A covenant is just a rule governing what can and cannot or must and must not be done on the land which is affected by (burdened with) the covenant. For registered land covenants are either set out in the Charges Register of the Official Copies or else in a separate document held by the Land Registry, in which case that document will be referred to in the Charges Register as containing covenants. They are imposed by the owner of land when it is sold, usually where the seller owns other land in the immediate vicinity and so wants to retain some control for the sake of this other land.

Positive Covenants and Negative (Restrictive) Covenants

A covenant can be either positive or negative. A negative obligation is often referred to as a restrictive covenant. Positive covenants are obligations to do something, such as keep contribute to a maintenance fund or maintain a wall. Restrictive covenants are rules preventing certain things from being done on the land, such as keeping animals or using the property for business purposes. Sometimes a covenant can be worded negatively but be positive or vice versa, for example “not to allow the fence to fall into disrepair” is really a positive obligation to maintain the fence. Conversely, a covenant to use the property only as a residential dwelling is actually a restrictive covenant not to use the property for any other purpose than a residential dwelling.

It is important to understand the difference between positive and negative covenants as not all covenants are enforceable and different rules on enforceability apply depending on whether the covenant is positive or negative.

Creating a Covenant

Covenants are usually contained in the same document that transfers ownership of a property from a seller to a buyer, so a TR1/TR2 (transfer of whole) or a TP1/TP2 (transfer of part) or prior to these forms becoming compulsory, a conveyance or transfer. Typically they will be imposed by the developer when a property is built or by a seller who is selling part of his land and retaining the remainder but can be imposed at any time.

A covenant can be created by separate deed (a Deed of Covenant). The deed will need to be protected by the entry of a notice on the register of title and needs to be signed by the covenantor though not necessarily by the covenantee.

Enforceability of Covenants

A covenant is essentially a contract between the covenantor (the owner of the burdened land) and the covenantee (the owner of the land which takes the benefit). As a result of a legal principle called “privity of contract”, the covenant will always be enforceable as between the original covenantor and covenantee, even after either or both have parted with the land in question. The same legal principle however (which simply means that a contract is private and binding only on the contracting parties) means that covenants are not always binding on or do not always benefit future owners.

For a covenant to continue to be enforceable after the original parties have parted with the land involved, both the benefit and the burden must “run with the land” at either common law or in equity. The rules which dictate whether the benefit and burden run differ depending on whether the covenant is positive or negative.

Enforceability of Covenants at Common Law

There are two basic systems of law in England & Wales – common law and equity. The Judicature Acts of the late nineteenth century basically merged the two systems but there are still some differences. In respect of covenants, for them to be enforceable, both the benefit and burden must run in common law or both must run in equity. So if the benefit runs in common law but the burden only runs in equity (or vice versa) the covenant will not be enforceable.

In order for the benefit of a covenant to pass at common law, four requirements must be satisfied

1. The covenant must “touch and concern” the land of the covenantee. This means that the covenant must be capable of benefiting any owner of the land and not just be a personal benefit to the current owner.

2. The covenantee must own the legal estate in the land to be benefited when the covenant is made. In other words, the original covenantee must have actually owned the land that benefits when the covenant was made – if for example he had only contracted to buy the land then it will not be enforceable. Usually new covenants are contained in the same deed that transfers ownership to the covenantee which deals with this condition.

3. The successor of the covenantee must have a legal estate. This just means that a future owner looking to take the benefit of a covenant must be the legal owner of the land which benefits.

4.The original parties must have intended that the covenant should run with the covenantee’s land. Not all covenants are intended to benefit future owners, some are purely personal. The intentions of the parties can usually be ascertained from the words used to create a covenant, for example words such as “the covenantor covenants with the covenantee his successors in title and those deriving title under him” confirm that it is intended that the benefit should run. Section 78(1) of the Law of Property Act 1925 implies similar words into any covenant created after the act came into force on 1 Januarym1926 with the effect that it is deemed that the benefit was intended to run. So pre-1926 a covenant has to explicitly say that it is intended to benefit future owners whereas from 1926 onward this is implied unless the wording of the covenant expressly states that it should not, for example by stating that the operation of s78(1) is excluded.

The burden of a covenant will not run at common law meaning that future owners of the burdened land will not be bound however the original covenantor will remain liable even after he has parted with his land. This rule was established in the case of Austerberry v Oldham Corporation [1885]. There are several exceptions:

1. A chain of indemnity covenants can be created. Where a piece of land burdened by covenants is sold it is usual for the seller to require that a clause be included in the transfer to the buyer whereby the buyer agrees to indemnify the seller against any claims for breach of any of the covenants. The owner of the land which has the benefit of the covenant can still sue the original covenantor for breach of contract however the original covenantor can then sue his buyer on the indemnity. If that buyer has since sold the property and obtained an indemnity from his purchaser then he can sue him and so on down the chain of ownership. In theory a chain of indemnity covenants can continue indefinitely however in practice it will come to an end either on the disappearance of the original covenantor or where the chain is broken (by a transfer taking place that does not incorporate an indemnity covenant).

2. The rule in Halsall v Brizell [1957], also known as the doctrine of mutual benefit and burden, states that a person cannot continue take the benefit of a deed without subscribing to the obligations under it. What this means is that if a deed grants the owner of a property the right to, for example, use a private road but the same deed also contains a covenant to contribute toward the cost of the upkeep of the road then the owner cannot exercise the right to use the road without contributing to its upkeep.

3. The burden of covenants contained in a lease will generally run therefore granting a lease out of the freehold title instead of simply conveying the freehold title is a useful way to ensure the covenants remain enforceable.

4. An estate rentcharge can be imposed, whereby the owner of the property is obliged to contribute an annual sum toward the repair and maintenance of shared facilities. If this is coupled with a right of re-entry for non-payment this ensures the covenant to contribute should not be breached.

Enforceability of Covenants in Equity

If a covenant cannot be enforced under common law rules then it may still be enforceable under equitable rules. As with common law rules, where the original covenanting parties have parted with their respective land it will have to be shown that both the benefit and the burden has passed to their respective successors in title. Unlike common law, it was established in the case of Tulk v Moxhay [1848] that the burden of a covenant can run in equity provided five conditions are met:

1. The covenant must be negative (restrictive). This means that it must prevent an action rather than compel an action to be performed. Sometimes a positive covenant will be phrased negatively or vice versa, for example “to keep the area between the building line and the highway open and unbuilt upon” is worded positively but is really saying “do not build on the land between the building line and the highway”. Conversely, a covenant “not to allow the wall between the land and the highway to fall into disrepair” is really a covenant “to repair and maintain the wall between the land and the highway”. The burden of positive covenants does not, as a general rule, run either at common law or in equity, though see the exceptions above in relation to common law.
2. There must be a benefited and a burdened land and the two must be “reasonably close together” – close enough for the benefited land to be genuinely adversely affected by a breach.
3. The covenant must actually benefit the benefiting land. In Re Gadd’s Land Transfer [1966] it was stated that a “benefit” must be “something affecting either the value of the land or the method of its occupation or enjoyment”. This is important because many old covenants cease to have any material benefit as the nature and character of the surrounding area changes over time.
4. It must be the original parties’ intention for the burden to run with the land. Unless the wording of the deed contains an express contrary intention it will be assumed that the burden was intended to run. This is confirmed by s79(1) of the Law of Property Act 1925.
5. The purchaser of the burdened land must have had notice of the covenant before buying the land. In unregistered land, if the covenant was created after 1 January 1926 then in order to be binding it would need to have been registered as a Class D(ii) land charge. If the covenant is registered in this way then the purchaser is deemed to be aware of it even if he did not actually search the Land Charges register prior to his purchase (s198 Law of Property Act 1925). Conversely, if it is not registered then he will not be bound even if he actually knew of the covenant (s199 Law of Property Act 1925). For covenants relating to unregistered land created before 1 January 1926 a purchaser of burdened land will be bound unless he is an arm’s length purchaser for value (meaning he is not connected to the seller and pays more than a nominal sum for the land) and he has no notice of the covenant. Notice can either be express, i.e. he can be told, implied, i.e. if it is or should be obvious from a reasonably careful inspection of the land or imputed, i.e. if his legal advisor or surveyor is aware, even if the information is not passed on to him. In registered land, a covenant must be protected by the entry of a notice in the register to be binding.

The benefit of a covenant will run in equity provided it actually benefits the land and it was intended by the original parties for the benefit to run. Intention can be either express (i.e. the wording of the covenant states that it is intended to benefit successors of the original covenantee), or since 1 January 1926 by statute under s78 of the Law of Property Act 1925.

Consequences of Breaching a Covenant

Where it is established that a covenant binds a landowner and the covenant has been breached, the Courts can award one of two remedies. They can either order an injunction to prevent the breach from continuing or they can award damages to the injured party.

Damages can only be awarded where a payment of money is sufficient to compensate the injured party and where the award required is small. The compensation should be calculated on the basis of the loss of the covenantee’s bargaining position. In other words, the Court needs to decide what the covenantor might reasonably have paid the covenantee to secure release of the covenant (and what the covenantee might have reasonably accepted).

Where the loss to the covenantee cannot be easily measured in financial terms or where only a large sum would be sufficient compensation then the Court may award an injunction. This is an order against the covenantor to bring the breach to an end. Where a structure has been built in breach of a covenant then this will mean removing that structure.

Removing or Modifying a Covenant

Under s84(1) of the Law of Property Act 1925, an application may be made to the Lands Chamber of the Upper Tribunal (formerly the Lands Tribunal) to remove or modify a covenant. In order to be successful, the applicant must show that one or more of the following criteria apply:

1. A change in the character of the neighbourhood or property, other material circumstances, means the covenant is obsolete. As an example, a covenant not to build any structure so as to obstruct the covenantee’s view which was imposed when the land surrounding the benefiting land was open countryside may be considered obsolete if a housing estate has since sprung up around the land or;
2. The continuance of the covenant would impede the use of the burdened land for reasonable purposes without there being a positive benefit resulting or;
3. The beneficiary under the covenant has, either expressly or impliedly agreed to its removal or modification. Agreement might be implied from actions of the beneficiary which suggest, with no other reasonable explanation, that he intended to for the covenant to be removed or modified or;
4. The proposed modification or discharge would not actually injure the beneficiary.

The Tribunal may, where a covenant is modified or removed, award compensation to the beneficiary. Unlike compensation for breach however this is based on actual loss of value to the beneficiary’s land and not loss of bargaining position.

As well as by application to the Tribunal, a covenant may be removed by a deed granted by the beneficiary for the benefit of the burdened land.

If a breach has continued for a long enough period without any objection being raised, it may be treated as having been abandoned under the principle of estoppel. The leading case to support this is Hepworth v Pickles [1900]. In that case the breach had continued for 24 years before an attempt was made to take enforcement action. In later cases a shorter period has been accepted by the Courts and 20 years is now generally considered acceptable. Indeed, the Council of Mortgage Lenders at point 5.10.2 of its Handbook (a set of standard instructions to conveyancers) states that provided the breach has subsisted for more than 20 years, you are satisfied that there is no risk to their security and there is nothing to suggest enforcement action is being taken or threatened, then the lender will not insist on indemnity insurance (see below).

Indemnity Insurance for Breach of Covenant

Where a covenant has been breached, it appears still to be binding, it is not possible or practical for it to be removed or modified and nor does the rule in Hepworth v Pickles [1900] apply then it may be possible to obtain indemnity insurance. Indemnity insurance provides cover against loss sustained by the insured as a result of a legal risk. In the case of a breach of covenant, this means the insured would be compensated against loss, such as loss of value to his property, the costs of remedial works or the cost of legal action, should the beneficiary attempt to enforce the covenant.

Unlike a standard insurance policy, the premium is payable just once and that generally provides cover, for the homeowner, his mortgage lender, successors in title of the homeowner and successive mortgage lenders for the life of the property. Premiums are charged on a sliding scale depending on the value of the property. At the time of writing for properties under, say, £500,000 the premium would be somewhere between £100 – £250.

Indemnity insurance is frequently used in conveyancing as the practical requirements of the seller and buyer often don’t allow time for an application to the Lands Tribunal, which may take several months to be determined and even then may not be successful. Indemnity insurance can only be arranged by solicitors or licensed conveyancers, insurers are not permitted to deal directly with the public.

In order to agree to offer cover, the insurer will need the conveyancer to confirm that certain conditions are met. Usually they are that the breach has continued for at least 12 months, the property has been used for residential purposes for the last 12 months and will continue to be so used and there is no evidence of enforcement action being taken. If these points are satisfied an “off the shelf” policy can be obtained online without the need for assessment by an underwriter. If they are not, and even where insurance is required in respect of a contemplated future breach, then it may still be possible to obtain a bespoke policy, though the premium will generally be higher.

Even some conveyancers are sometimes confused. There are crucial differences however that are important to understand.

What is a Register View and What are the Drawbacks?

The Register View is nothing more than a snapshot of the register as it appears at the time of the order. It can be obtained by Land Registry Portal account holders but can also be downloaded by the general public using the Land Registry’s Property Search service. The Register View is presented “as is”, with no warranty by the Land Registry as to its accuracy. What does this mean to the purchaser of a Register View?

The Land Registry’s register occasionally contains errors resulting from a mistake by the Land Registry. Also, the register for a particular property is updated following a transaction affecting the land, but it is not usually updated immediately. For example, when a conveyancer completes a purchase for his client, he will need to wait for the deeds to be received from the seller’s conveyancer but making an application to register his client’s purchase. Upon receipt of the (postal) application the Land Registry will not necessarily complete it immediately. In fact, it could be several weeks before it is completed. This is known as the “registration gap”.

If a register view is obtained it will not alert the purchaser to any pending applications, so for example a property might have been sold or mortgaged weeks prior to a Register View being obtained but if the register hasn’t been updated the purchaser of the Register View will be completely unaware. If the register contains errors and the purchaser of a Register View suffers loss as a result he will have no claim against the Land Registry.

As a result of the of these points it is unsafe for a purchaser (or a seller) to rely on a Register View therefore a purchaser’s conveyancer should, and almost always will, insist on receiving an Official Copy of the Register at the seller’s expense.

At the time of writing it is not possible for a member of the general public, not being a Land Registry Portal account holder, to obtain an Official Copy of the Register of Title for a property electronically.

What is an Official Copy and What are the Advantages?

The Land Registry maintains an electronic record of all the information contained in respect of registered land in England & Wales. This register replaces paper title deeds for registered land and is the definitive evidence of land ownership. An Official Copy of the Register of Title is guaranteed by Land Registry to be accurate at the time it is produced. It is admissible in Court as evidence of the content of the register to the same extent as the original. If there are any errors, a person who suffers a loss as a result will be entitled (subject to conditions naturally) to compensation from the Land Registry.

If an application to amend the register is pending with the Land Registry the purchaser of an Official Copy will be alerted and will be given the opportunity to either obtain the current version or be sent an updated version once the application is completed. Even where the application has not yet been received by the Land Registry, providing the applicant has carried out a priority search the purchaser of the official copy will be notified that an application may be about to be lodged.

A conveyancer acting for a purchaser should be happy to accept an Official Copy of the Register of Title produced within the last 6 months as evidence of the contents of the register.

Ordering an Official Copy of the Register of Title

Members of the general public may make a postal application for an Official Copy by completing form OC1 and sending a cheque for the Land Registry’s fee. The Official Copy will be delivered via the post in paper form. Alternatively, we can supply an electronic Official Copy using our Land Registry Portal account, typically within 24 hours of an electronic order being placed. To use our service and Order Land Registry Documents Online, click this link.

The Land Registry Documents Team

There has of course been extreme opposition from residents of areas through which the new railway line will pass since they perceive that it will seriously affect the quality of life for those in rural areas, will disturb the peace and consequently have a negative impact on property values. The main objectors are in areas which already have good transport links to London and so would not gain any benefit from the scheme.

Should Buyers and Conveyancers Be Concerned About HS2?

The work on HS2 will take more than 10 years to complete and so some areas that will eventually be affected may not see any signs of disturbance for a number of years. A purchaser who is ill informed therefore could find himself buying a property along the route only to find that the character of the area is drastically altered once work begins and the line begins to operate. As the information as to the route is in the public domain there is no obligation on a seller to disclose the fact that the property may be affected voluntarily.

Although clients can find information on the route for themselves, it would be remiss of conveyancers not to bring to a client’s attention the fact that a property they are intending to buy is on the planned route of HS2 and it could even be negligent. As a minimum the client should be advised to make his own enquiries.

Where Can I Get More Information About HS2?

Anyone looking to find out whether a property is on or near the proposed route of HS2 can use the dedicated section of the Department for Transport website, http://highspeedrail.dft.gov.uk/. As well as showing the route, it is also possible to carry out a postcode search.

Alternatively, for more in depth information, some of the major search providers are offering a dedicated HS2 search. The providers should be contacted for more details.

It was always due to expire on 24 March 2012 and there is no indication that it will be extended. Indeed, it has had little more than a negligible effect on the market since it did nothing to address the lack of available mortgage finance. In fact, its biggest impact has been in the past month with those who have been considering buying for a while scrambling to get in before the deadline.

So Who Qualifies for Stamp Duty Relief?

To qualify for relief the buyer must be a “first time buyer”, defined as someone who has never owned a property or an interest in a property, legal or equitable, either at home or abroad. This means that those who have been entitled in the past to an interest in a property (for example those who have purchased a property with a partner but not been named on the legal title) are excluded as well as legal owners.

Those who have owned property or an interest in property abroad are also excluded, though quite how HMRC would check in the case of a person who has migrated to Britain from abroad it is difficult to see.

In the case of joint purchasers, all must be first time buyers to qualify. If you are paying more than £250,000 you won’t qualify either (those paying up to £125,000 don’t pay duty anyway).

What Do First Time Buyers Need to Do to Beat the Stamp Duty Deadline?

In order to qualify, a transaction has to actually complete by, effectively, 23 March (the 24th is a Saturday). It is not enough to have an offer accepted or even to exchange contracts. Completion means that the money has to be paid over to the seller’s solicitor and possession has to be given to the buyer. First time buyers would be wise to recognise that this will not always be achievable and should budget for the stamp duty.

The majority of first time buyers will be buying with a mortgage they will not be able to elect to dispense with the usual searches and enquiries to speed up a transaction (and this would be unwise anyway) however letting their solicitors know at the outset that they qualify for relief and signing any documents and paying any money on time will help. If there is a chain of transactions it would also be wise to let the estate agent know and ask him to cascade the information up the chain. When thinking about the completion date, first time buyers should remember that they do not have to move in on the day of completion and not being available to do so should not be a barrier to completion.

The Stamp Duty Deadline Doesn’t Just Affect First Time Buyers

Although a chain of transactions can obviously only have one first time buyer and this is the party who directly benefits from the relief, sellers, estate agents, solicitors and indeed other buyers in the chain ought to be aware that they could be indirectly affected if the deadline is missed too. This is because a buyer who has not budgeted for stamp duty may find himself unable to afford the transaction once duty is introduced. This could lead either to the collapse of the chain or to a request for a price reduction. The seller may attempt to pass this reduction on to his seller and so on. Although no one is obliged to reduce their price, it may be the only practical way to keep the transaction from failing.

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That concludes our opening blog post. Thanks for listening and make sure you come back soon!

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The land-registry-documents.co.uk Team