Topic 10 Covenants What is a covenant? Promises in a deed when you sell land Contractual rights and obligations that relate to land and bind the parties to act in a certain way towards the land Positive covenant sell land and other person promises they will positively build and maintain fences Negative covenant covenant that the buyer will not build a skyscraper on the land Contractual in nature but can take on proprietary element and become attached to land If this occurs, covenants will bind successive owners of the land and parties that have privity of estate in relation to land Despite not having privity of contract with the original contractual instrument that express the covenants Purpose to prevent the economic value of the land which can be affected by incompatible use of neighbouring property Positive covenant burden may not be enforced against successive title holders Negative covenant burden may be enforced against successive title holders Covenantee the vendor, person who benefits from the covenant Covenantor the purchaser, person who owns the burdened land Positive covenant a covenant that a person MUST DO something, usually entails spending of money Negative covenant a covenant that a person MUST NOT DO something Positive covenants The covenantor must do X, Y, Z General rule of thumb is that if it involves spending of money, it is a positive covenant EG. The coventor must build and maintain the fence The coventor must contribute to the maintenance of a shared driveway The coventor must repair a shared roof Remedy for breach of positive covenant is specific performance Negative covenant The coventor must not do X, Y, Z General rule of thumb is that it is anything that doesn t require the spending of money Can comply with the covenant by doing nothing EG. The covenantor is not to build over a certain height The covenantor is not to build more than one house on the land The covenantor is not to decorate outside the heritage colour scheme Can be registered on title If X is beneficiary or burdened, you can register it on the title Remedy for breach of negative covenant is an injunction Covenant vs. Easement Both are incorporeal interests
A negative easement EG. Preventing a person from building in front of a view Based on proprietary rights Benefit is that it is a proprietary interest and passes onto successors in title Enforceable in rem Fundamentally, an interest in the land Weakness is that negative covenants are limited to typically air and light Restrictive covenants Similar to negative easement Contractual rights, and no proprietary interests Contractual obligation enforceable against current parties to estate Benefit is that the categories are not closed and can covenant for anything Consequences is that someone may not be interested in buying land, but you are allowed to have the covenants nonetheless Weakness is that it does not automatically bind successors in title Requirements for restrictive covenant 1. Dominant tenement benefited by restrictive covenant and servient tenement burdened by restrictive covenant 2. The covenant is negative 3. Instrument must express a clear intention to bind the land and successors in title Restrictive covenant to be recorded on register Transfer of Land Act s 88 EG. X sells land to Y Covenant states that unless Y obtains consent of X, Y shall not construct more than one dwelling on the burdened lot; use the burdened lot for any purpose other than as a private dwelling; subdivide the burdened lot; or operate upon the burdened lot a business DT is X s land, ST is Y s land because he is burdened Covenant is negative because it prevents Y from doing things Contractual nature of covenants Covenant is a promise in a deed Can be contractual right that regulates the way in which land is to be used If relevant tests of interconnectedness between covenant and land are satisfied, the covenant will take on a proprietary nature and become affixed to land Any conveyance of land will also convey the covenant and bind the third party purchaser Covenant contractually enforceable between X and Y If it satisfies the relevant tests, covenant can attach to land and pass to any TP purchaser Y sells to Binds the TP and allow X to enforce the covenant against the TP Successors in title, and passing benefit/burden for positive/restrictive covenants Successors in title for BENEFITTED land Common law allows benefit of covenant to pass to successor in title, as long as the covenant touches and concerns the land Purchaser of benefitted land may enforce the covenant against owner of burdened land, if the benefit passes with the land
At common law, benefit will pass by annexation or express assignment Privity of contract X sells land to Y X sells land to Z Can Z enforce the restrictive covenant against Y? Covenant must be annexed to land If X is benefitted by restrictive covenant for Y, then X and Y are in privity of contract X is covenantee who sells the land to Z Z becomes the covenantee Can transfer the benefit of restrictive covenant as an exception to privity of contract X and Z owe no obligation and so under privity of contract, X can assign covenant to Z Successors in title for BURDENED land of negative covenant Y sells land to Z Privity of contract X sells land to If Y sells burdened land to Z, can X enforce the restrictive covenant against Z? Common law = no Equity = yes Must be annexed to land Covenant must be negative Intention that successors in title bound There is privity of contract for burdened land If Y sells burdened land to Z with notice, at common law, X cannot enforce the restrictive covenant against Z In equity, the covenant can be enforced Burden of covenant cannot pass to successor in title, but it can be passed in equity But must be annexed to land, covenant must be negative only, and that there is an intention to bind successors in title
Successors in title for BURDENED land of positive covenant If X sells land to Y with covenant that Y must build and maintain fences Y is burdened by the covenant and X is benefitted There is a privity of contract for burden of positive covenant If Y sells burdened land to Z, X cannot enforce the positive covenant against Z Burden of positive covenant does not bind successors in title Austerberry v Corporation of Oldham (1885) Austerberry v Corporation of Oldham (1885) 1937, people formed a company and sold a fraction of their land Positive covenant that the company who owned the highway had to build and maintain the highway Company built the highway and sold it to Oldham Austerberry bought the benefitted land from the company, and Oldham was the successor in title for the burdened land The company was originally burdened by positive covenant to pay for road repairs, but company sold that land to Oldham Austerberry sought costs of repair from Oldham in 1881 HELD: Positive covenant does not bind successors in title Personal obligation to perform cannot be enforced against a person not privity to the contract Covenant between original landowners and company who bought the land was a personal covenant Cannot enforce personal obligation on someone who is not privy to contract Exceptions to Austerberry v Corporation of Oldham that positive burden cannot be passed onto successor Chain of deeds Each covenantor agrees to always include same covenant in any subsequent sale Subsequent purchaser agrees to be liable of covenant is broken Ancient principle of benefit/burden Thamsemead Town v Allotey (1998) Cannot take benefit of deed without taking its burden Benefits run with land Only applies where covenant was intended to convey a benefit on the ST as well as a burden Usually in situations were number people have entered into covenant subject to a burden, but for mutual benefit of all parties to the covenant Thamsemead Town Pty Ltd v Allotey (1998) Land developer sold land to purchaser with covenant Successor in title owned an estate with communal garden paths and roads One house sold to a purchaser under a covenant that purchaser and successor in title must contribute and pay for the maintenance of the paths and roads and gardens Part of initial contract was that purchaser, if they sold the land, had to include same covenant to oblige next owner Purchaser sold to X and forgot to include covenant that X would pay for path and roads and gardens Rule of reciprocity needs two conditions: Correlation between burden and benefit Covenanter s successors in title must have opportunity to elect whether to take or renounce benefit HELD: Will recognise rule of recpriocity, but not fulfilled here
Passing BENEFIT of positive covenant at common law X (covenantor) owns Lot 1 and Lot 2 X sells Lot 2 with Privity of contract X sells land to Y Z (covenantee) purchases burdened land with covenant that he must repair the fences X sells land to Z Y (covenantor) purchases benefitted land Can Z enforce the positive covenant against Y? Covenant must be annexed to land Requirements for passing benefit of positive covenant at common law Must be a benefit and not a burden Must touch and concern the land Direct affects the benefited land Intention for successors in title to benefit from the covenant The successors in title to the original covenantee must have legal interest in the land to be benefited The land which is benefited must be identified or identifiable Touch and concern the land test The burden of positive covenant cannot be enforced against successor in title with no notice The benefit of positive covenant can bind successors in title if it touches and concerns the land There must be an intention that benefit of the covenant run with the land Smith and Snipes Hall Farm v River Douglas Catchment Board There is a statutory presumption that there was an intention Property Law Act s 78 It must affect the land as regards mode of occupation, or it must be such as perse and not merely from collateral circumstances, affects the value of land, and it must then be shown that it was the intention of the parties that the benefit therefore should run with the land Smith and Snipes Hall Farm v River Douglas Catchment Board Town of Congleton v Pattison (1808) Town leased the land to X for 300 years, X covenanted and burdened himself that he would give notice of the persons working at the silk mill and not employ any person from outside the parish X sold mill to Pattison, who breached the covenants HELD: P could only be bound by the covenant if it touches and concerns the land In order to bind the assignee, the covenant must either affect the land itself, such as those which regard the mode of occupation; or it must be such as per se and not merely from collateral circumstances, affect the value of the land at the end of the term Barring outsides from working in the mill has no direct effect on the land s value May collaterally affect the value if the town is seen as ghetto, but won t affect the land Covenants to restrain the exercise of particular trades do not touch and concern land Here, state of premises would be the same at the end of the term, whether the parish be more or less burdened with poor
Property Law Act s 78 At common law, rule that assignee had to acquire same estate as the original covenantee EG. Tenant could not take benefit if the original estate was fee simple S 78(1) A covenant relating to any land of the covenantee 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 is such successors and other persons were expressed Covenant applies to all corners of fee simple Even if you forgot to write intention to bind successors in title, there ll be an assumption that you intended to Passing the BURDEN of a restrictive covenant in equity Equity will enforce burden of a covenant by way of an injunction or compensation in lieu, where it is clear that the purchaser was aware of the covenant Tulk v Moxhay Successors in title If X sells to Y with a negative covenant to not build a skyscraper, and Y sells the burdened land to Z, X cannot enforce the covenant on Z at common law X can enforce the covenant on Z in equity, under Tulk v Moxhay Requirements for passing burden of a restrictive covenant in equity Tulk v Moxhay Restrictive covenant must be annexed to the land Covenant must be negative Intention that successors in title be bound Tulk v Moxhay T owned land in Leicester Square that had houses surrounding a garden, T retained ownership of some houses and sold the garden to ELMS with restrictive covenant saying ELMS and successors in title would keep and maintain square garden in an open state, uncovered with any buildings, allow inhabitants of Leicester Square to have keys and admission at any time ELMS sold to M with notice of covenant, but no formal inclusion of covenant M sought to develop on garden, T sought injunction At common law, M isn t bound by the restrictive covenant as M not privy to contract HELD: Burden could be passed because M knew of the burden Didn t matter whether burden ran with the land or not The question is whether a party shall be permitted to use the land in a manner inconsistent with the contract entered into by his vendor Nothing could be more inequitable than that the original purchaser should be able to seel the property the next day for a greater price If it was contract between two people, court may give estoppel, and therefore they should be able to do it here Requirement the burden of restrictive covenants will only run with the land in equity against subsequent holder with notice of the covenant when the covenant is entered into for the benefit of some parcel of land Have to know what parcel of land will be benefited More valuable land if lived in gardens, than next to sky scraper Certain arrangements designed to protect such value and which go beyond the frame of contract may be enforced in equity, if not at law Restrictive covenant may be enforceable against successors in title in equity, where it is clear that successor has entered into contract to buy the land and is aware of the existence of the covenant Not whether covenant runs with land
Forestview & Silkchime v Perpetual Perpetual bought shopping centre and a bit of extra land, X retained some of the land adjacent to P s lane X agreed to restrictive covenant saying that X does not use land for retail sale of goods P had the benefitted land Forestview bought the land X had retained, and F wanted to build shopping centre on burdened land P said no, and that it breached the restrictive covenant with X F said the way the agreement was drafted meant that Tulk v Moxhay didn t apply P had the shopping centre, and wanted restrictive covenant but didn t want tenants in the shopping centre trying to enforce the restrictive covenant HELD: It would be unconscionable in those circumstances for the covenant to be unenforceable against F P took notice that restrictive covenant was in place, and it was enforceable even if it was not annexed to the land The covenant did touch and concern the land because it enhanced the lands value So long as the restrictive covenant provides a benefit, it can be considered as touching the land Tenants could not enforce the covenant because they lacked privity of estate Requirements for passing burden of restrictive covenant in equity Forestview v Perpetual It is a restrictive covenant There is an intention to impose the burden on a knowing successor in title Notice is made to the successor in title The benefited land can be identified It is a restrictive covenant Restrictive covenant = restricts or takes away right of purchaser over land that the purchaser would have otherwise had Equity will only enforce burden of restrictive covenant To determine if restrictive or positive, court examines effect of covenant, rather than wording Generally, if requires inaction of some kind/refraining from acting in a way, it is restrictive Intention to impose burden on knowing successor in title Designed to prevent person from escaping covenant that they were aware of when purchasing the land Focus on purchaser rather than whether covenant touches and concerns land Intention of parties determined with reference to terms of covenant EG. to X and his heirs, assignees and successors Notice to the successors in title Successor in title only deemed to have been notified of covenant where existence and nature of restriction and lands affected by restriction are clearly indicated in document, noted on title or available to persons searching the register Re Dennerstein 91963) Identification of benefitted land or benefit of an interest in the land Covenant, to be enforceable against successors in title, must specify and identify the benefitted land, as opposed to merely providing a personal benefit to owner London County Council v Allen (1914) Equity will only enforce burden of covenant against subsequent purchaser with notice if covenant is entered into for the benefit of an interest in land Clem Smith Nominees Pty Ltd v Farrelly Benefitted land does not currently need to be owned by original covenantee for owner of burdened land to be bound by covenant To determine whether covenant benefits identifiable land depends on circumstances
Factors taken into account: Distance between burdened land and purported benefitted land Whether covenant relates to the way in which the land is used Whether the restriction is capable of benefiting the whole land Where land is registered on Torrens system, covenant must be reasonably identifiable from documentation of registered title Clem Smith Nominees v Farrelly Passing the BENEFIT of restrictive covenant at common law Benefit of positive or restrictive covenant may run with the land so as to be enforceable by successor in title to original covenantee Passing the benefit of restrictive covenant at common law is the same as passing the benefit of a positive covenant at common law Must touch and concern the land Intention for successors in title to benefit from the restrictive covenant The successor in title to the original covenantee must have legal interest in land to be benefited The land which is benefited must be identified or identifiable Allows successor of original covenantee to enforce the covenant only against the original covenantor Federated Homes v Mill Lodge Properties (1980) M owned development site, 3 acres 1871, M transferred blue land to D, D required to enter into contract restricting number of dwellings built on land so as not to reduce the number of units which the vendor might eventually erect on the retained land (green and red land) intention to burden blue land and benefit red and green land Parties could only build 900 dwellings all up, so if more than 300 houses build on blue land, it ll eat into the amount of houses that can be built on green and red land F was the covenantee, and became owners of green and red land, benefit was annexed in paperwork to green land For red land, transfers didn t contain express assignment of benefit of covenants HELD: Benefit to red land was annexed as a consequence of s 78 Property law Act As long as benefit touches and concerns land (required by s 78), s 78 deems that covenant is to bind all future successors of that land Determined s 78 to be applied broadly S 78 provides presumption of intention in situation where no intention to the contrary can be inferred from parties conduct If the benefit touches and concerns the land, s 78 immediately makes benefit enforceable by covenantee s successors in title Passing the BENEFIT of a restrictive covenant in equity For benefit to pass in equity, it must be established that it touches and concerns the land and an intention for the benefit to run with the land, subjective to legislative presumption in s 78 Forestview tests for touch and concern and identifying the benefitted land S 78 once threshold requirement is reached (that covenant touches and concerns the land), s 78 deems that covenant will in fact run with the land and shall have effect as if the covenant was made with all the successors in title Federated Homes v Mill Lodge Properties Equity can fill the gaps and enforce the covenant where claimant only has an equitable interest in land Requirements to pass the benefit of restrictive covenant in equity
Must touch and concern the land Intention for successors in title benefit from the restrictive covenant The successors in title to the original covenantee must have an equitable interest in the land to be benefitted The land which is benefitted must be identified or identifiable Assignment of the benefit not annexed to land Assignments Where the benefit of a covenant has not been effectively annexed to the covenantee s land or to avoid ambiguity about whether the covenant will touch and concern the land, the parties may do a formal assignment Can be expressly assigned to successor in title Equivalent of transferral of chose in action from original covenantee to successor in title of covenantee Assignment must be contemporaneously with transfer of benefited land to TP Annexation preferred more convenient than annexation where covenant automatically transfers to land Assignee who seeks to enforce against original covenantor only has to comply with statutory provisions for assigning chose in action Vendor of benefited land Express assignment Successor in title of benefited land Enforceable so long as express assignment complies with statute Covenantor An absolute assignment by writing under the hand of the assignor of any debt, or other legal thing in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to claim such debt or thing in action, shall be and shall be deemed to have been, effectual in law to pass and transfer, from the date of such notice (a) the legal right to such debt, (b) All legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor S 134 Property Law Act Requirements: Assignment must be set out in writing by assignor Covenant must be intended to benefit identifiable land, not the covenantee personally Be an absolute transfer of the right and the whole block of land Assignment must occur contemporaneously with transfer of benefited land Covenant can only be enforced over the benefitted land and therefore, must be mutually conferred Covenant cannot be treated as independent interest because it forms part of the land Once the land is transferred without covenant, it ceases to exist
Adequate proof of an intention to assign the benefit of the covenant and covenantee must have done everything necessary which they alone can do to valid assignment Express notice in writing must be given to covenantor Annexation v assignment Once covenant is annexed, it runs with the land Assignment requires a positive act of transfer Must be set out expressly Assignment involves transfer in its own right, and covenant is not attached to land Failure to comply with formalities Assignment will be invalid and benefit of covenant will not be legally enforceable by assignee Assignment may be enforceable in equity if equitable test of intention is satisfied Clear that intention of parties was to assign the benefit of the covenant despite failing to comply with the formality requirements Presumptive intention to ensure that the benefit runs with the land Requirements If assignee wishes to enforce covenant against successor to the original covenantor, they must comply with requirements for assignment in equity The restrictive covenant is intended to benefit the covenantee s land The covenant was assigned with the land Cannot assign burden of restrictive covenant at common law Equity will assist, and will only do so for covenants that are annexed to the land Building schemes EG. All houses of a similar type reciprocal covenant Subdivision and development of large areas of land in the case of a housing estate Subdivides that land and sells off parts of it to purchasers at different times Development may require that all purchasers to enter into restrictive covenant to maintain character of estate Restrictive covenant over each lot aimed at sustaining the value, character and amenity of the land Purpose to provide reciprocal benefits and burdens to each lot to provide systematised land development scheme Problem with development schemes Difficulty to any restrictive covenants over the entire land because benefit of a covenant will only be enforceable by the original covenantee or successors in title of benefited land, where benefit runs with land EG. X owner of large block, subdivides into development scheme; makes everyone sign restrictive covenant saying they won t build in a certain way; it ll benefit other people so that houses and neighbourhood are similar; everyone burdened by everyone benefits Issue that developer won t sell all the lots at the same time X sells Lot 1 to A, X covenants with A that A will not do anything to change the character or amenity of her lot, A is burdened and rest of the large block benefited; X sells Lot 2 to B, and covenants the same, but B is burdened and by A s covenant, A s lot cannot receive benefit of B s covenant it has already been sold so no longer belongs to X
Continues up until last lot which will have benefit of all the covenants itself, but there is no land left to receive benefit from its covenant Equitable principles set out that in case of development scheme, mutual covenants can be enforced, despite date of sale Basis is equitable principle of mutuality Elliston v Reacher (1908) Restrictive covenant that purchaser couldn t build hotel on property or use building as hotel P and D eventually bought lots, D built a hotel and P sought to enforce the restrictive covenant against D HELD: Doctrine of building schemes requirement to have reciprocal covenants enforced Benefit of covenant can now be enforced by mutual owners of lots under a building scheme, regardless of date of sale If it can be established that development exists, the building scheme rules will be enforced by equity: There is a common vendor from whom all the respective titles in the estates can be derived General scheme of development, that entire land is subjected to covenants Vendor has laid out the estate in defined lots subject to restrictions intended to be imposed on all the lots The restrictions were intended by the common vendor to be and were for the benefit and burden of all the lots intended to be sold Both parties purchased their lot from the common vendor with the intention mutuality that the restrictions were to run with the land for the benefit of all the lots included in the general scheme If all requirements above are met: Each lot shall be subject to the burden and have the benefit of the restrictive condition Restrictive covenants will be enforced against successors in title by equity Building schemes Mutuality/reciprocity underlying element of building scheme Common vendor intended to confer reciprocal burdens and benefits over subdivided lots Purchasers were aware at the time of purchase that restrictions were to benefit common vendor and subsequent purchasers deriving title from common vendor Mutuality must be clearly established on the facts Small v Oliver & Saunders Purchaser intended to take both the benefit and burden of the restriction An intention to confer mutuality must be clear from the general building scheme plan
Small v Oliver & Saunders (2006) Lots subdivided over time, each had same restrictive covenant to use land as private residence N1 chose to subdivide land and use part of it for a road N2 said that it was not using it for use of private residence No clear evidence that purchasers were aware of reciprocal nature of the covenants HELD: No covenant Wasn t clear that purchasers knew that there were reciprocal covenants in place Small had the benefit via annexation, but not via building scheme No evidence to show that the person using land as road kenw of the reciprocal covenants involved Ellison v Reacher test used Despite two successive transferors, it did not detract from common vendor requirement Clearly common vendor, and doesn t matter that parties were generations down in successors in title There was systematic sale, and development of estate is indication that estate has been laid out in plots The requirement of the common benefit is indicated by covenants themselves There was no mutual intention to benefit or be burdened Area must be defined and must be notice to various purchasers Reciprocity is the foundation of the idea of a scheme he must know both the extent of his burden and the extent of his benefit Building schemes and Torrens land Where building scheme exists over Torrens land, the existence, benefits and restrictions of any restrictive covenants only valid if noted on the title or in an instrument that is available to a purchaser who is searching the Register Re Dennerstein Must be indicated in the notification Modification and extinguishment of covenants Extinguishment Mutual ownership Restrictive covenant extinguished by law if benefited and burdened land come into common ownership Once extinguished, cannot be retrieved Re Tiltwood (1978) Not applicable to building schemes, because of equitable creation Where there has only been partial unity and the whole area has not come into common ownership, it is inappropriate to assume that the parties intended extinguishment Texaco Antilles Ltd v Kernochan There must be complete unity, not merely of ownership but also of possession Post Investments Pty Ltd v Wilson (1990) Release Express agreement s 84(1)(b) Property Law Act Deed of release between owners of benefited and burdened land Implied agreement s 84(1)(b) Property Law Act Owner cannot enforce the restrictive covenant where she has submitted to a course of usage which is directly inconsistent with the restrictive covenant Statute
Statutory provisions allowing for modification of extinguishments of restrictive covenant upon specific statutory grounds Can go to court and ask them to change or extinguish restrictive covenant If there are changes making the restrictive covenant obsolete, or if restrictive covenant continued it would impede reasonable use of the land Stanhill Pty Ltd v Jackson & Ors (2005) J wanted to knock down house and develop townhouses 81 owners of other houses protested, sought to modify restrictive covenant under s 84 J argued there had been significant changes in the character of neighbourhood since the covenant was created that rendered that aspect of the covenant obsolete, and that no person would be substantially injured by modification HELD: Covenant not obsolete, despite changes to neighbourhood Covenants objective is to promote residential area that has one house per lot Will only be obsolete if original purpose can no longer be fulfilled Question of facts S 84(1)(a) reasonable use of the land is being impeded by the covenant because it is a reasonable use of such large land to have more than one dwelling S 84(1)(c) five townhouses would create substantial injury to others, detrimental to neighbourhood Remedies Infringement Contractual remedies apply to covenants Generally damages for breach of covenant All loss flowing from breach to restore covenantee to original position Actual loss incurred and loss of bargain damage Equitable remedies Specific performance Equity compensation including damages Mandatory injunction Usual equitable discretions apply