Critical Evaluation Exam Qustion on Freehold Covenants

In their book “Land Law”, John Stevens & Robert Pearce, say: “…the law relating to the enforceability of covenants affecting freehold land is extremely complex…There is an uncomfortable overlap between the law of property and the law of contract. This is further complicated by distinctions developed by the historic separation between equity and the common law.”

 Describe the current system of law relating to the enforceability of freehold covenants. Discuss whether you agree with the above statement.

The law of Freehold Covenant Enforceability

Enforceability of freehold covenants relies on the passing of the burden and the benefit for each covenant. There is a presumption that Positive covenants do not run with the land.

Positive covenants are promises which will make one party have to perform an act in order to fill the obligation. This is usually taken up by time or money. A negative covenant is one in which requires on omission, or a restriction of what a land owner can do on their property.

In order for the benefit to pass in common law, it must be expressly assigned to run with the land. It will also pass automatically if the covenant touches and concerns the land. This is defined in the case of Swift Investments v Combined English Stores. If a covenant affects the nature, value, mode or use of the land, it will be deemed to touch and concern it. It must also have been made by two parties that had legal title to the land, and the benefit must have also been intended to run with the land. This can be proven by express wording, or presumed under section 79 Law of Property Act 1925.

In order for a benefit to pass in equity, it must have touched and concerned the land, and must have expressly assigned or annexed to the land. If it was not expressly done, it can be presumed under section 79 LPA.

The burden of a Negative covenant will not pass under common law. Under equity, the case of Tulk v Moxhay allowed the burden to run. It will run if, the covenant touches and concerns the land, it was a restrictive covenant, it was intended to run with the land, which once again can be been deemed under section 79, and correct notice must have been served to bind all future purchasers. If this was Registered land, an entry under the charges register must have been made as it is an interest affecting a registered estate. If this was unregistered land, a Dii land charge must have been made at Land Charges.

Positive covenants generally do not run with the land. However, the case of Halsall v Brizell, gave some lenience to the matter. It was ruled that if there was a mutual burden and benefit, then it would be unfair to allow the positive covenant not to run with the land. If the original agreement was for example a right of way with the agreement that the benefitted party would pay a contribution to the maintenance, it should be allowed to pass.

Therefore, the court allowed the burdened party to retract their right, if the benefited party refused to keep the positive covenant. They would not however impose any specific performance remedy on the benefited party. The case of Rhone v Stevenson clarified that the mutual burden and benefit must have been related.

The position of the original covenantor is one of high vulnerability. When entering into the contract, there is privity. This means that they will always be held accountable for any breaches of that covenant. This has come under high scrutiny as even after sale of the land they can be sued for the successor breaching the covenant.

They will be able to claim against the breaching party. However, they will also be able to claim for damages against the original covenantor because of the privity on contract. The original covenantor can, on sale, make their successors sign an indemnity covenant, allowing them to claim any money back from their successors if they are ever sued for a breach.

The law under Moule v Garett allows the original party to bring a claim directly against the breaching party, even if they are not direct successors to the original covenantor.

However, one of the problems with indemnity covenants is that they are only as good as your successor. Therefore, that party does not have the financial ability, they will not be able to compensate the original covenantor. Equally, if that successor was a company who went into liquidation, the chain of indemnity was broken, they will not be able to claim their money back from their successors as that ‘legal person’ does not exist anymore. This is called a break in the chain of indemnity.

 

Critical Evaluation 

Therefore, in this respect the statement is to some degree correct. The overlap between contract law and property law means that a predecessor to the land may still be held liable for another parties’ breach. This successor to the land may not even be direct. They may be many times removed, and therefore have no control over who owned the property. This does make the law unfair and uncomfortable.

Having said this, form the point of view from the benefited land, it equally is unfair if they have an interest in the land that is breached. They should not be allowed to have their right taken away, with a limited number of options to attempt to recover for the breach. This therefore would undermine restrictive covenants as they would essentially be unenforceable in the form of damages to parties which do not have the capability. There would only be the remedy of an injunction which again seems limiting for the courts.

In regard to the distinction between the common law and equity, it is questionable of the need for the law in both equity and common law. On the face, it wold seem as through the Equity allows the burden to pass, as well as a more lenient criterion for the benefit to pass as well. This questions the need for law reform for covenants. More cases pass through equity, and seem to undermine the common law system, thus questioning the need for the common law.

On the other hand, the common law does have its advantages. The ability to pass the benefit on express assignment. Some may also argue that the burden should not be passed through common law, and that equity was wrong to make such exceptions as in Tulk v Moxhay. Covenants that may have been perfectly acceptable and unimportant, may not be to another, which potentially affects the price of the property also. On the other hand, that is a problem that the original covenantor takes on, and this may therefore be irrelevant as it is their land and they can do what they want with it.

Furthermore, it may be said that allowing the burden of covenants to run puts a restriction on the property of the land, so much so that it may significantly reduce the enjoyment of the land. In order to remove the covenant from the land, or make significant changes to it, both benefitted and burdened land must come under common ownership, which is an expensive and drastic method. Equally, they can apply to the upper tribunal of Land Charges under Section 84 LPA which is also another expensive option, with a chance of not succeeding in the claim also.

Equally they can approach the benefited party and make an arrangement to get rid of the covenant which must be made by way of deed, however with neighbours this is not always an available option.

Therefore, it is extremely hard to get rid of a restrictive covenant. If there are more and more covenants being passed, it may get to a point where the land is so restricted that it may not be able to be enjoyed.

Having said that, the case of Tulk v Moxhay highlighted a problem with the common law on restrictive covenants. The fact they do not allow the burden to run proses the problem of very limited protection of land. Land owners will start to sell less of their land with fear of successors not respecting the wishes of the land. One of the big problems many face is land falling to property developers.

In regard to positive covenants, the difference between positive and negative covenants can been interpreted as positive and negative. The fact that they do not run with the land is positive as it would be unfair to impose a positive obligation on owners of a property which have not entered into an agreement to do so.

On the otherhand, it may be argued that it should not matter whether they are positive or negative. The impact of the covenant will be reflected on the price of the property. Because Freehold covenants are Interests affecting a registered estate, there will always be notice of the covenant, therefore there should not be any difference. There is no difference in the passing of positive or negative covenants in leasehold covenants, therefore it is questionable that they should not run with the land in freehold covenants. There has been proposed that this difference should be removed put forward by the Law Commission.

In conclusion, there are positives and negatives to the law on freehold covenants and their enforceability. The benefitted land does have more options to recover for a breach. I feel as though this is unfair on the original covenantor, and potentially all of those in a chain of indemnity. This would not be such a big problem if indemnity covenants were not so limited. However, I believe it is unfair to impose a contractual duty on a party, which does not have any control over that property anymore. This is an ‘uncomfortable’ overlap of contract and property law, and I believe will be subject to law reform in the near future, just as leasehold covenants were. In general, I believe that the law of freehold covenants will be subject to law reform due to the overlap in equity and common law. The common law is outdated and not running in line with how the courts have been developing the law.  In relation to positive covenants, I also believe that they should be allowed to run with the land. The effect of the positive covenant will be shown in the price of the property.

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