that has been championed by the current government, it is surprising that this area has not been changed. The table provides a good step-by-step approach to trying to understand the current law, but the real concern is that this exercise is completely unnecessary. There is no need to go through such a convoluted process for leasehold covenants or for easements, which are similar rights appurtenant to land which grant rights to a particular individual over another’s land.
The Benefit of Covenants
In brief, for the benefit of a positive or restrictive covenant to become annexed to land so that it passes to an assignee it will need to ‘touch and concern’ clearly identifiable land and there must have been no express contrary intention to annexation. The notion of ‘touch and concern’ has never been fully defined in statute or case law and instead an overall view must be taken of the covenant and whether it truly relates to the land or the covenant is a purely personal obligation. The scope of annexation was initially intended to have a much smaller impact, but the comments by Lord Brightman in Federated Homes v Mill Lodge  in which his lordship stated:
An express assignment of the benefit of a covenant is not necessary if the benefit of the covenant is annexed to the land. In that event, the benefit will pass automatically on a conveyance of the land, without express mention, because it is annexed to the land and runs with it.
An assignment of a covenant can either be done expressly or impliedly, but the covenant must be assigned with every transaction of the freehold rather than attaching to the land in the manner of an annexed covenant.
If neither of these options are possible, an assignee or existing landowner may benefit from section 56 of the Law of Property Act 1925, or the broader definition in section 1 of the Contract (Rights of Third Parties) Act 1999, which allows an individual to enforce the covenant if they were in contemplation at the time of contracting, or were at least part of a group or class of individuals envisaged by the contract.
The Burden of Covenants
In relation to the burden, the position is more complicated and there are several ways to get around the strict legal position. The decision in Tulk has been mentioned above, and registration of a restrictive covenant, which alters the freehold rights, may be added to the register of title with the Land Registry.
The running of positive covenants which has been consistently resisted by the courts, most notably in Rhone, can be worked around in three distinct ways. The decision in Halsall which concerned a covenant that permitted homeowners on a Liverpool estate to use the surrounding roads, drains, promenade and sea walls subject to the obligation to contribute to their maintenance and repair. It was held that the covenant was enforceable against an assignee so long as he continued to exercise his right to use the rights covenanted for. The assignee had two options, stop using the roads and drains, or pay the fee.
The second consideration would be whether there is an unbroken chain of indemnity covenants entered into by each previous landowner from the time of the original contract. In this rather drawn out process, the action for breach actually lies with the original contracting parties, with each subsequent assignee then suing on the basis of the indemnity covenant to pay for any breaches.
Thirdly, it is possible to enforce the burden of a positive covenant if the assignor decides to grant a long lease, for example of 999 years, to the assignee rather than the freehold. Such long leases are common in commercial contracts but less so in residential property. As a leasehold interest they would be subject to the Landlord and Tenant (Covenants) Act 1995which permits covenants to pass to assignees if expressly provided for in the covenant.
A fourth method of enforcing a covenant against an assignee is to create a right of re-entry annexed to a rentcharge (also known as an overage) in addition to the normal freehold covenant. These extra property rights allow the assignor to enforce the covenant or receive payment upon breach based upon the terms of the separate overage agreement.
The process of examining whether the above options apply is often time-consuming and is unnecessary when it is contrasted to the extensive Land Registry system that was designed to act as the definitive register of title over each estate in land in England and Wales.
(For a detailed examination of the above rules see Smith ‘Property Law’(8th Ed, 2014)).
The Rejected 1991 reform
The Law Commission proposed a scheme for reclassifying positive and restrictive covenants as ‘land obligations’ in 1991. This was a proposal that focused on the central notion that the current law was inherently complex and contradictory. However, the report was rejected by Parliament in 1998.
This is most surprising considering that under the previous government the rules relating to leasehold covenants had been successfully reformed and simplified by the Landlord and Tenant (Covenants) Act 1995. This piece of legislation has been successful in clarifying when a tenant or landlord will be released from their obligations under the covenant following an assignment of a lease; although, there are some lingering problems surrounding the 1995 Act, yet that discussion is outside the scope of this article.
Although the 1995 Act itself has several sections which deal with the enforceability of covenants after assignment, this system is far more transparent and formulaic. It is curious therefore that the government have been so hesitant to reform the ever more important area of freehold covenants. Freehold covenants are far more burdensome as they will attach to land indefinitely, until such time that they are removed or modified by the contracting parties or subsequent assignees.
The 2011 Report
The second report of the Law Commission in 2011 following a consultation paper released in 2008 proposed a more radical course than their first report. They suggested that covenants (both positive and restrictive) and easements should be amalgamated into a single class of ‘land obligations’, creating a new stand-alone category of property rights. In the consultation paper, the law was described as ‘defective’ because of the current contradiction between the rules relating to freehold and leasehold covenants and the other criticisms outlined above.
The proposed system was that land obligations would become registrable interests in land and thus would only run to a third party taking ownership if registered. As registrable interests in land under the Land Registration Act 2002, they would have to be expressly created as such with clear identification of both the benefited and burdened land. The Law Commission also suggested an additional requirement that an entry would have to be made on the Land Register over both plots of land. A move towards greater registration of interests in land has been underway since the passing of the 2002 Act, and an adoption of the Law Commission proposals would clearly be a step towards a more streamlined and effective land register.
One of the key areas focused on, in Part 7 of the report, is the fact that it is extremely cumbersome to revoke or modify covenants. The current law (section 84 of the Law of Property Act 1925) provides that only the court has the power to discharge or modify a freehold covenant on four distinct grounds. These four grounds are:
- consent from all relevant parties;
- the fact that there would be no harm caused by discharge or modification; or
- the covenant impedes a reasonable user of the land and there is no substantial benefit of the covenant to the benefitted owners.
Although this seems to envisage several ways to revoke covenants, it is particularly difficult to do in practice, as in most situations the party who benefits from a covenant will contest its removal or modification. There is also a significant cost both in money and time of such application to the court. There are several alternatives to the current system, one of which suggested by the Law Commission was to make covenants have a long-stop provision within them that they are assumed to be obsolete and thus unenforceable after 80 years unless evidence is provided to the contrary.
The restrictive approach taken to the modification and removal of covenants means that land is unnecessarily burdened making it less attractive to possible purchasers, which in turn causes land stagnancy. One of the key ways that the current economy is looking to recover and ensure sustainability is through an efficient use of land across the United Kingdom. The construction industry almost constantly refers to the need to loosen planning controls to allow more developments to be built, but focusing on this troublesome area of law may yield far greater results. Environmental law in England and Wales, is likely to become more extensive in the coming decades especially with the ever-increasing scope of European legislation. Removing persistent covenants over land and providing greater clarity over the enforceability of such covenants would ensure there was a far more transparent process of determining how land could be used.
The benefits of reform are obvious for almost all involved in property law and property development. It is curious that legislation on this area has remained untouched since the report in 2011; I believe that innovative ideas are necessary to resolve the current housing supply shortage in this country and this seems to be a particularly sensible place to start.
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Tagged: Commercial Law, Property Law
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