freehold covenants (notes)

Ravindran on English Land Law Freehold Covenants

FREEHOLD COVENANTS

A covenant in its simplest form is a contract/promise by deed between two parties. A freehold covenant is a contract between two fee simple owners.1 As in any contract, there must be a promisor and a promise - in the language of covenants they are referred to as covenantor (R) and covenantee (E). R is the person who makes the promise and the E is the person whom the promise is made to. R will always remain personally liable to perform the obligations, which he had promised under the covenant even if he has parted with the ownership of the land, i.e. when he sells the land.

The covenant may take one of two forms - R may promise to do something in relation to his land (Positive Covenant) or he may promise to refrain from doing something with his land (Negative/Restrictive Covenant). In either circumstance, R undertakes an obligation to do something/refrain from doing something and therefore bears the Burden of the promise/covenant. This obligation/burden is undertaken for the Benefit of E.

In most circumstances, the original covenanting parties would part with the ownership of land by selling the land to a purchaser, who is referred to as the Successor in Title (SIT). The subject-matter of discussion is the degree of enforceability of the covenants by and against the SIT in the event of a breach and would dependson whether the aggrieved party commences an action at common law or in equity. Although, the action today will be commenced in the same courts, the remedy available at common law equity has, based on its historical roots, differed. The remedy for breach of contract at common law is compensation by way of damages only. The remedies available in equity, over and above that of damages, are the decrees of specific performance or injunction, as the case may be. The variance in the remedy available means that a party, depending on the remedy he seeks, may wish to enforce the covenant pursuant to the common law rules or the rules of equity.

R E

SIT SIT

1 There is no privity of estate between them. This distinguishes freehold covenants from leasehold covenants.

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The common law rules relating to the enforceability of covenants by and against the SIT is substantially different from the rules relating to enforceability of covenants in equity.2 It may seem strange to the discerning student that we are talking about the enforceability of covenants, as the idea must be a legal misnomer. If a covenant is in essence a contract then surely it must be subject to the doctrine of privity, so that no issue of third party enforceability ought to arise. However, as we shall see, subject to certain rules, a covenant may assume the characteristics of a proprietary interest and not merely remain a personal contractual right. Insofar as the covenant exhibits these proprietary characteristics, it may be enforceable against third parties. In this context, we talk about the burden/benefit ‘running’ with the land when the land is sold to a SIT.

Running of the Benefit at Common Law

R E

SIT

The benefit of a covenant may pass to E’s SIT if the following conditions are satisfied:

1. The covenant must ‘touch and concern’ E’s land, i.e. the covenant must be for the benefit of E’s land and not merely for his personal benefit only. The test is the same as that of leasehold covenants (pre-LTCA 1995) found in Swift Investments v Combined English Stores3:

(i) such a covenant must benefit the assignee for the time being as opposed to E only;

(ii) the covenant must affect the nature, quality, mode of user or value of the land; and

(iii) the covenant must not be expressed to be personal.

2 This is yet another quirk in the development of English law, one which has remained till today.3 [1988] 2 All ER 885. It is not necessary for the benefit to E’s land to be apparent from the wording of the covenant. The benefit can be proved with extrinsic evidence.

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2. At the time of the covenant, E must have held the legal estate in land4 and E’s SIT must acquire a legal estate from him.5

3. The covenant must be annexed to the land. Annexation can be expressed or by statute.

3.1 Express annexation

Where ‘words of annexation’ are used, the benefit of the covenant becomes annexed or attached to the land so that it forms ‘part of the land’. Therefore every time the land passes hands, the benefit of R’s covenant will likewise pass, automatically, from one SIT to another, endlessly. The conditions to be satisfied in order to achieve express annexation are:

(i) R’s covenant must show an intention that the benefit should become annexed to the land, so that it runs with the land whoever’s hands the land passes. The necessary intention is shown by stating clearly in the covenant that the covenant “is made for the benefit of [the named] land”6 or is expressed to be made for the “benefit of E in his capacity as the owner of [the named] land”.7

(ii) The benefited land must either be identified or be capable of identification.8

(iii) The benefit which R’s covenant confers on the land must be capable of benefiting the whole of the land9 and the whole of the land must be conveyed to the SIT. If either of the conditions are

4 Webb v Russell (1789) 3 Term Rep 3935 By virtue of s.78, the same principle applies irrespective of whether the SIT took a freehold or leasehold estate from E. In Smith and Snipes v RDCB [1949] 2 All ER 179, E sold his land to P1, who in turn leased the land to P2. The Court of Appeal allowed an action for damages for breach of covenant on the suit of both P1 (the owner in fee simple) and P2 (who held the lease). The effect of s.78 goes further. It allows any ‘occupier’ which includes a squatter to enforce a restrictive covenant. 6 It is not enough, however, for the covenant to be made with E and his “heirs, executors, administrators and assigns” (or any similar set of words), for such a phrase does not link these people with the benefited land.7 In Rogers v Hosegood [1900] 2 Ch 388 it was held that a covenant by R “with intent that the covenants may enure for the benefit of [E] and his successors and assigns and others claiming under him or them to all or any of his land adjoining” resulted in the benefit of the covenant being annexed to his land, and this form of wording has come to be used by conveyancers as a means of securing annexation.8 Renals v Colinshaw (1878) 9 Ch D 125. Extrinsic evidence may be adduced to show the land intended.9 This is a question of fact, depending on the size of the land and the nature of the covenant

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not satisfied, the covenant must be expressed to be intended to be for the benefit of “each and every part of the [named land10

and this would allow the benefit of the covenant to run with any part of the large estate which is actually benefited, and will also allow the benefit to be divided between several plots if the estate is ever sold off in that way11.

3.2 Statutory Annexation

s.78(1) LPA 1925 provides:

A covenant relating to any land of the coveantee shall be deemed to be made with the covenantee and his successors in title and the persons deriving title under him or them, and shall have effect as if such successors and other persons were expressed.

If read literally the effect of this section was that if the E transferred the land to a SIT, R’s covenants become enforceable by the SIT (and any subsequent transferees of the land) without any need for the covenant to be either annexed to the land or assigned by E to the SIT. This, however, has never been the interpretation placed on this section, until the Court of Appeal decision in Federated Homes v Mill Lodge Properties12 where it was held that the effect of s.78 was to make the benefit of a covenant enforceable at the suit of any SIT of the E, irrespective of annexation or an assignment.

In this case, M obtained planning permission in 1970 to build 1,250 houses on land which he owned. In February 1971 he sold part of the land, referred to as the ‘blue’ land, to the defendant company, requiring the defendant to covenant not to build more than 300 houses (so allowing 950 houses to be built on the land which M Ltd retained). In March 1971 M Ltd sold two plots out of the land it retained (the ‘green’ land and the ‘red’ land) to B Ltd. In the case of each transfer M Ltd expressly assigned to B Ltd the benefit of the defendant’s covenant.

10 So as to avoid the problems in cases like Re Ballard’s Conveyance [1937] Ch 473 which concerned a covenant which was expressed to be for the benefit of the whole of a large estate (690 hectares). In fact, the covenant could confer a benefit on only a small portion of that estate. It was held that, since the covenant did not confer a benefit on the whole estate, it could not run to the SIT upon the sale of the land. Nor would it run when a part of the estate which was sold, because the courts would not sever the covenant and attach it to parts of the land where the express wording of the deed did not allow for this.11 Marquess of Zetland v Driver [1939] Ch 112 [1980] 1 WLR 594

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B Ltd conveyed the green land to the plaintiff, the conveyance containing an express assignment of the benefit of the defendant’s covenant. Shortly afterward, B Ltd conveyed the red land to a purchaser, assigning the benefit of the covenant. In 1975 the purchaser conveyed the red land to the plaintiff, the benefit of the covenant not in this case being assigned. In 1975 the plaintiff discovered that the defendant had obtained planning permission to build an additional 32 houses on the blue land. Since the total of 1,250 houses for the entire estate remained in force, the building of additional houses on the blue land would reduce the density at which the plaintiff could build on the red and the green land. The plaintiff therefore sought an injunction to restrain the defendant from building to a greater density than a total of 300 houses on the blue land. In the High Court the injunction was granted. The Court of Appeal affirmed the grant.

The Court of Appeal held that since, with the conveyances of the green land there had been an unbroken chain of assignments (from M Ltd to B Ltd, and from B Ltd to the plaintiff), the plaintiffs were entitled to enforce the covenant against the defendant. This being so, there was no need for the court to consider whether the plaintiff was entitled to enforce the covenant in respect of red land. The court, however, elected to do so. It was held that the benefit of the defendant’s covenant had become annexed to the entire estate (and so including the red land) by virtue of s.78(1). In the course of his judgement Brightman LJ (as he then was) said:

“If, as the language of s 78 implies, a covenant relating to land which is restrictive of the user thereof is enforceable at the suit of (1) a successor in title of the covenantee, (2) a person deriving title under the covenantee or under his successors in title and (3) the owner or occupier of the land intended to be benefited by the covenant, it must, in my view, follow that the covenant runs with the land, because ex hypothesi every successor in title to the land, every derivative proprietor of the land and every other owner and occupier has a right by statute to the covenant. In other words, if the condition precedent of s 78 is satisfied – that is to say, there exists a covenant which touches and concerns the land of the covenantee – that covenant runs with the land for the benefit of his successors in title, persons deriving title under him or them and other owners and occupiers.”

Thus, the effect of the decision is that neither express annexation nor assignment is needed for the benefit to run. Provided that the benefit touches and concerns E’s land, then, by reason of s. 78, the benefit runs with the land.13 It is clear that

13 “It does with respect, seem really quite extraordinary to suggest that S.78 should have the effect whether or not the parties intended an annexation when, right back to the last century, annexation has always been said to be a question of intention, and that was reiterated in the Act of 1922. As to S. 79 where, with this exception,

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Federated Homes has freed the passing of benefits from the previous technicalities which Brightman LJ “difficult to grasp”.14

Since s.78 (unlike s.79) contains no words permitting the section to be excluded by contrary intention, it seemed from the decision in Federated Homes that in the case of covenants entered into after 1925, the benefit runs with the land, irrespective of the wishes of the parties, irrespective even of an intention that the benefit should not run. This is, however, not the case, as is evident from Roake v Chadha15. This case concerned a covenant entered into in 1934 against the building of more than one dwelling house on a certain plot. The covenant stated “… the purchaser …covenants with the vendor but so that this covenant shall not enure for the benefit of any owner or subsequent purchaser … unless the benefit of this covenant shall be expressly assigned…” E’s land subsequently passed to a purchaser who sought to enforce the covenant. Baker J held that s.78 could not take effect irrespective of the terms of the covenant. Where the covenant stated that the benefit was to pass unless expressly assigned, then s.78 did not operate to make it pass. Since the words used showed an express intention that the benefit should not be annexed to the land, and since there had been no assignment, E’s SIT could not enforce the covenant.In Cresta Nicholson Residential (South) Ltd v McAllister16 the Court of Appeal had to deal with covenants that did not contain no express words of annexation and there was no reference in the covenants to the land to be benefited, nor could this be gleaned from the rest of the conveyance.

Between 1926 and 1936, a company sold off the land in plots, 7 of which were relevant to the case and these were sold to 4 separate purchasers (i) 2 were conveyed to Arthur (A) in 1928 and 1933, (ii) 2 to Humphreys (H) in 1928 and 1933, (iii) 2 to Roberts (R) in 1930 and 1933 and (iv) 1 to Wing in 1936.

the wording is substantially identical, it would even be extraordinary if it were correct that it involves merely conveyancing shorthand (which is what the noble and learned Lords said of it), but that S.78, in substantially the same words only the other way round, has the automatic effect of creating an annexation irrespective of intention. Once these facts are analysed and perceived, it really seems almost impossible that the view of Brightman LJ can be correct.” Newsome (1981) 97 LQR 3214 “I find the idea of the annexation of a covenant to the whole of the land but not to a part of it a difficult conception to fully grasp. I would have thought, if the benefit of a covenant is, on a proper construction of a document, annexed to the land, prima facie it is annexed to every part thereof, unless the contrary clearly appears.”15 [1983] 1 WLR 4016 [2004] 1 WLR 2409

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The conveyances imposed the same two restrictive covenants, the building restriction (except in the first Humphreys conveyance) and the user restriction. Where they differed was that the Humphreys conveyances of 1928 and 1933 and the second Roberts conveyance (Group 1) contained words of express annexation but the Arthur conveyances and the first Roberts conveyance (Group 2) did not.

Individual houses were built on the A, H and R plots. 3 houses, Redruth, Tressilion and Newlyn were built on the Wing land, one of which, Newlyn, was now owned by Mrs McAllister.17 Cresta, a firm of property developers proposed to build houses parts of the gardens at the rear of the properties under the A, H and R conveyances, and all of Redruth and part of the garden of Tressilion.

Mrs McAllister who owned property nearby, opposed the development. She contended that she was entitled to the benefit of covenants which were annexed to her land and that the proposed development would breach both the covenants. The group 1 conveyances It was agreed that there were express words of annexation, and that the land was sufficiently identified: the covenants were expressed to be “for the benefit of the property at Claygate aforesaid belonging to the vendors etc.” and the property conveyed was described by reference to plots “being part of the Fee Farm Estate Claygate Surrey”. The difficulty was that the covenant defined the land to be benefited as that “for the time being remaining unsold”. The effect of this, Chadwick LJ held, was to exclude any land already sold, and also of course the plot which was the subject of the conveyance.18

The group 2 conveyances In this group, there had been no express words of annexation, so the covenant could only be saved by s.78. However there was no reference in the covenants to the land to be benefited, nor could this be gleaned from the rest of the conveyance. In neither the two Arthur conveyances, nor the first Roberts conveyance was there any reference to the Claygate Estate or the Fee Farm Estate or anything 17 On its face it seems the Wing covenant been breached by the building of three houses. This was apparently not an issue.18 He contrasted the wording with that in Stocks v Whitgift Homes Ltd [2001] EWCA Civ 1732 where the covenant was expressed to be for the “benefit of the Company's estate at Croydon” and for “the Vendors' Estate at Croydon”. These words were “apt to refer to such parts of the estate as are retained by the developer” and could include parts later sold. Had the words “for the time being remaining unsold” been omitted in the Claygate conveyance the covenant would have been annexed to the land.

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to identify any land that was to be benefited, even with external evidence.

This brought to focus the question left unanswered by Federated Homes: What was the extent to which s.78 still required land to be identified?

In Federated Homes, identification of the land was not in issue. Although the retained land for which benefit was taken was not defined in the 1971 conveyance which imposed the covenants, Brightman LJ was able to hold that on its true construction it was sufficiently identified but left open the question of whether the document itself must show the identified land. Chadwick LJ considered that the point had been answered in Marquess of Zetland: for the benefit of a covenant to be annexed to land, “the land to be benefited must be so defined as to be easily ascertainable, and the fact that the covenant is imposed for the benefit of that particular land should be stated in the conveyance.” There was nothing in Federated Homes which suggested that this was no longer the case.

According to Chadwick LJ there were good reasons for the requirement. Although after 1925 the burden of the covenant should be registered,19 purchasers of land burdened by covenants need also to know the land to be benefited so that they can identify the person who can enforce the covenant. Where practicable, registration will be by reference to the instrument by which the covenant was imposed and a copy of abstract will be held.

“To require the purchasers of land burdened with a restrictive covenant but where the land is not described in the instrument to make enquiries as to what (if any) land the original covenantee retained at the time of the conveyance and what (if any) of that retained land the covenant did, or might have touched and concerned would be oppressive, always bearing in mind that as in the present case the time at which the enforceability of the covenant becomes an issue may be long after the date of the instrument by which it is imposed.”20

19 Either under Class D (ii) LCA 1972 or s.50 LRA 1925 or now s.11 LRA 2002.20 In Marquis of Zetland, the conveyance stated that the covenant was for part or parts of land subject to a settlement which "for the time being shall remain unsold": that land was easily ascertainable albeit from outside the conveyance. Note that there is no similar requirement in the law of easements that the land to be benefited be identified in the conveyance. In Johnstone v Holdway [1963] 1 QB 601 an express reservation of an easement of way which made no mention of land to be benefited was good since it could be identified by information known to the parties at the time. Again, the challenge to the validity of the easement was a relatively short time after the conveyance but there does not seem anything in the different natures of an easement and a restrictive covenant which justify the difference in principle.

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The necessity for the benefited land to be sufficiently identified is the same whether the covenant is annexed by express words or by s.78.21

Howell22 argues that the problem is that actually identifying the land on the ground which is to be benefited may be impossible.23 This is what happened in exp Leicester Square Coventry Street Association Ltd.24 Land in Leicester Square had been sold in 1874 to Albert Grant by John Augustus Tulk, a member of the Tulk family whose activities are well recorded25 [FN18] and several of whom owned land in and around Leicester Square. In an action by the Association to stop an electricity sub-station being built under the land, it was accepted that the benefit of the covenant had been annexed to land at the time of the 1874 conveyance. The covenant was with "J A Tulk, his heirs and assigns owners for the time being of freehold property in Leicester Square". The judge refused to accept that on the balance of probabilities Mr Tulk did not own other land in or sufficiently near Leicester Square to be benefited. It seemed to him inconceivable that this was a reference to the property actually being sold and Mr Tulk, given his background, must have been supposed to be aware that E had to retain land to be benefited. Even though it was not possible to discover who now had the benefit, the covenant was annexed to the land and was in the words of Simonds J in Lawrence v South County Freeholds Ltd26 “a hidden treasure which may be discovered in the hour of need.”

Cresta also confirmed the decision in Roake that the effect of s.78 is displaced by a contrary intention manifested in the instrument.27

21 And also where there is express assignment - Newton Abbot Co-operative Society Ltd v Williamson & Treadgold Ltd [1952] Ch 286.22 Howell, The Annexation of the Benefit of Covenants to Land [2004] Conv 50723 In Marquis of Zetland the covenant imposed in 1928 was expressed to be for benefit of land which was part of a settlement set up in 1871. The breach of covenant was in 1938 and as it happened the whole of the land settled in 1871 was still intact in the hands of the tenant for life in possession, so identification of the land benefited was straightforward. It would be different where the covenants were imposed many years before and the land to be benefited had been sold on in pieces.24 (1990) P & CR 5125 Tulk v Moxhay (1848) 2 Ph 77426 [1939] 1 Ch 65627 It was held that s.78 did not need an express statement (as in s.79) since this is implicit in the words "successors in title". If the covenant shows that the land was not intended to be benefited, the owners and occupiers are not "owners and occupiers for the time being of the land of the covenantee intended to be benefited" and so are not successors in title for the purpose of s.78. The two sections have the same effect, the difference in wording being attributed to their different legislative histories. Chadwick LJ, confirming that an express exclusion will be approved, found it impossible to identify any reason of policy why E should not retain control over whether or not the benefit of a covenant passed to later purchaser. "I can see no reason why, if the original covenantor and covenantee make clear their mutual intention in that respect, the legislature should wish to prevent effect being given to

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Alternatively, E may expressly assign the benefit of the covenant to his SIT. Such an assignment must be made in writing.28 This may be effective to convey the benefit of the covenant through successive SIT provided there is an ‘unbroken chain of assignment’.

Running of the Burden at Common Law

R E

SIT

The burden of a covenant does not run with R’s land - Austerberry v Oldham Corp29 and there are no exceptions to this rule.

It was previously suggested that the “pure principle of benefit and burden” distilled by Megarry VC in Tito v Waddell30, relying on Halsall v Brizell31, operated an exception to this principle but the suggestion was rejected by Lord Templeman in Rhone v Stephens:32

“I am not prepared to recognise the "pure principle" that any party deriving any benefit from a conveyance must accept any burden in the same conveyance … [In Halsall v Brizell] the defendants predecessor in title had been granted the right to use the estate roads and sewers and covenanted to pay due proportion for the maintenance of these facilities. It was held that the defendant could not exercise the rights without paying his costs of ensuring that they could be exercised. Conditions can be attached to the exercise of a power in express terms or by implication. Halsall v Brizell was just such a case and I have no difficulty in wholeheartedly agreeing with the decision. It does not follow that any condition can be rendered enforceable by attaching it to a right nor does it follow that every burden imposed by a conveyance may be enforced by depriving

that intention". There seems no reason why this principle should not apply the other way round.28 s.136 LPA 1925. Assignment of the benefit of a contract is legally possible because the benefit of a contract is regarded as a property in law, i.e. a chose in action.29 (1885) 29 Ch D 750. In this case, the court refused to enforce a covenant to make up a road and keep it in good repair against R’s SIT.30 [1977] 3 ER 12931 [1957] 1 All ER 37132 [1994] 2 AC 310

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the covenato5r's successor in title of every benefit which he enjoyed thereunder. The condition must be relevant to the exercise of the right. In Halsall v Brizell there were reciprocal benefits and burdens enjoyed by the users of the roads and sewers …. [so that] the defendant could, at least in theory, choose between enjoying the right and paying his proportion of the cost or alternatively giving up the right and saving his money.”

Is it possible to argue that Austerberry has been reversed by s.79 which provides:

“A covenant relating to any land of a covenantor … shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself, his successors in title and the persons deriving title under him or them, and …. shall have effect as if such successors and other persons were expressed …”

The answer is no. Lord Templemann in Rhone explains:

“This provision has always been regarded as intended to remove conveyancing difficulties with regard to the form of covenants and to make it unnecessary to refer to successors in title. A similar provision relating to the benefit of covenants is to be found in s.78 .. In Smith and Snipes v River Douglas Catchment Board .. it was held by the Court of Appeal that [s.78] had the effect of making the benefit of positive covenants run with the land. Without casting any doubt on those long standing decisions I do not consider that it follows that s.79 had the corresponding effect of making the burden of positive covenants run with the land. In Sefton v Tophams .. Lord Upjohn and Lord Wilberforce stated that s.79 does not have the effect of causing covenants to run with the land. Finally, in Federated Homes v Mill Lodge Properties, Brightman LJ referred to the authorities on s.78 and said that “s.79, in my view, involves quite different considerations and I do not think that it provides helpful analogy.” ”

In practice, however, the effects of Austerberry may be diluted by R protecting himself by taking an indemnity from his SIT33 who will in turn take a similar indemnity from the purchaser to who he sells the land to and this process continues with each new purchaser, so that an unbroken chain of indemnity is formed. Accordingly, in the event of a breach, E cannot sue the SIT in breach but will instead sue R who will be indemnified by the SIT in breach via the unbroken chain of indemnity.

Passing of the Benefit in Equity

33 This is done by inserting an Indemnity Clause in the Sale & Purchase Agreement to SIT.

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Annexation Building Schemes

Express Statutory

Building Schemes

Picture the following scenario:

A developer (X) has developed a new housing estate containing 4 houses. He sells the houses to A, B, C and D (in that order). C subsequently sells his plot to G. Each house on the estate is subject to a set of similar restrictive covenants:

(a) Houses shall not be used for any trade, profession or business(b)Front fences must not be more than one foot high(c) Caravan and boats must not be kept on the properties(d) There must be no outside aerials or satellite dishes

The

The issue is to what extent are the above mentioned covenants enforceable by the various parties.

The Basic Rules

The rule at common law is that only people who actually execute the deed (the covenanting parties) could enforce the terms of the deed. This rule has been abolished by s.56 LPA 1925 which provides:

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A person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument.

In Beswick v Beswick34 Lord Upjohn discussed the history and ambit of s 56 and cited with approval the view of Simonds J in White v Bijou Mansions Ltd35:

“…under sect. 56 .. only that person can call it in aid who, although not named as a party to the conveyance or other instrument, is yet a person to whom that conveyance or other instrument purports to grant something, or by which some agreement or covenant is purported to be in his favour.”36

The person seeking to enforce the covenant, therefore, need not be expressly referred to by name in the covenant, it is sufficient that he is referred to by some generic description. So, R may covenant with E and with the ‘owners for the time being’ of the [named land]. The covenant now becomes enforceable against R not only by E but only by anyone who fits the above generic description. There is one qualification to the application of s.56. To take advantage of this provision, the person seeking to enforce the covenant must show that he is the person indicated by the covenant and that he was in existence at the time of the covenant37

In Amsprop Trading Ltd v Harris Distribution Ltd and another38, the issue was whether the head landlord by assignment (P), can claim directly against the original subtenant (D1) and its assignee (D2) on the covenants contained in the sub-lease. Clause 3 of the sub-lease contained the covenants by D1. It opened with these words “THE Tenants hereby covenant with the Landlords as follows” P’s reliance on s.56 was rejected by Neuberger J (as he then was):

“In the present case, the covenants in cl 3 of the underlease are expressed to be made with the landlords, which means Keddie and, at least where the context

34 [1967] 2 All ER 119735 [1937] 3 All ER 26936 In the words of Megarry & Wade: “The true aim of section 56 seems to be not to allow a third party to sue on a contract merely because it is made for his benefit; the contract must purport to be made with him. Just as, under the first part of the section, a person cannot benefit by a conveyance unless it purports to be made to him (as grantee), so he cannot benefit by a covenant which does not purport to be made with him (as covenantee).” (Authors' emphasis)37 Re Ecclesiastical Conveyance [1936] Ch 430. 38 [1997] 2 All ER 990

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admits, its 'successors in title and assigns'. Amsprop, Keddie's own landlord, clearly does not fall within that expression. Accordingly, it seems to me that ATL's argument on this point faces a substantial hurdle, in that the parties to the underlease have expressly agreed that the covenants of the tenants are with the landlords and no one else is mentioned as a person for whose benefit the covenants are made … in light of the observations in Beswick v Beswick, to which I have referred, I consider that, particularly in a case, such as cl 3 of the underlease, where the identity of the covenantee is clear and unambiguous, s 56 of the 1925 Act does not operate to confer the benefit of the covenant on a party who is not within the ambit of the expressly identified covenantee.” (emphasis added)

Application of the Basic Rules39

If G were in breach of covenant, D may argue that he holds land retained by X at the time of the sale of the land to C and that by virtue of s.78 the benefit of C’s covenant has been automatically annexed to the retained land and would accordingly pass upon the sale of the retained plot to D. D may therefore sue G. The same principle would apply if C were to sell his land to Y. Y, too can sue G.

A and B may rely on s.56 provided the covenant between X and C was purported to be made with the ‘owners of time being’ of those plots of land. If this has been done, then A and B can sue G. If A and B were to sell the land to M and N respectively, then, since by virtue of s.56, A and B are regarded as covenantees of the covenant (apart from X), the benefit of C’s covenant becomes automatically annexed to their land by virtue of s.78, and accordingly the benefit of C’s covenant will transmit upon the sale to M and N. M and N may therefore sue G.

Proceeding this way seems ‘relatively simple’ but this is so because our discussion is based on the premise that the plots were sole in a discernible order. The reality is that developers like X never sell the plots of land in any particular order, sale is based on the basic ‘supply and demand theory’, and after 50 years, it may be impossible to ascertain the order in which the plots were sold in order to apply the Basic Rules.

Building Schemes

A Building Scheme represented the old system of ‘local law’ that provides for a regime of ‘mutual enforceability of covenants’ between all the owners of the plots of land irrespective of the order of purchaser and whether or not they were the original purchasers or SIT of the original purchasers. Although, the historical aim of a BS is 39 The entire discussion is based on the premise that the burden of C’s covenant has passed to G under the rule in Tulk v Moxhay.

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no longer as pressing in light of the Town Planning Act 1971, the regime is still important in addressing covenants relating to matter not covered by the Act and which are caught by the scenario above.

The requirements of a Scheme can be traced back to Elliston v Reacher40, in which a building society had laid out an area for development in separate plots and had sold these using identical conveyances and imposing identical covenants upon each purchaser. The court held that the covenants were enforceable against a SIT of R, and set out four rules to be satisfied in order to establish a Scheme:

1. All the purchasers must derive their title from a common vendor

2. The area where the Scheme is intended to operate must be defined.

3. On sale, the same restrictions (restrictive covenants) must be imposed on all the plots, and it must be clear that those restrictions are intended to be for the benefit of all the plots sold.

4. Each purchaser must have acquired his plot on the understanding that the covenants were intended to benefit all other plots in the scheme.

In Reid v Bickerstaff41 Cozens Hardy MR said:

“What are some of the essentials of a building scheme? In my opinion there must be a defined area within which the scheme is operative. Reciprocity is the foundation of the idea of a scheme. A purchaser of one parcel cannot be subject to an implied obligation to purchasers of an undefined and unknown area. He must know both the extent of his burden and the extent of his benefit. Not only must the area be defined, but the obligations to be imposed within that area must be defined. Those obligations need not be identical. For example, there may be houses of a certain value in one part and houses of a different value in another part. A building scheme is not created by the mere fact that the owner of an estate sells it in lots and takes varying covenants from the various purchasers. There must by notice to the various purchasers of what I may venture to call the local law imposed by vendors upon a definite area.”

and Buckley LJ said:

“For the application of the principle [of a building scheme] it is, I think, essential to establish as a matter of fact the following state of things: that the vendor expressly or by implication contracted with the defendant in the action or his predecessor in title (whom I will call the purchaser) upon the footing that at the date of that contract the vendor told the purchaser that he was proposing to deal with a defined estate in a defined way, and that he offered to sell to the

40 [1908] 2 Ch 37441 [1909] 2 Ch 305

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purchaser a plot forming a part of that defined estate on the terms that the purchaser should enter into such restrictive covenants relating to his plot as the scheme contemplated upon the footing that the purchaser should reciprocally have the benefit of such restrictive covenants relating to the other plots on the estate as were indicated by the scheme. There can be no building scheme unless two conditions are satisfied, namely, first, that defined lands constituting the estate to which the scheme relates shall be identified, and, secondly, that the nature and particulars of the scheme shall be sufficiently disclosed for the purchaser to have been informed that his restrictive covenants are imposed upon him for the benefit of other purchasers of plots within that defined estate with the reciprocal advantage that he shall as against such other purchasers be entitled to the benefit of such restrictive covenants as are in turn to be imposed upon them. Compliance with the first condition identifies the class of person as between whom reciprocity of obligation is to exist. Compliance with the second discloses the nature of the obligations which are to be mutually enforceable. There must be as between the several purchasers community of interest and reciprocity of obligation.”

In later cases, however, it has been established that these four rules provide only guidance, and that what is crucial is the intention of the parties to create a Scheme. Therefore, a scheme was held to exist in Baxter v Four Oaks Properties42 even though the whole area had not been divided into lots in advance of the first sale, because it was desired to allow purchasers to choose lots of varying sizes. Again in Re Dolphin’s Conveyance43, a single scheme was established, even though the purchasers had not acquired from a common vendor. The first sales were made by two co-owners, but later the land came into the hands of their nephew, who continued the sale of plots and imposed covenants identical to those imposed by his aunts. The court considered that this satisfied the essential requirement, since it was quite clear that the various vendors did intend to create a local law for the area. If however a common intention cannot be established for example because the covenants vary between the plots of land, a Scheme will not exist.44

Recently, the Court of Appeal reiterated the importance of the requirement that the area to which a scheme is said to exist must be identified with precision. In Whitgift Homes Limited & Ors v. Pauline Stocks & Ors45 D acquired a large area of land. Plots A and B were situated in the Northern part of that land. D started to develop the land. The Southern part of the land was developed first, then D sold off some 260 acres of undeveloped land in the East. That left D with an area of land the general shape of which was “an irregular shape, rather like an upside down Italy, somewhat attenuated in the centre” (the site). 42 [1965] Ch 81643 [1970] Ch 65444 Emile Elias v Pine Groves [1993] 1 WLR 305.45 [2001] EWCA Civ 1732

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Plots A and B were situated in the site. This site was developed with plots being sold off as the development proceeded.

Plot A was owned by T and Plot B was owned by H, their predecessors in title having purchased the plots from D in 1932 subject to certain restrictive covenants.46 W, a property developer who held an option in respect of both plots, and T proposed to develop the plots in breach of the covenants. Owners of adjoining or adjacent properties (R) sought to enforce the covenants against them, claiming a Scheme existed, with the consequence that they are all entitled to enforce the covenants, alternatively, that the owners of those of R's properties which were sold off by D after the sales of the plots are entitled to enforce the covenants on the ground that the benefit of the covenants is annexed to their properties. There were three such plots with a total of about 90 houses on the site.

Parker LJ explained the principles:

“The effect of annexation in a case where the developer of an estate sells off the various developed plots subject to restrictive covenants is that the first purchaser will not be able to enforce the covenants entered into by the purchasers of any of the other plots, whereas the last purchaser will be able to enforce the covenants entered into by all the other purchasers. Hence in the instant case the owners of those of the respondents' plots which were sold off by the developer before it sold off the plots cannot claim the benefit of the covenants by annexation.

However, if the available evidence establishes the existence of a scheme under which similar restrictive covenants imposed on a number of properties in a defined area are mutually and reciprocally enforceable as between the respective owners for the time being of those properties (commonly referred to as a "building scheme"), then the owner for the time being of each of those properties will be able to enforce the covenants against the owners for the time being of each of the other properties subject to the scheme. Thus, in the case of an estate which is sold off by a developer in various plots, the owner for the time being of each plot will be able to enforce the covenants against the owners for the time being of all the other plots, regardless of whether such plots were sold off by the developer before or after his own plot. Hence in the instant case if such a scheme exists each of the fifty-five respondents will be able to enforce the covenants affecting the plots.

[T]he relevant principles [are] as follows:

"(1) For a subsequent purchaser of the land subject to the covenant to be bound by the covenant there are three requirements: (a) the covenant must be negative

46 The covenants were that: (1) no building other than a Private dwellinghouse with suitable outbuildings appurtenant thereto shall be erected on the said land or any part thereof, (2) no building or erection shall be set up on the said land nearer than 25 feet to the road in front thereof" and (3) not more than one dwellinghouse shall be erected on the land.” This was registered land and the restrictive covenants were entered on the Charges Register. There were no assignments of the benefit.

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in nature; (b) the covenant must be either (i) for the protection of land retained by the covenantee or (ii) part of a scheme; and (c) the subsequent purchaser must have notice of the covenant. (2) For a subsequent purchaser of other land to be able to enforce the covenant there are also three requirements: (a) the covenant must, to use the old expression, touch and concern his land; (b) the [benefit of the] covenants must have passed to him by (i) annexation (ii) assignment or (iii) pursuant to a scheme; and (c) there must be no good ground for depriving him of the right to enforce the covenant."”

After referring to Reid, his Lordship continued:

“I can fully accept that a particular property situated within an estate may not be subject to a building scheme which affects the remainder of the estate because the original purchaser of that property did not buy it with notice of the scheme and hence with the intention that the property would be included in the scheme. Such a situation appears to have arisen in Nalder and Collyer's Brewery Co Ltd v. Harman47. In that case a property on an estate alleged to be subject to a building scheme was sold prior to the rest of the estate being put up for sale by public auction. The conveyance of the property in question made no reference to any scheme. At the subsequent auction, however, the sale plan included the whole of the estate, including the property which had been previously sold off divided into numbered lots. Kekewich J said:

"I hold that there is a building scheme affecting that property not only which was offered for sale [at the auction] but that which was described in the plan annexed to the particulars and conditions of sale, and which included property which had been sold prior to the auction."

As I read that case, the effect of Kekewich J's decision is that, notwithstanding that the scheme was intended by the vendor to relate to the entirety of the estate, and notwithstanding that the purchasers at auction must have bought on that basis, in fact the scheme did not include the property sold off prior to the auction: that is to say, the property sold off prior to the auction was not included in the area within which the "local law" operated.

On the facts:

“So the question at issue is whether, absent a scheme which operates over the whole estate, there was nevertheless a scheme which operated as between properties situated within "the site".

In my judgment, on the available evidence the answer to that question must be No. I reach that conclusion for essentially two connected reasons. In the first place, the evidence provides no answer to the question: What is the "defined area" within which the scheme is intended to operate? Is it limited to "the site", or does it extend to adjoining or adjacent properties, and if so which properties? And in the second place, how is a purchaser of a plot within "the site" to know which plots on the estate are within the scheme and which are not.” (emphasis added)

and Judge LJ said:

47 (1900) 82 LT 594 (affirmed by the Court of Appeal at (1900) 83 LT 257).

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“There is no doubt that the properties with which this case is concerned formed part of a massive housing development .. In that broad sense, the original developers of the land were involved in a building scheme. However before properties built in accordance with such a scheme can benefit from and become subject to mutually enforceable covenants of the kind presently under consideration, the authorities show that the number of characteristics must be established. Among them is certainty: otherwise, in relation to each plot of land said to fall within the scheme, the question will continually arise: does it, or does it not, so fall? .. It is no longer necessary to establish that the area covered by the proposed scheme has been divided into plots. Nevertheless the emphasis on the need for definition of the area subject to the scheme remains unchanged. This requirement is not inconsistent with the possibility that the evidence may show that a vast development was subject to one, or indeed more than one enforceable building scheme, or that some parts of a large development were included in such a scheme while another part or parts, or even a single plot, fell outside it.” (emphasis added)

The annexation issueThis issue was simple. It called for an application of s.78 as interpreted in Federated Homes. It was accepted that the covenants touched and concerned the land48 and the application of s.78 was not ousted. It was argued that the benefit of the covenant did not run with each part of the land retained by D when the covenants were taken as the land to be benefited by the covenants was not sufficiently identified. Parker LJ rejected this argument and held, relying on Marten v. Flight Refuelling49 that the references to D’s estate Croydon were sufficient to refer to such parts of that estate as were retained by D.

Advantages of a Scheme

1. Although it is still necessary to establish that the rules in Tulk v Moxhay have been satisfied, these rules are modified slightly in one respect, so that the burden will run with the last plot sold despite the fact that the developer does not retain any land that is capable of being benefited. With this exception, all the basic rules will have to be followed: so there is no question of the burden of positive covenants running under a Scheme, and the usual

48 The trial judge listed the factors which led him to that conclusion. First, he referred to the fact that the conveyances of Plots A and B each state expressly that the covenants are entered into "for the benefit of the [developer's]". Secondly, it seemed "inherently unlikely" that the sort of negative covenants imposed by the Second Schedule to each Conveyance would have been other than for the benefit of land.49 Where Wilberforce J (as he then was) that where the parties have expressly referred to a covenant as having been imposed for the purpose of benefiting the retained land of the covenantee, "the court would normally assume that it is capable of doing so".

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registration or protection by entry on the register is needed if SITs are to be bound.

2. All the purchasers of the plots in the Scheme are able to enforce the covenants between themselves, irrespective of the date on which they, or their predecessors in title, bought their plots. There is thus no need to distinguish between earlier purchasers, proceeding under s.56, and the later purchaser, who rely on express/ statutory annexation. Earlier purchasers will be able to obtain the benefit of later covenant, and that benefit will run with their plots automatically, provided that they can establish that a Scheme has been created.

3. In Brunner v Greenslade50 it was held that both the benefit and burden of covenants in a Scheme will run to affect someone who acquires only part of the original plot. Thus where a plot is subdivided, the purchaser of one part may enforce the covenants against the purchaser of the other part and against all the other owners of plots forming part of the scheme. This rule was accepted because the aim of the scheme is to create a type of local legal system, and this would not be fulfilled if ‘islands of immunity’ developed in which covenants could not be enforced (as would happen if the owners of subplots could not enforce the covenants between themselves).

1. It should also seem that should two plots come into common ownership and then later divided again, the original covenants will revive automatically between the subsequent owners.51 In general law this would not occur, for the common ownership would extinguish the covenants as between the two plots and the rights and duties created by the covenants would not revive when the plots were once more separated. The only way in which the covenants could be revived would be for the common vendor to require fresh covenants from the purchasers from him. However, when a Scheme can be established, the right and duties under the original covenants will spring up again automatically when the plots separated. Thus a Scheme provides a useful exception to the ordinary rules on this issue.

Running of the Burden at Common Law

Originally, equity did not recognise the running of the burden with R’s land. This position changed dramatically with Lord Cotthenham’s 50 [1971] Ch 99351 Texaco Antilles v Kernochan [1973] AC 609

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judgement in Tulk v Moxhay.52 In this case, a purchaser of land covenanted that no buildings would be erected in Leicester Square (the covenant was to maintain the garden in Leicester Square ‘in an open state, uncovered with any buildings’). A subsequent purchaser of Leicester Square was restrained from building.

Subject to the satisfaction of certain conditions, the burden of a restrictive covenant will run with COR’s land in equity:

1. It must be a restrictive covenant.53 Why is the rule limited to restrictive covenants only? Lord Templeman in Rhone explains:

“My Lords, equity supplements but does not contradict the common law … Equity does not contradict the common law by enforcing a restrictive covenant against a successor in title of the covenantor but prevents the successor from exercising a right he never acquired. Equity did not allow the owner of Leicester Square to build because the owner never acquired the right to build without the consent of the persons (if any) from time to time entitled the benefit of the covenant against building. In Tulk v Moxhay [Lord Cottenham’s speech contained this passage] “It is said that, the covenant being one which does not run with the land, this court cannot enforce it; but the question is, not whether the covenant runs with the land, but whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor, and with notice of which he purchased”

Equity can thus prevent or punish the breach of a negative covenant which restricts the user of land or the exercise of other rights in connection with land. Restrictive covenants deprive an owner of a right which he could otherwise exercise. Equity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it. Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property. As Lord Cottenham said in Tulk v Moxhay: “if an equity is attached to the property by the owner, no one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased” …

For over 100 years it has been clear and accepted law that equity will enforce negative covenants against freehold land but has no power to enforce positive covenants against successors in title of the land. To enforce a positive covenants would be to enforce a personal obligation against a person who has not covenanted. To enforce negative covenants is only to treat the land as subject to a restriction ….

52 (1848) 41 ER 114353 Haywood v Brunswick PBS (1881) 8 QBD 403; Thamesmead Town v Allotey [1998] SLRYB 156

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In these circumstances your Lordships were invited to overrule the decision of the Court of Appeal in the Austerberry case. To do so would destroy the distinction between law and equity and to convert the rule of equity into a rule of notice.”

2. The covenant must touch and concern E’s land.54

3. R and E must have intended for the burden of the covenant to run with R’s land at the time the covenant was made. In the absence of express wordings to this effect, by virtue of s.79, R is deemed to have covenanted in these terms. The application of s.79 may, of course, be ousted by express wordings to the contrary. That is what happened in Morrells v Oxford University FC55 where The Court of Appeal held that clause 3 of the covenant which was in the following terms:

“The vendors hereby covenant with the company as follows: (a) For the benefit of the land hereby conveyed that the vendors will not at any time hereafter permit any land or building erected thereon within half a mile radius of the land hereby conveyed which is in the ownership of the vendors at the date of this conveyance to be used as a brewery or club or licensed premises for the preparation manufacture supply sale or consumption either on or off the premises of intoxicating liquors.”

excluded the application of s.79. Walker LJ said:

“ .. apart from the effect of section 79, clause 3(a) .. would operate as a personal covenant only. Its express terms contain no reference to successors in title to parts of the city council's land within half a mile of the Blackbird public house, apart from the tenuous hint which might be derived from the contrast between "at any time hereafter" and "in the ownership of the vendors at the date of this conveyance". The contrast between clause 256 and clause 3 could hardly be clearer .. the contrast .. is too stark and too immediate to be ignored. To read into clause 3 words which are not there, but which are in clause 2, would in my view be inconsistent with the purport of the instrument.”

54 In LCC v Allen [1914] 3 KB 642, a builder covenanted that he would not build on a particular piece of land. E was the LCC, which did not own land in the neighbourhood. Mrs Allen bought the plot with knowledge of the covenant, but was held not to be bound by it, because it was not made for the benefit of land owned by LCC.55 [2001] 2 W.L.R. 12856 "The company with intent and so as to bind so far as practicable the property hereby conveyed into whosesoever hands the same may come and to benefit and protect the estate of the vendors known as the Blackbird Leys estate but not so as to render the company liable for any breach of covenant committed after the company shall have parted with all interest in the property in respect of which such breach shall occur hereby covenants with the vendors that the company and its successors in title will at all times hereafter observe and perform the restrictions following in relation to the property hereby conveyed namely ..."

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4. As is plain from Lord Templemann explanation in Rhone, notice represented the most important criteria of enforcing a restrictive covenant against a SIT. The equitable doctrine of notice is today replaced by the more sophisticated system of giving notice to the SIT by way of registration.

Unregistered Land A restrictive covenant must be registered as a Class D (ii) land charge on the Charges Register under the Land Charges Act 1972.

Registered Land A restrictive covenant is regarded as a minor interest and must be protected by the entry of a Notice on the Charges Register.57

However, a failure to register or protect a restrictive covenant, be it unregistered or registered land, will nonetheless bind an acquirer of R’s land who (1) is not a purchaser for value e.g a done of a gift, a devisee under a will or a squatter and (2) purchases only the equitable estate e.g an equitable tenant.58

57 S.29 LRA 200258 Dixon, Modern Land Law (6th Edn, 2009) at p. 386

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freehold covenants (notes)

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