The enforcement of freehold positive covenants against successors in title04 Sep 2019 // Insights
The Ministry of Justice are in the process of preparing a draft Law of Property Bill (“the Bill”) in response to the Law Commission’s recommendations made in the Law Commission’s Report - Making Land Work: Easements, Covenants and Profits á Prendre. The aim of the Bill is to make it easier to create long term arrangements for the enforcement of freehold positive covenants against successors in title.
It is established law, that although the benefit of a positive covenant can run at law, the burden of a positive covenant does not run so as to bind successors in title.
In 1984 the Law Commission’s recommendations would have enabled positive obligations to run with the land, however, their recommendations were not implemented, and the focus was shifted to the introduction of Commonhold as a new system for freehold ownership.
Commonhold is a form of land ownership, which combines the freehold ownership of a single property within a larger development, with the owner’s membership in a company which is limited by guarantee (known as a Commonhold Association) that owns and manages the common parts of the development. Commonhold is governed by the Commonhold and Leasehold Reform Act 2002 and the Commonhold Regulations 2004, and it ensures that the owners of each unit within a development are in control of the development without the interference of a landlord or other party. Management is governed by a Commonhold Community Statement which can impose a number of positive obligations on the unit holder. These obligations are binding on the Commonhold Association and subsequently the unit holders, as they are all members. Commonhold is unpopular for a number of reasons, predominantly for: the number of lenders who are not prepared to lend on commonhold properties; its administrative structure; the rigid standardisation of documentation and the lack of the right to forfeit a unit for non-payment of the commonhold assessment, which can make the Commonhold Association vulnerable to insolvency.
The Current Solutions Available
As the burden of a positive covenant can run with a leasehold estate, a long lease can be used to ensure that the covenants are enforceable, but this requires the owner to accept a leasehold title rather than a freehold title and will incur the unnecessary expense of negotiating a lease.
Benefit and Burden Principle
It was established in Halsall v Brizell (1957) that one may not take the benefit without accepting the burden that goes with it. It would therefore be possible to enforce an obligation for example, to pay for the maintenance of a pathway where the enforcer benefits from and chooses to exercise a right of way over it. This however, would only be applicable where the person benefitting cannot choose whether to accept the benefit, such as for example a right of support (Rhone v Stephens (1994)).
This is where a periodic amount of money is payable to someone who does not own the land charged with its payment. If the property is subject to a rent charge and a right of entry, the owner of the interest may enter the property to enforce the performance of covenants and/or the rent charge. The right of entry may be exercised for breach of covenant and failure to pay the rent charge enabling positive covenants to ‘run with the land’. This method is generally disliked by many developers and properties subject to rentcharges may not be acceptable to a lender.
Chains of Indemnity
This is where a chain of indemnity covenants are entered into between the owner and their successors in title. This method can fail if for example where: one successor becomes insolvent; one successor cannot be found or the chain of indemnity is otherwise broken. The remedies available are also limited, as the covenantee will only be able to obtain damages rather than specific performance or an injunction.
Although there are alternative methods available, these methods can be expensive, high risk, time consuming and impractical and there is clearly a gap in current law which these methods do not address. The reform will need to provide a practical yet simple method of achieving what can already be done, whilst minimising the financial burden.
In order to address this issue, the Law Commission have recommended the following:
- For the owner of an estate in land to be able to create positive and negative obligations that will be able to take effect (subject to the formal requirements for the creation of legal interests) as legal interests appurtenant to another estate in land, and therefore as registrable interests pursuant to the Land Registration Act 2002, provided that:
- the benefit of the obligation touches and concerns the benefited land;
- the obligation is either:
- an obligation not to do something on the burdened land;
- an obligation to do something on the burdened land or on the boundary (or any structure or feature that is treated as marking or lying on the boundary) of the burdened and benefited land; or
- an obligation to make a payment in return for the performance of an obligation of the kind mentioned in paragraph b above; and
- the obligation is not made between lessor and lessee and relating to the demised premises.
- Covenants made by the owner of an estate in land (that satisfy the conditions set out above) should take effect not as promises and not in accordance with the current law relating to restrictive covenants, but as legal interests in the burdened land, appurtenant to the benefited estate in land.
It is believed that the above two recommendations would work together to allow the creation of obligations as interests and ensure that future covenants take effect as legal interests, when the formal requirements for their creation are met. That means that in terms of drafting, there would be freedom – but no compulsion – for solicitors to draft restrictive covenants as they currently do and there would be no requirement to use any particular form of wording, provided that the obligation imposed meets the requirements for a valid land obligation as envisaged by the draft Bill.
As noted above, there is clearly a need for reform in this area. The draft Bill is planned to be introduced for consideration at some point this year.