Nailah Robinson

Real Property II Tutorial 6: Restrictive Covenants

Introduction
Times are hard and you are planning to utilize your biggest asset to make some extra income – your property. You have received permission from Town Planning to add a little apartment in the back of your house, and also to build a little stall in the front where you will sell fruits and vegetables during the day, and fried chicken during the evening. Your neighbour comes to you to say that she objects to your plans. What’s more, she claims she has the right to take you to Court because of a covenant signed by the two persons who owned your respective houses many years ago, both of whom are now deceased.

Are you really bound by this easement? And does she really have the right to enforce it?

Covenants

A covenant is a promise made by one land owner (covenantor) to another land owner (covenantee). The covenantor’s property is thenceforth known as the servient tenement, and the covenantee’s property is thenceforth known as the dominant tenement.

In most of the questions which you are called on to solve, you will find that the covenantee was the vendor of a parcel of land, who extracted a promise from the purchaser (covenantor) not to use the land in a particular way. However, this is not always the case – any two neighbours can create covenants, usually in exchange for money or for some mutual advantage.

Privity of Contract

The covenant can always be enforce by the original covenantee (henceforth called ‘DT1’) against the original covenantor (henceforth called ‘ST1’) as they have privity of contract. (You can think of this in terms of there being a paper somewhere with both of their names upon it.)

This contract is binding on both parties even after they part with the land. However, this may not be satisfactory. Once the covenantee has parted with the land, there is very little point in his suing to enforce the covenant. He may be entitled to a right, but he will not be able to prove any damages. It would make more sense if the new owner of the dominant tenement (‘DT2’) had the right to sue. This will only happen if the benefit of the covenant has been assigned to her, or if the covenant ‘runs with the land’.

Similarly, when the covenantor parts with the land, he will want to ensure that he is not sued for something that the new owner (‘ST2’) is doing. Under contract law he cannot assign the burden of the covenant to the new owner. However, he can make him sign an indemnity. In other words, if the original covenantee is sued, he can use the indemnity to recover the money from the new owner of the servient tenement. Again this is not very satisfactory. As the servient property is reconveyed, the chain of indemnity becomes increasingly long, and may even be broken as interim owners disappear.

Tulk v Moxhay

In Tulk v Moxhay, the Court found a solution to the problem that the burden of the covenant could not run with the land in law. Jessel MR held that a new owner of the servient tenement who had notice of the covenant, was estopped from denying it as it would be unconscionable for her to do so. As with all equitable rights, the covenant could be defeated by “the chancellor’s darling” – the purchaser of the legal title for value without notice (where notice includes actual, imputed and constructive).

Because the burden is being enforced in equity, only equitable remedies are available: injunction or damages in lieu of injunction under Lord Cairn’s Act.

The doctrine of Tulk v Moxhay only applies to restrictive (negative) covenants. Even if the new owner has notice of a positive covenant, the Court will not force her to expend money. Note that the covenant must be negative in both form and nature.

The Benefit Running with Land in Law

The benefit of the covenant will run with the land in law once two conditions are fulfilled: a) the covenant must ‘touch and concern the land’ and b) the covenantor (DT1) and new owner (DT2) must have a legal estate.

Where the benefit passes with land in law, it cannot be subdivided. Hence, where the land is subdivided, only one parcel will have the benefit and not the other(s).

The Benefit Running with Land in Equity

Where the burden is being enforced under the rule of Tulk v Moxhay (i.e., in equity), or where the DT2 does not have a legal estate, then it must be shown that the benefit of the covenant runs with the land in equity. There are three possibilities: 1) annexation, 2) assignment and 3) building scheme.

This method is also necessary where the dominant tenement has been subdivided, and the person seeking to enforce the covenant is not legally entitled to do so (since the benefit is not subdivided with the land).

Annexation

There are methods of annexing (attaching) the covenant to the land.

Express Annexation

The covenant is stated to be made for the benefit of the land, or to be made with the covenantee in his capacity as owner of the land. It is insufficient to say that the covenant is being made for the benefit of “the vendor and his heirs” as this does not reference the land.

Implied Annexation

Where the connection to the land is obvious, to insist upon express words may be “not only an injustice but a departure from common sense”: Marten v Flight Refuelling [1962]. The Court may imply annexation where the instrument creating the covenant clearly establishes both the land which is to be benefitted and the intention to benefit that land.

Statutory Annexation

Section 78 of the 1925 Law of Property Act states “a covenant relating to any land of the covenantee shall be deemed to be made with the convenantee and his successors in title, and persons deriving title under him ... and shall have effect as if such successor and other persons were expressed”. Although this Act was became law in 1925, the possibility that the section might have that effect remained unconsidered until the decision of the Court of Appeal in Federated Homes v Mill Lodge Properties [1980] 1 WLR 594.

This section applies to both positive and negative covenants which touch and concern the land, and, although the interpretation has met some criticism, it is generally considered that Federated Homes has greatly simplified the law in this area.

Note the following:

a) the dominant tenement must be clearly identified in the instrument which creates the covenant

b) the covenant must be unqualified.

c) the benefit is taken to be annexed to the whole land and to each and every part of it, so that where the land is subdivided, all subdivisions are entitled to the benefit.

Assignment

Where the land has been assigned, the assignee may show that the benefit of the covenant has also been assigned.

Note that this method is seldom used since the Federated Homes decision. It is still necessary, however, where the covenant expressly states that it is for the “whole” of the covenantee’s land (so that the benefit cannot be subdivided) or where the covenant states that the benefit can only pass by way of express assignment.

It is required that the dominant land be reasonably ascertainable and that the assignment of the land and the assignment of the benefit must be contemporaneous: Re Union of London and Smith’s Bank Ltd’s Conveyance [1933] Ch 611.

Building Scheme

The rules for building (and development) schemes derive from the principle that the benefit of covenants will run in equity according to the common interest and common intention of the parties. The restrictions are imposed to preserve the value of all of the lots, and the developer is bound by them in relation to unsold lots.

The classic requirements were laid down in Elliston v Reacher [1908] 2 Ch 374. These were:

1. there must have been a common vendor who laid out the property for sale in lots

2. all of the lots must have been subject to the same restrictions

3. the common vendor must have intended the restrictions to benefit all of the lots to be sold

4. the purchasers must have understood that all the lots were to benefit

5. the geographic area of the scheme must be reasonably ascertainable

Following Jamaica Mutual Life Assurance Society v Hillsborough [1989] 1 WLR 1101, the strict restrictions have now been generally consolidated into two:

1. There must be a common intention of the purchasers for reciprocity of obligation, and

2. The area of the scheme should be clearly defined.

In fact, in Hillsborough the Court held that there wasnot a scheme as there was no indication that the purchasers had assumed an obligation to anyone other than the vendor. Similarly, in Emile Elias v Pine Groves [1993] 1 WLR 305, it was held that there wasnot a scheme as some of the lots had different covenants, and not all of the lots had a common plan (e.g., not all of the plans showed Lot 5).

Discharge of Restrictive Covenants

A land owner who wishes to use the land in a particular way may argue that the restrictive covenants are no longer of any effect. He can raise this as a defence if his neighbours seek an injunction against him, or he can proactively apply to the Court for a declaration that he is entitled to carry out some activity.

It is generally quite difficult to have restrictive covenants discharged.

Note that merely obtaining planning permission is not sufficient grounds for arguing that the restrictive covenants can be set aside. The two things are quite different.

Inherent jurisdiction of Court

The Court may refuse an injunction on two grounds:

1. Acquiescence, i.e., that the owner of the dominant tenement has acquiesced in the activity carried out by the servient owner such that they are now estopped from enforcing the covenant

2. That the character of the neighbourhood has changed so much that the covenant is no longer relevant. For example, if all of the properties in the neighbourhood have been subdivided, it would be unreasonable to prevent the servient owner from subdividing his.

Statutory Power of Court

Statute in Antigua and Barbuda, Barbados, Belize and Jamaica gives four grounds on which the covenants may be discharged: obsolescence, obstruction of reasonable use, agreement, and no injury to objectors.

Obsolescence

This is essentially the same as the common law test of “character change”. The test was laid down inRe Truman, Hanbury, Buxton & Co Ltd’s Application [1956] 1 QB 261: whether the original purpose for which the covenant was made can still be achieved. The covenant will be considered to be still active if it provides real protection to persons entitled to enforce it.

The Courts refused to discharge the covenants in Stephenson v Liverant (1972) 18 WIR 323. In that case, the Defendants wished to erect a block of apartments on two lots in a development for the purpose of renting them to tourists. It was proven that many of the other property owners rented to tourists, in breach of the covenants not to carry on trade or business. Nevertheless, the Court held that the change in the neighbourhood was not so far-reaching as to render the covenants obsolete. Although the houses were rented, this was done discretely, and with a lack of advertising. Furthermore, the occupants were essentially using them as private dwellings, and not as business places. There were no visible clues in the neighbourhood to indicate that the usage had changed.

Impeding Reasonable Use

To satisfy this ground, it must be shown that the restriction impedes the reasonable use of the land, and that it does not secure any practical benefits to any person such as to justify its existence.

In Stannard v Issa [1987] AC 175, the Privy Council noted that the restrictions had to be such as to sterilise the existing use. The two conditions:

1. The permitted use must no longer be reasonable

2. The proposed use is the only reasonable one

Practical benefits include privacy, view, low population density, peace, quiet and security.

In Stannard, the development, which was described as a “peaceful, seaside enclave of a family nature” was subject to covenants not to subdivide and not to carry on commercial activity. One of the original covenantors, who owned two lots, obtained planning permission to build blocks of three storey apartments, with all the amenities including swimming pools. The Court held that she had failed to meet the requirements. The permitted use – as residential lots – was still very reasonable, and the other landowners derived considerable practical benefits from the covenants.

Agreement

The agreement may be express or implied. This is quite difficult to prove – if the other landowners truly agreed, then it is unlikely that the case would require the attention of the Courts.

No Injury to Objectors

The covenant may be discharged if it can be shown that there is no injury to the objectors. This is countered by the argument that although the proposed development may be innocuous, it may open the way for further developments which will undermine the protection of the covenants. This is called the “thin edge of the wedge” argument. As the Privy Council noted in McMorris v Brown [1999] 1 AC 142, adopting a previous statement by the Lands Tribunal, the application may open a breach in a carefully maintained and successful scheme of development, thereby depriving the objectors of a substantial benefit, namely, the assurance of the integrity of the scheme.

Miscellaneous

Two final points of note: a positive covenant (to spend money) may not pass under the rule of Tulk v Moxhay but the dominant owner may still be able to enforce by depriving the servient owner of the corresponding benefit. For example, where the dominant owner has a road which the servient owner has covenanted to maintain, the dominant owner may restrict access to the road if the servient owner fails to make the payments.

Also, you should consider that restrictive covenants may not be the best way to ensure that a development retains its character. The developer may set up the type of scheme where a company (such as a home-owners association) owns the common areas and retains control of the area as a whole. Each property owner also owns a share in the company, and the company may move against them where necessary.