RESTRICTIVE COVENANTS - Essay Example

? RESTRICTIVE COVENANTS 10 March RESTRICTIVE COVENANTS Law, defined as a set of rules for regulation of relationship between subjects, outlines rights and obligations of parties in interactions. Land law, a branch of the law of property contains rules that regulate relationship between landowners. Restrictive covenants in land law prohibit use of land in a particular manner. They are agreements between landowners in which one party agrees to refrain from use of land as prescribed by the agreement. This paper seeks to discuss concepts of restrictive covenants with the aim of advising parties to a land case. The paper will explore the nature and extent of liability as imposed by restrictive covenants. Facts of the case The case involves a landowner, Connor, who sells part of his land in order to meet his financial obligations. In January, Connor sold off a portion of his property to Jane. Part of the terms of the covenant was that the sold piece was supposed to be strictly meant for residential purposes and by only one family. A month later, Connor sold another part of his land to Bullhorn Company subject to a number of terms. Under the agreement, the immediate and any subsequent purchaser of the property was supposed to develop and maintain a fence around the subject property. The terms also provided that the property would only be used for at most twelve residential units and that the developed houses could only be used for residential purposes. Upon development of twelve independent houses by Bullhorn, the property was sold to separate buyers on terms that the new owners would use the property solely for residential purposes and that fees shall be paid by the owners for maintenance of roadway. Alex, one of the buyers from Bullhorn, has however been using his house as a bail hostel. The other new owners have been aggrieved and as a result refused to repair the boundaries and to pay the maintenance fees. Jane has also sold her property to Oscar who has used it for commercial purpose. Legal issues Covenants A covenant creates legal obligations on the parties to which it imputes liability. Defined as a legal promise, it exposes the promisor to liability as described by the covenant’s terms. Though covenants are considerably similar to contractual agreements, they do not have to be necessarily supported by consideration. As a result, covenants are regulated by common law and doctrines of equity from different perspectives. In cases where consideration supports the promisors’ intentions, covenants are enforceable under both common law and equity.1 However, law lacks authority over covenants made without consideration. The general principle of covenants is to restrict the use of a piece of land in a given way and once a covenant is made, a landowner looses rights over the land as prescribed by the covenant. Similarly, covenants that have been made over a piece of land bind subsequent owners of the land even though they were not part of the covenant. This general rule can however be exempted by express provisions of individual covenants.2 In determining liability of parties to covenants, the courts applies either or both common law and the doctrines of equity as discussed bellow Covenants under equity Benefits Running covenants under equity is based on the principles of benefits and burden on rights over pieces of land. Benefits with respect to restrictive covenants can be derived from either, annexation, assignment of the benefits or through building scheme approach. Under the doctrine of annexation, that either can be expressed by the original parties to a covenant or can be implied by statutes, the terms of the restrictive covenants are deemed to bind successive owners of land. This means that a landowner at a particular time is liable for breach of terms of a covenant over the land irrespective of the fact that the timely owner was not part of the covenant. Express annexation was observed in the case of Newton Abbot Co-operative Society v Williamson & Treadgold [1952] Ch 2863 while implied annexation subject to law of property act was observed I the case of Federated Homes Ltd v Mill Lodge properties Ltd [1980] 1 WLR 594.4 Enforceability of covenants through benefits under equity is also possible under assignment of such benefits to successors of parties to the covenant. The rights over the covenant that must have been instituted to benefit the original parties must have been transferred together with ownership of the piece of land. These provisions were observed in the case of Miles –v Easter [1933] Ch 61.5 The principle of building scheme also establishes grounds for enforceability of restrictive covenants by subsequent landowners. Under the scheme, the plaintiff and the defendant must have acquired ownership from a common owner who instituted similar terms of a covenant with the successors. The successors must have submitted to the terms with an intention of being bound as was in the case of Elliston –v Reacher [1908] 2 Ch 374.6 Burden Equity, supported by property law act, institutes a burden over successive landowners unless the original parties to the covenant expressly excluded such liabilities. This was the position of the courts in the landmark case of Tulk v Moxhay [1848] 2 Ph 774.7 Covenants under law Benefit Common law only recognizes covenants if there is a direct benefit to a land over which the covenant is made. As a fundamental principle, the covenant must ‘touch and concern the land’. Consequently, terms to a covenant alters a land owner’s rights with respect to capacity to exercise authority over the subject land as was observed in the case of Smith and Snipes Hall Farm Ltd v River Douglas Catchment Board [1949] 2 KB 2000.8 Enforceability of covenants under law also runs with time and benefits from covenants can further be derived if the claimant has rights in the estate at the time. This implies that enforceability depends on the proprietary status of the claimant at the time of making the claim. A party to a covenant who has transferred his rights over the estate may therefore not be able to seek legal actions over the covenant.9 In cases where titles have been transferred from the original parties to a covenant, the assignee obtains rights from the assignor. This means that the legal rights of subsequent owners of land are transferred from the rights that were created by the covenant to the original parties. Another important aspect of enforceability of a covenant by a subsequent landowner is the intention of the original parties to extend the terms of the covenant to successive owners as provided for in the Law of Property Act 1925 s78(1).10 Burden The burden in covenants under law is strictly enforceable on parties to the covenant agreement. Consequently, a successive owner, under common law, is not liable for any covenant made over the piece of property even is the successor is informed of the existence of such a covenant. The principle, as established in the case of Austerberry v Corporation of Oldham (1885) 29 Ch D 750 however excludes cases in which leases to land have been modified and indemnity covenants.11 Privity of a contract Another applicable principle to the case is the pritity of a contract with affects enforceability of covenants under common law. Being legally binding agreements, covenants are contracts and are regulated by privity rule. A third party to a contract such as successive or previous owners can therefore not seek redress under common law for breach of terms of a covenant.12 Advice to the parties Advice to Connor Since Connor was a party to the original restrictive covenant over his sold piece of land, he can sue under law and equity, for remedies over actions by Oscar and Alex. Under common law, Connor can succeed in suit against Jane and Bullhorn under privity of contract. Equity also forms ground for successful suit against Oscar and Alex since Connor’s piece of land is attached to and is therefore affected by ownership by Alex and Oscar. Advice to Bullhorn Bullhorn can win cases against Alex and the other tenants for breach of terms of their covenants that were made before the property were sold to the parties. The chances are high of winning the litigations because both common law and equity define Bullhorn’s rights. The tenants Though the tenants have equitable rights under the doctrine of ‘building scheme’ to burden Alex over his act, their right does not legalize a breach of contract between them and Bullhorn for maintenance of their property. Their actions therefore constitute liability and the tenants will most likely lose a case if instituted by Bullhorn. The tenants should therefore consider their position and informally settle the case outside court Advice to Oscar While common law induces liability on Oscar towards Jane over breach of terms to their covenant, equity safeguards Oscar’s liability to Connor through the doctrine of annexation. His actions therefore define legal liability to both Connor and Jane. Advice to Alex Alex is liable to Connor and the other tenants for equitable breach of the covenant between Bullhorn and him and under the doctrine of building scheme. He is liable to Bullhorn for breach under equity, common law and the law property act. Advice to Jane There are high chances of winning a case against Oscar because of Oscar’s breach of terms to their covenant. Biography Dixon, M. Modern Land Law. (7th Ed, Taylor & Francis, New York, 2011) Goo, S. Sourcebook on land law. (3rd Ed. Routledge, London, UK, 2002 Hepburn, S. Principles of property law. (2nd Ed. Routledge, London, UK, 2001) Perrins, B. Understanding the law. (3rd Ed. Routledge, London, 2000) Routledge. Land Lawcards 2010-2011. (7th Ed, Taylor & Francis, New York, 2010) Royale. Briefcase on Land Law. (4th Ed. Routledge, London, UK, 2003). Williams. Iel Property Trust in New Zealand. (Kluwer Law International, New York, NY, n.d.) Read More