Freehold covenants are Equitable- S1.3 LPA (all other interests that are not freehold, leaseholds, easements or mortgages will be equitable). A covenant is a promise, usually made by way of deed, but not always necessary, between neighbors resulting in something they must or may not do on their land.
There are two types of covenants, positive and restrictive. Positive covenants make the burdened land perform some act. They usually involve the burdened party investing some time and or money into the obligation. A restrictive covenant is a prevention of performing a certain act on their own property.
Creation of a Covenant
In order for a covenant to be made, it must comply with section 53(1)(A) of the LP(MP)A, which states it must be created:
- In writing,
- Signed by or on behalf of both parties,
- With all terms included.
It is usually made by deed on the sale of part, or the sale of land. However, can be made at any point.
Positive covenants can be created; however, they will never run with the land.
Passing the Benefit of the covenant
In order for the covenant to run with the land, it must pass a few requirements for both the benefitted land and the burdened land.
For the benefit to pass at Common Law it will be needed to be expressly annexation to the buyer. It also passes automatically if:
- It touches and concerns the land- Swift Investments
- The original Covenantee and Covenantor both had legal title to the land.
- The benefit was intended to run with the land. This can be shown be either express assignment, or implied through Section 79 LPA.
The benefit may also run under equity if:
- It touches and concerns the land
- Annexed or assigned expressly presumed under section 78 LPA.
These requirements mirror the common law. For the covenant to run with the land, it must also pass the burden. The benefit and burden must be both passed through common law or through equity, they cannot be mixed.
Passing the Burden of the Covenant
At Common Law, the burden will not pass. Authority for this is Austerberry v Corporation of Oldham
In equity however, though the controversial case of Tulk v Moxhay, the burden of covenants may pass if:
- It is a Restrictive Covenant
- It Touches and Concerns the Land
- It was intended to run with the land. This can be express or through section 79.
- Notice of the covenant must be served.
In the registered system, notice will be served by an entry on the charges register of the covenant- it is classed as an Interest Affecting a Registered Estate.
In the Unregistered system, it will be protected by being registered against the original party’s name at land registry, under a Dii Land Charge.
The general presumption is that positive covenants do not run with the land. They are not an interest in which can run with the land. Any positive covenant will be seen to be more of a license than a covenant. It may even amount to a contract, but will not be an interest.
The case of Halzell v Brizell offers a possible alternative with not allowing positive covenants to run with the land. In this case it was deemed that if there was a mutual burden and benefit, a positive covenant may be enforceable. Rhone v Stevenson clarified that the benefit and the burden must be related in some way to be able to run.
This is still not a way of making the covenant always run with the land. In these cases, the court applied more of a fair reasoning that if one party contributing to the upkeep of something if they the right to use the land in a specific way that is related. For example, allowing one party to use a pathway up to their property as long as they contribute to the upkeep of the path. If the benefitted land refused, the court will allow the burdened party to revoke the right and therefore would not allow that party to use the path. There will be no such remedy for the breach of the covenant, only the right to revoke the right that had been granted.
Position of the Original Coventee and Covenantor
By making an covenant, a lot of pressure is placed on the original covenantor, as they are essentially entering into a contract that they will always be liable for as there is privity of contract between the contracting parties. This means that even when they sell their land, then will still be liable for any breaches that future parties might commit.
Under the law of Moulard v Garett, a party who have been wronged will always be able to claim against the party who has done wrong. However, they may also make a claim against the original conventor for breach of contract. The Original covenantor will only ever be able to pay damages as they are not in ownership of the property anymore. This puts the original covenantor in a very vulnerable place.
Therefore, on transfer of the property, they may get their successors to sign an indemnity covenant. The effect of this is that any breaches of the covenants that the original covenator is liable for, they will be able to recover the money from their successors. These will carry on down the line until one party does not make their successor sign an indemnity covenant. Therefore, they will not be able to claim any money back if ordered to pay.
This sounds good on paper however, the reason someone else would be getting sued for the breach is because the party in breach did not have the funds to pay. Therefore, generally indemnity covenants have a limited use.
Also, if there is a break in the chain of indemnity, it may leave predecessors to the property liable to pay also. Breaks in the chain can be caused by liquidation of a company, death, unavailability ect.
A restrictive covenant breach can remedy an injunction. This will be to stop the part in breach of the covenant performing that act anymore. The court may impose Damages in respect of the damages, as a way of paying off the covenant. They may also impose damages for the previous breach, and an injunction for the future.
A positive covenant as discussed earlier, will not run with the land. If there is a mutual benefit and burden of the covenant, then the burdened party has the right to revoke the right of the benefitted land if they do not want to perform the covenant.