Freehold covenants

Cameron Stewart (thanks to Jim Helman and Shae McCrystal – errors

are mine)

Introduction

• 19thC – rising middle class, development and property ownership

• Little government control over development• Need for environmental regulation• Contract as the model• Contractual agreements regarding land bind the

parties – but that is of little use into the future when the property changes hands

• The movement from contract to property

Introduction

• Covenant – The term covenant, at law, refers to a promise made in a deed – so a term of a deed. However, in practice we use the term covenant more loosely to refer to a contractual obligation affecting a land owner – so could arise under a contract not effected by deed.

Introduction

• Positive Covenant – A covenant that requires an act to be done.

• Negative Covenant – A promise that requires an act not to be done.

• Covenantor – Person making the promise• Covenantee – Person taking the benefit of the

promise

Introduction

• Burden of the Covenant – The burden of the covenant is the obligation to act or not to act under the covenant. So if a person bears the burden of the covenant then they are the person who is required or restrained from acting in respect of their land. The person subject to the burden is called the ‘covenantor’ (the person who has covenanted to act or not to act).

Introduction

• Benefit of the Covenant – The benefit of the covenant is the benefit that flows from the other party bearing the burden. So this is the benefit that flows from that person acting or not acting in a certain way with respect to land. The person who obtains the benefit of the covenant is the ‘covenantee’ (the person who has sought the promise that the other person will act or not act).

Introduction

A (Covenantor) B (Covenantee)

C DBurden of Covenant Benefit of Covenant

Annexation of covenants• When will the burden of a covenant run with the land such

that the original covenantee can enforce the covenant against successors in title to the original covenantor – in law and at equity;

• When will the benefit of a covenant run with the land such that a successor in title to the original covenantee can enforce the benefit against the original covenantor? – in law and at equity

• When will successors in title of the original covenantee be able to enforce covenants against successors in title of the original covenantor?

Passing the burden at law

• Austerberry v Corporation of Oldham (1885) 29 CH D 750. The case involved a private road. A man called John Elliot conveyed some land to a company for the purpose of building a road. The company covenanted that it would build the road and then maintain and repair the road at its own expense. The company subsequently sold the land to the Corporation of Oldham. Was the burden of the covenant between Elliot and the company (the obligation to maintain and repair the road at their own expense) enforceable against the Corp of Oldham?

Passing the burden at law

• No - The court found that the covenant did not bind the Corporation of Oldham. The court said that the Corporation of Oldham was only bound by a covenant which ‘ran with the land’. The court found that the burden of a covenant does not run with the land: “A mere covenant to repair, or to do something of that kind, does not seem to me, I confess, to run with the land in such a way as to bind those who may acquire it” per Lindley J

Passing the burden at law

• Section 70A(1) was inserted into the Conveyancing Act• It appears at first reading to change the common law position

with respect to the burden of covenants:• A covenant relating to any land of a covenantor or capable of

being bound by the covenantor by covenant shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself or herself and the covenantor’s successors in title, and the persons deriving title under the covenantor or the covenantor’s successors in title, and, subject as aforesaid, shall have effect as if such successors and other persons were expressed.

• Does this override Austerberry?

Passing the burden at law

• No – the section deems a covenant to be made by a covenantor on behalf of the covenantor and his successors in title – thus providing a legislative presumption that a covenantor intends to bind successors in title, but does not actually say that the covenantor CAN bind successors in title. As the common law says that they can’t, simply saying that we will deem them to have that intent, does not overcome the common law rule. In other words, the section allows conveyancers to not have to write out that successors are intended to be bound

Rhone v Stephens [1994] UKHL 3

• Walford House shared a roof with Walford Cottage• 3 The Vendor herby covenants for himself and his

successors in title owner or occupiers for the time being of the property known as Walford House aforesaid to maintain to the reasonable satisfaction of the Purchasers and their successors in title such part of the roof of Walford House aforesaid as lies above the property conveyed in wind and water tight condition

Rhone v Stephens [1994] UKHL 3

• Lord Templeman:• This provision has always been regarded as

intended to remove conveyancing difficulties with regard to the form of covenants and to make it unnecessary to refer to successors in title… I do not consider that it follows that section 79 of the Act of 1925 had the corresponding effect of making the burden of positive covenants run with the land.

Ways around Austerberry• Chain of personal covenants in deeds• This method involves creating a chain of covenants between the

original covenantee and covenantor and all their successors in title. The original covenantor always remains liable to the original covenantee – aim is to extend the liability:– The first covenantor agrees to ensure that each subsequent

purchaser will enter into an identical covenant with the next purchaser. This means that the obligation is recreated in each deed;

– When the first covenantor sells, the purchaser agrees to be liable under the contract if the original covenant is broken. That purchaser then requires the same promise from the person they sell to and so on. This means that if the covenant is broken and the first covenantor is sued, they can seek indemnity down the chain.

Ways around Austerberry• Under s 134 of the Conveyancing Act NSW, a lease granted

over property which is granted for a term of not less than 300 years, and has not less than 200 years to run, may be enlarged into a fee simple estate provided that the lease does not require rent or more than nominal rent to be paid. Section 134(5) provides that where this occurs,

• The estate in fee simple so acquired by enlargement shall be subject to all the same trusts, powers, executory limitations over, rights, and equities, and to all the same covenants and provisions relating to user and enjoyment, and to all the same obligations of every kind, as the term would have been subject to if it had not been so enlarged.

• Leasehold covenants will be upgraded

Ways around Austerberry• The Principle of Benefit and Burden• Another suggested mechanism for enforcing the burden of

covenants against successors in title is the principle of benefit and burden. This is an old principle of the law of deeds that provides that a person who wants to claim the benefit conferred by a deed, must submit to any burdens that are also imposed by the deed.

• This obligation comes from the fact, as we will discuss later, that unlike burdens, benefits DO run with the land (and we will discuss how and why later). The idea here is that if a successor in title wants to claim any benefits that have run with the land, then they should also be subject to any burdens that come with it.

Hallsall v Brizell [1957] Ch 169• A housing estate of 174 lots was created in 1851. The owners

of the land kept ownership of the common roads, sewer system, a sea wall and a promenade area and covenanted with each purchaser that they would make an annual contribution to the maintenance and upkeep of those common areas. In 1950, the current owner of one of the houses challenged the amount he had been charged that year as his contribution and the matter ended up in court. The initial question was whether or not the owner was legally obligated to make the payment at all. Justice UpJohn began by noting that the burden of a covenant is not enforceable against successors in title of the covenantor.

Ways around Austerberry• Lord Upjohn held that it is ancient law that a man cannot take

a benefit under a deed without subscribing to the obligations contained within the deed. While originally the rule only applied as between the actual parties to the deed, the rule had been expanded under English common law to apply to successors in title of the covenantor where they take a benefit under a deed to which they are not a party

• The principle of burden and benefit was restated by the House of Lords in Rhone v Stephens [1994] 2 WLR 429 – This case involved a house and a cottage which shared a roof. When ownership of the house and cottage was divided, the owner of the house covenanted to be responsible for repairing the roof. There were also mutual covenants for support of the adjoining properties.

Ways around Austerberry• Lord Upjohn held that it is ancient law that a man cannot take

a benefit under a deed without subscribing to the obligations contained within the deed. While originally the rule only applied as between the actual parties to the deed, the rule had been expanded under English common law to apply to successors in title of the covenantor where they take a benefit under a deed to which they are not a party

Rhone v Stephens [1994] UKHL 3• Lord Templemann (with whom the other Lords agreed) stated

that the rule was not that any party deriving any benefit from a deed must accept any burden that is contained in the same document. Instead, the burden must be relevant to the exercise of the rights granted. Therefore, the important thing is that the burden must relate to the reciprocal benefit claimed and not be a separate independent provision. Here, the benefit of support from the neighbouring house was independent of, and separate to, the covenant to repair the roof.

• “In the present case the owners of Walford House could not in theory or in practice be deprived of the benefit of the mutual rights of support if they failed to repair the roof.”

Ways around Austerberry• Not popular in Australia• Justice Branson of the NSW Supreme Court stated that “the

principle of benefit and burden has not become established as a general principle” (Clifford v Dove [2003] NSWSC 938 [67]) and similar criticisms were made before the HOL decision in Rhone by Justice Brooking in the Vic Sup Court in Government Insurance Office (NSW) v KA Reed Services [1988] VR 829.

Rufa v Cross [1981] Qd R 365• A party wall was constructed on a common boundary between properties.

Subsequently, the owners agreed by deed to grant easements over the site of the wall and included covenants that either owner by notice to the other could extend the wall and that if the other owner later decided to use the extended portion of the wall that the second owner would pay for part of the cost of construction.

• The District Court judge found that the right to extend the existing wall and the right to use that extended portion were rights capable of forming the subject matter of a grant of easement and that where the appellants took the benefit of the deed, they were bound by the conditions in it. This was so, despite their not being parties to the deed. The Queensland Full Court dismissed an appeal from the District Court.

Rufa v Cross [1981] Qd R 365• Kneipp J.: It is laid down in Coke on Littleton, 230b, that “a man who takes

the benefit of a deed is bound by a condition contained in it though he does not execute it”: per Cozens-Hardy M.R., arguendo, in Elliston v. Reacher [1908] 2 Ch. 665 at 669. It is sometimes put in Latin: qui sentit commodum sentire debet et onus. Examples of its application are Aspden v. Seddon (1 Ex. D. 496). Westhoughton U.D.C. v. River Douglas Catchment Board [1919] 1 Ch. 159, 171, and Halsall v. Brizell [1957] Ch. 169. It seems that the easements in the present case were executed under seal, but in any event they had the effect of a deed on registration: Real Property Act of 1861, s. 35. In the present case, the building of the defendants in at least one respect encroaches on to that part of the wall which stands above the plaintiff’s land. If it is assumed, as I think it should be, that this is justified by reference to the relevant easement, then I think that they should bear the obligation imposed by that instrument to pay half the cost of the wall. I think, therefore that the appeal should be dismissed with costs.

Rufa v Cross [1981] Qd R 365• Where a covenant is created as an essential component of the

grant of an easement, the burden of the covenant may be enforceable if the covenant is considered to be an ‘incident’ or ‘essential part’ of the easement.

• Frater v Finlay (1968) 91 (WN) NSW 730 – Two owners of adjoining pastoral land held under Crown leases agreed that one could draw water from a well on the servient land through a pipe connected to the dominant tenement. The grant of easement contained a requirement that the owner of the dominant tenement pay for half of the upkeep of the well and the pipes. The successor in title to the owner of the servient tenement sought payment of half the cost of the upkeep from the successor in title of the dominant tenement.

Rufa v Cross [1981] Qd R 365• DCJ Newton found that while an easement imposes no active

obligation on the owner of the servient tenement to repair the site of the easement, the owner of the servient tenement may voluntarily bind himself to repair or maintain the site as a term of the grant of the easement. He said that it follows from this that, per Newton DCJ at 735:

• “[I]f the grantor of an easement can bind himself and his assignees to repair by the grant then, a fortiori, the owner of the dominant tenement can bind himself and his assignees to repair or contribute to the cost of repairs”.

Clifford v Dove [2003] NSWSC 938• A dispute involving an easement of a carriageway which also granted in

which the owner of the dominant tenement was given the right to use cattleyards belonging to the owner of the servient tenement.

• (a) The owners of Lots 5 and 6 shall maintain and keep in good repair and sound condition the Right of Way, the fences adjoining the Right of Way and the cattleyards, the cost of repair and maintenance being borne equally between the owners of Lots 5 and 6 AND the owners covenant not to pull down or remove any fences without replacing them with cattle-proof fences of equal quality(b) That if the owner of one Lot shall default in duly performing or observing the above conditions the other owner shall be entitled to rectify the default at the cost of the defaulting owner if he shall give the defaulting owner fourteen (14) days prior written notice of his intention to do so.

Clifford v Dove [2003] NSWSC 938• Servient tenement holder wrongfully ripped up the cattleyard

and crush• Dominant tenement sought damages• Servient tenement raised a defence that that dominant

tenement had to pay for any repairs under (b)• Bryson J said that it was a positive burden that could not run

Clifford v Dove [2003] NSWSC 938• Justice Bryson stated that the decision of the House of Lords in Rhone v

Stephens makes it clear that the burden of covenants does not run with the land – and as this was an additional covenant separate to the easement – it did not run.

• Essential part of an easement? No – Frater v Finlay is doubtful authority. Rufa?

• [66] With respect, I do not find the view expressed by D.M Campbell J to be applicable to support any general principle relevant in the present case. In my understanding his Honour was of the view that the meaning and effect of the grant of easement were that the right to use the extended portion of the wall was conditional upon contributing half its value; see 368B. This conclusion does not uphold the ruling in Frater v. Finlay, to which Lucas SPJ and D M Campbell J did not refer. In my respectful view an observation of Kneipp J at p370F-G shows that the conclusion of Newton DCJ in Frater v. Finlay was incorrect

Clifford v Dove [2003] NSWSC 938• Benefits and burdens? No• The principle relating to benefit and burden cannot apply to the defendant in respect of the cattle yards,

which are situated on her own land; no benefit with respect to the use of the cattle yards is conferred on her by the easement. The principle of benefit and burden, if it had been invoked, may well have supported the decision in Frater v. Finlay. It was in this context that, in Gallagher v. Rainbow [1994] HCA 24; (1994) 179 CLR 624 at 647-648 McHugh J referred to Frater v. Finlay and Rufa v. Cross – “Furthermore, the successor in title to a person bound by a deed may be bound by obligations in the deed if the successor in title takes a benefit conferred by the deed Rhone v Stephens [1994] UKHL 3; [1994] 2 W.L.R 429; Halsall v Brizell[1957] Ch. 169; E.R. Ives Investments Ltd. v High, [1966] EWCA Civ 1; [1967] 2 Q.B. 379; Frater v Finlay (1968), 91 W.N.(NSW) 730;Rufa Pty. Ltd. v Cross, [1981] Qd R. 365.” McHugh J assumed but to my reading should not be understood to have decided that the benefit and burden principle extends to persons who are not parties to or named in the Deed; see p648. The benefit and burden principle was extensively criticised in Government Insurance Office (NSW) v. KA Reed Services Pty Ltd [1988] VicRp 75; [1988] VR 829 by Brooking J in his judgment at 830 to 841: the views of Brooking J would have to be addressed carefully by a court which is asked to act simply on that principle, but that is not the present case. The principle of benefit and burden has not become established as a general legal principle. It has sometimes been referred to as the Ocean Island Equity, an allusion to Tito v Waddell (No 2) [1997] Ch 106. It was considered with references to authorities and sources, by Young J in Rural and Agricultural Management Ltd v West Merchant Bank Ltd (1995) 18 ACSR 793 and inRyan v Rouen [2000] NSWSC 468 at paras [72] to [75]. There seems to be room for such a principle where owners of equitable interests or claimants against a fund compete with other similar claims. In context of positive obligations under easements Rhone v Stephens appears to have concluded against any such principle.

Ways around Austerberry• s 88BA was introduced into the CA in 1996 covering positive

covenants for repair or maintenance.• 1) A covenant may be imposed requiring the maintenance or

repair, or the maintenance and repair, of land that is the site of an easement or other land that is subject to the burden of the easement (or both) by any one or more of the persons from time to time having the benefit or burden of the easement.

Ways around Austerberry• (2) Such a covenant may be imposed: • (a) by registration under this Act or the Real Property Act 1900

(as the case may require) of the instrument indicating the persons bound by or including the terms of the easement, if the terms of the covenant are included in that instrument, or

• (b) by registration under the Real Property Act 1900 of a memorandum of positive covenant in the form approved under that Act that includes the terms of the covenant, if the site of the easement is under the provisions of that Act, or

• (c) by registration under Division 1 of Part 23 of a deed expressed to be made under this section and including the terms of the covenant, if the site of the easement is not under the provisions of that Act.

Ways around Austerberry• ((3) The instrument including the covenant must clearly

indicate the land which is to be maintained or repaired, the land to which the benefit of the covenant is appurtenant and the land which is subject to the burden of the covenant. If the land is subject to an easement without a dominant tenement created in favour of a prescribed authority (as referred to in section 88A), the instrument must indicate the name of the prescribed authority.

Ways around Austerberry• Rentcharges - A rent charge is an annual or periodic payment

charged on and payable by the owner of land from time to time. The payment is made to a person who owns the rent charge – and the person who owns the rentcharge owns it personally – it is not connected to land.

• Rent charges developed when subinfeudation was prohibited. Since landowners could no longer make persons to whom they sold land offer up feudal duties, they would instead, when they sold land, reserve to themselves the payment of rent on the sale of the land. So – I sell you this fee simple and in return you agree to pay $x and then $x per year.

Ways around Austerberry• The rentcharge is owed to a person, but attaches to the land

and is imposed on the owner of the land from time to time. The rentcharge can be enforced through entry into possession of the land in the case of old system land or sale in the case of Torrens. Using a rentcharge as a mechanism for enforcing the burden of covenants at law was recognised in Austerberry v Corporation of Oldham (1885) 29 CH D 750 – per Lindley LJ – “If the parties had intended to charge this land forever, into whosesoever hands it came, … there are ways and means known to conveyancers by which it could be done with comparative ease; all that would have been necessary would have been to create a rentcharge and charge it on the tolls”.

Passing the burden in Equity• Tulk v Moxhay (1848) 2 Ph 774; 41 ER 1143: In this case the plaintiff, Tulk,

sold land called ‘Leicester Square Garden’ to a man called Elms. In the contract of sale there were two covenants:– That Elm would maintain the land as a garden and not erect any buildings on it;– That Tulk would pay rent to Elms for access to the garden for Tulk and Tulk’s

tenants.• The case came to court when Tulk tried to enforce the covenants against a

purchaser of the fee simple from Elms, who was proposing to erect buildings on the site. The purchaser of the fee simple had notice of the Covenants. The court found that equity would enforce the burden of the covenant against a purchaser of the land who takes the land with notice of the covenant. The court said that if a purchaser takes the land with notice of a covenant, then they will receive a reduced purchase price to take the covenant into account and it would be inequitable to allow them to escape the obligation in those circumstances.

Passing the burden in Equity

Equity will enforce the burden where:• The covenant is negative in effect• The covenant benefits the land of the

covenantee; • The burden of the covenant was intended, by

the original parties to the covenant, to run with the land; and

• The successor had notice of the covenant

Only negative covenants• Haywood v Brunswick Permanent Benefit Building Society (1881) 8 QBD

403 which held that equity would only intervene to enforce a negative covenant of which a purchaser had notice:

• Brett LJ at 408 – “an assignee taking land subject to a certain class of covenants is bound by such covenants if he has notice of them … covenants restricting the mode of using the land only will be enforced”.

• Rhone v Stephens [1994] 2 WLR 429 - In considering whether the court would enforce a covenant to repair a roof against the successor in title of the covenantor, Lord Templeman stated that:

• “[E]quity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable under a contract unless he was a party to it”.

Only negative covenants

• The question of whether a covenant is negative or positive is a question of the substance of the obligation imposed. Does it require the successor to the covenantor to do something (positive); or does it merely require them to refrain from doing something (negative). Butt suggests that a good rule of thumb is whether the covenant requires the expenditure of money – positive – or if it can be complied with by doing nothing (negative).

Only negative covenants

• Build on land within a certain time (positive)• Any buildings should be detached; cost not less than x

amount (negative – don’t have to build)• Keep a park ‘uncovered with buildings’ (negative)• Not allow premises to fall into disrepair (positive)• Only use land for a ‘bowling and recreation club’ (negative

– can be complied with by doing nothing – don’t have to build the club)

• Covenant to build to a certain standard (positive); covenant not to build unless to a certain standard (negative)

The Covenant Must Benefit the Covenantee’s Land

• The covenant must benefit land owned by the covenantee at the time of entering into the covenant. The only reason that equity would elevate a contractual obligation into an equitable encumbrance that will run with the land is that the covenant is designed to preserve the value of the covenantee’s land. As the High Court noted in Forestview v Perpetual Trustees WA (1998) 193 CLR 154 per Gaudron, McHugh, Gummow, Kirby and Hayne JJ at 162:

• “The doctrine in Tulk v Moxhay has been said to evince the appreciation by the courts of equity that the market value of land may be affected by activities upon adjacent parcels as much as by the uses to which the land can be put, and that certain arrangements designed to protect such value and which go beyond the frame of contract may be enforced in equity if not at law.”

The Covenant Must Benefit the Covenantee’s Land

• If the land of the covenantee is too big to be affected, it can’t benefit;

• The land would have to be reasonably close to the burdened land

• Will the breach reduce the value of the benefitted land?

• Will the breach remove an amenity of the benefitted land?

Intention that the burden should run with the land

• Equity will only enforce covenants against successors in title to the covenantor if the original contracting parties intended the covenant to run with the land. So, a covenant designed to be personal to the original covenantor only will not run.

• Proving intention for the purposes of the equitable rule has been simplified by the passage of s 70A(1) of the CA:

• A covenant relating to any land of a covenantor or capable of being bound by the covenantor by covenant shall, unless a contrary intention is expressed, be deemed to be made by the covenantor on behalf of himself or herself and the covenantor’s successors in title, and the persons deriving title under the covenantor or the covenantor’s successors in title, and, subject as aforesaid, shall have effect as if such successors and other persons were expressed.

Notice

• Because negative covenants will only be enforced against successors in title (outside of finding a conveyancing trick to do it legally) in equity, the right to have equity enforce the covenant will depend on whether the land is taken by a bona fide purchaser for value without notice. Therefore for old system land a BFPVWN will not be bound by the covenant.

Notice

• Notice includes actual constructive and imputed notice

• Torrens system has slightly different rules.

The benefit of covenants passing at law

• Two substantive requirements must apply before the law will allow a successor in title to the covenantee to enforce the covenant against the covenantor. The covenant must:– ‘Touch and concern’ (benefit) the land of the

covenantee; and– The parties must intend that the benefit of the

land should run with the land.

The benefit of covenants passing at law

• It must be a covenant that benefits the land, rather than benefitting the covenantee personally. Therefore you are looking for something that allows the better enjoyment of the land; or that enhances the value of the land. In each case the question is a question of fact. You don’t have to point to an actual increased land value, but can use intangibles such as character and amenity of the land. Examples from Butt at page 503:

• Can only build one dwelling house – preserves the amenity of adjoining land

• Keep river banks in repair – protects adjoining land from flooding which can be good for a residence or for agricultural land

• Keep road in repair – affects access to the land and hence its amenity• Don’t carry on a butcher shop – by protecting a business from

competition this enhances the value of the land

The benefit of covenants passing at law

• Large land – In the case Re Ballards Conveyance [1937] Ch 437, Mrs Ballard subdivided some of her land in 1906, including lengthy covenants about requirements for building should one of the new owners build. She retained about 1700 acres of land and subdivided some lots on the edge. The case came to court some years later when the present owner of the 1700 acres – a stud farm, sought to enforce the negative covenants against the present owner of one of the much smaller lots. The court found that while the covenant was entered into and intended to benefit the land originally owned by Mrs Ballard (the 1700 acres), the covenants concerned did not ‘touch and concern’ her land because any breach of the covenants could not possible affect the vast majority of her land holding. In this case the land was just too large to be ‘touched and concerned; in that manner and the courts would not sever the benefit to just attach to a small bit of the land. Note though – that you can express the covenant in that way: to benefit ‘such part or parts’ of the land as is relevant, and this will allow the covenant to be effectively annexed just to those parts.

The benefit of covenants passing at law

• Marquess of Zetland v Driver [1939] 1 Ch 1 (8) the English Court of Appeal upheld an appeal from a decision of a judge in the Chancery Division and found that that a covenant "for the benefit and protection of such part or parts of the settled land as should etc". The reason for the finding in this case was that the covenant was expressed to be for parts of the remaining land and not, as in Ballard’s case, for the whole land.

The benefit of covenants passing at law

• Subdivisions - Ellison v O’Neill (1968) 88 WN (NSW) 213. • In the case, a man called Benjamin owned a piece of land. He sold one

section of the land to relatives (the Ellisons) and included a restrictive covenant which stated that they could not place a building on the land that was more than one story high. The aim of the covenant was to protect Mr Benjamins view of the Harbour. Mr Benjamin died. He left his property to a relative Ms Benjamin, who subdivided Mr Benjamins land into 3 lots. Lot 1, she gave to the Ellisons honouring Mr B’s request. Lots 2 and 3 she sold. The owners of lot 2 did not care about the covenant because their lot was on higher ground and a two storey building would not obstruct their view. The owners of Lot 3 – the O’Neill’s, did care because their view would be obstructed. The Ellisons wanted to subdivide their own land and they sought a declaration in court that if they sold off one of the lots that it would be sold free of the covenant.

The benefit of covenants passing at law

• Justice Walsh reviewed the law on annexation and found a preference at law for treating the benefit as attaching to the whole of the land such that there is a preference for starting from the premise that it is intended to attach to the whole of the land unless it is shown that the benefit was supposed to attach to portions of the land: “Prima facie, the benefit of a covenant … enures to the land as an entirety” (at 221-222) (one other judge appeared to agree; 1 in dissent)

• In this case there was not a sufficient indication in the documents granting the covenant that the covenant was intended to attach to portions of the land rather than the whole of the land, as so the benefit of the covenant was lost when the land was subdivided.

Intention to pass the benefit

• The benefit of a covenant will not run at law unless the original covenantee and covenantor intended that the benefit should run with the land (and not just constitute a benefit for the covenantee personally). To ascertain intention you have to look at the document creating the covenant and the circumstances of its creation. You are looking for a form of words which suggest that the benefit of the covenant has attached to the land

• enures for the benefit of the land• enures for all heirs or assignees of the land.

Intention to pass the benefit

• Section 70 of the Conveyancing Act which provides with respect to the benefit of covenants:

• A covenant relating to any land of the covenantee shall be deemed to be made with the covenantee and the covenantee’s successors in title and the persons deriving title under the covenantee or them, and shall have effect as if such successors and other persons were expressed. For the purposes of this subsection in connection with covenants restrictive of the user of land "successors in title" shall be deemed to include the owners and occupiers for the time being of the land of the covenantee intended to be benefited.

Intention to pass the benefit• Does s 70 supply an intention?• In UK - yes - Federated Homes v Mill Lodge Properties Ltd [1980]

1 WLR 594; s 70 did supply the necessary intention because it allows not just heirs and assigns to enforce it but owners/occupiers of the benefitted land – suggesting that the relevant heirs and assigns are ones who take the land, not just any heirs and assigns of the contract (unless the covenant is clearly expressed to the contrary).

• In Australia? Not sure - Forestview Nominees v Perpetual Trustees (WA) (1998) 193 CLR 154 – High court declined to consider whether the English approach to s 70 should be followed as it did not need to be determined on the facts of the case.

Intention to pass the benefit to adjoing properties

• Section 36C CA provides:• (1) A person may take an immediate or other interest in

land or other property, or the benefit of any condition, right of entry, covenant, or agreement over or respecting land or other property, although the person may not be named as a party to the assurance or other instrument.

• (2) Such person may sue, and shall be entitled to all rights and remedies in respect thereof as if he or she had been named as a party to the assurance or other instrument.

Dalton v Ellis; Estate of Bristow [2005] NSWSC 1252

• Promise by father to mother that he would name unborn child in will• Young J at [41]:• …the following limitations apply to s 36C (my summary):

(1) it applies only to real property;

(2) to covenants running with the land;

(3) to cases where the instrument is not merely for the benefit of the third party but purports to contain a grant to or covenant with him;

(4) to deeds inter partes;

(5) where the third party is in existence and identifiable at the time when it was made.

Australian Mortgage & Properties Pty Ltd v Baclon Pty Ltd [2001] NSWSC 774

• A licence to occupy a property was grant to a company and permitted that company’s sole director to reside there

• Licence also permitted two of the director’s family members to reside

• They were not named in the licence and the plaintiff’s principals did not identify who those family members were, after being requested to do so. Director’s mother sought to rely on s 36C to enforce the provisions of the licence

• Austin J held that s 36C did not apply because she was not a person with whom an agreement or covenant was purportedly made, even though she indirectly benefited from it.

Rogers v Hosegood [1900] 2Ch 388• Covenant prohibited the erection of other than one messuage

(dwelling-house) “adapted for and used as and for a private residence only” and on another lot the erection of messuages and buildings were required to be “adapted for and used as and for a private residence only”.

• The defendant proposed to erect one large building spanning both lots, to comprise up to forty flats on five floors with eight flats on each floor.

• Current owner of benefited land pruchaser without knowledge of covenant

• The English Court of Appeal found that the benefit of a covenant ran with the land in circumstances where the purchaser was not aware of the covenants given by the purchasers of other lots.

Passing the benefit in equity

1. The original covenantee must have owned and retained the land intended to benefit

2. The covenant must actually benefit the retained land (in value or amenity – this requirement applies in equity but not at law)

3. The covenantee must intend the covenant to run with the land – again s 70 will deem intention unless contrary interpretation prevails, you need to show actual intention

Passing the benefit in equity

4. The covenant grant should have words annexing the benefit to the land (usually satisfied through showing that the covenant benefits the land and there is intention)

5. The covenant can be enforced by the holders of the same estate as the covenantee and lesser estate holders/occupiers. Unlike law, equity allows lesser estate holders to enforce the covenant (Forestview Nominees Pty Ltd v Perpetual Trustees (WA) (1998) 193 CLR 154 but in any event such an outcome also flows from s 70 CA.

Assignment of covenantsCovenants can also be assigned under s 12 CA1. There must be a clear intention to make ‘an immediate and irrevocable transfer’

of the chose in action to the assignee: Norman v FCT, at 32. It is not sufficient to merely authorise the debtor or other person to pay someone else.

2. The assignment must be absolute and not by way of charge3. The assignment must be in writing and signed by the assignor. No particular form

of words is necessary. So long as it is clear that the debt or chose in action has been assigned, this requirement of the statute will be satisfied: William Brandt’s Sons & Co v Dunlop Rubber Company Limited, at 462.

4. Express notice in writing must be given to the debtor by either the assignor or assignee: Norman v FCT, at 29. Notice can only be given at the time of, or after, the assignment: Bishop v Financial Trust Limited [2008] NZCA 170, at [35]. There are no formal requirements as to the notice and it need not even state the date of the assignment. The importance of the notice is that the debtor be advised as to whom he or she must pay: Consolidated Trust Company Ltd v Naylor (1936) 55 CLR 423, at 439.

Creation of covenants• Old system – deeds or part performance – s 23B, s 23E• Torrens – A purchaser of Torrens land will take an indefeasible title free

of the burden of any restrictive covenant unless it is noted on the register (s 42 RPA). RPA s 88(3)(c) states that a restrictive covenant is an ‘interest’ within the meaning of s 42 of the RPA. So for land held under Torrens in addition to the common law requirements for creation/enforcement of a covenant – need to note it on the folio of the burdened land.

• NB You can’t register a restrictive covenant only note it on the folio –

therefore noting on folio does not cure defects in covenants – so all the discussion we have just had applies when trying to enforce the burden of a covenant noted on the Register. We will return to this issue

Creation of covenants

• RPA s 46A allows a covenant to be created where both the burdened and benefitted land are owned by the same person

• CA s 88B allows for registration of a plan of subdivision indicating covenants to apply. These covenants are recorded and annexed to the land via s 88B.

Creation of covenants• CA s 88(1) imposes additional requirements for the creation of covenants

applying to either old system or Torrens title land. We looked at s88(1) in the context of easements. If you remember the section requires any covenant created over land to clearly identify:– the benefited land;– the burdened land;– any additional persons who may have the right to release, vary or modify the right;

and– the persons whose consent is necessary for a release, variation or modification of

the right.

• So where the burden of a covenant is being enforced against a successor in title, the covenant must have complied with these requirements to be enforceable. (s 88(1) is only applicable to enforcement against successors in title not the original covenantor).

Creation of covenants• In Kerridge v Foley (1964) 82 WN (NSW) (pt 1) 293 (10) land was

conveyed subject to a covenant concerning the number of dwellings on each 40 feet of frontage and as to the use of the premises. The defendants intended to convert the house into two dwellings and the plaintiff objected.

• The court held that the covenant was not enforceable as it did not meet the requirements of section 88. The conveyance described the land to which the benefit was appurtenant as "the whole of the land shown in the said plan". The plan was endorsed on the conveyance and showed lots 52, 53, 54, and 61. The land being sold was lot 53. Jacobs J found that the inclusion of lot 54 in the plan was not correct as lot 54 had been sold previously to a named purchaser and was not owned by the original vendor, the A A Co, at the time of the first sale of lot 53.

Building Schemes

• How do you create covenants over a subdivision?

• Problem of privity of contract overcome by doctrine of equity

• No longer hugely problematic because of of s 88B CA

Elliston v Reacher [1908] 2 Ch 374 • (1) that both the plaintiffs and defendants derived title under a common

vendor; • (2) that previously to selling the lands to which the plaintiffs and defendants are

respectively entitled the vendor laid out his estate, or a defined portion thereof (including the lands purchased by the plaintiffs and defendants respectively), for sale in lots subject to restrictions intended to be imposed on all the lots, and which, though varying in detail as to particular lots, are consistent and consistent only with some general scheme of development;

• (3) that these restrictions were intended by the common vendor to be and were for the benefit of all the lots intended to be sold, whether or not they were also intended to be and were for the benefit of other land retained by the vendor; and

• (4) that both the plaintiffs and the defendants, or their predecessors in title, purchased their lots from the common vendor upon the footing that the restrictions subject to which the purchases were made were to enure for the benefit of the other lots included in the general scheme whether or not they were also to enure for the benefit of other lands retained by the vendors ...

Relaxation• Professor Peter Butt’s Land Law [1794] • The modern trend is to relax the stringency of the four Elliston v

Reacher requirements and to look primarily for the intention between the common vendor and the respective purchasers to impose a “local law” under a mutually enforceable system of covenants. Equity then gives effect to this common intention “notwithstanding any technical difficulties involved” in creating the covenants. The central concept being reciprocity of obligations, the four requirements are a guide, not an inviolable formula to be strictly applied in all cases.

• [1795] To illustrate this relaxation of stringency: it is not necessary that all the lots in the scheme be sold at the one time. A scheme of development can exist where the common vendor sells the lots over a period of time. ... What is crucial is that each purchaser from the common vendor accepted that the covenants the purchaser gave were to enure for the benefit of the vendor and those deriving title from the vendor, and that the purchaser correspondingly would enjoy the benefit of similar covenants entered into by all other purchasers.

Re Mack and the Conveyancing Act [1975] 2 NSWLR 623

• A case in which it had been argued that there was no building scheme because there were two vendors, as opposed to a common vendor

• Wootten J found that the existence of two vendors did not negative the “possibility” of a valid building scheme. His Honour then said at 635:

• Nor is the scheme negatived by the fact that some nine of the one hundred and fifteen lots are shown to have been sold without the restrictions. It has never been held necessary, for the existence of a valid building scheme, that the vendor should be bound to impose the same, or any, restrictions on all lots which he sells: Collins v. Castle [(1887)36 Ch.D. 243]; Elliston v Reacher [[1908] 2 Ch. 665, at p.672], per Cozens-Hardy M.R. in the Court of Appeal.

• The fact that some lots are in the event sold without the restrictions does not negative the existence of, or destroy, a building scheme: Sutton v Shoppee [[1963] S.R. (N.S.W.) 853]; Re Dennerstein [[1963] V.R. 688]. The intention which is material is that existing when the scheme was established: Nottingham Patent Brick and Tile Co v Butler[(1885) 15 Q.B.D. 261]... but it is clear that this is not the case if only a small proportion are affected by the unenforceability: Re Louis [[1971] 1 N.S.W.L.R. 164, at p. 183]. Only a small proportion are free of the restriction in this case.

Pirie v Registrar-General (1962) 109 CLR 619

• Kitto J - building schemes cannot exist over Torrens title land, because their existence would depart from the policy of the Torrens system by giving the Registrar-General a discretionary power to detract from the indefeasibility of a registered title.

Re Martyn (1965) 65 SR (NSW) 387• Covenant required the buildings to be occupied and used as a private

dwelling. • The covenant did not identify the land to which the benefit of the

covenant was or was to be appurtenant. • There was evidence before the Court of the advertisements before and

after the auction stating that, “moderate building covenant will protect buyers' interests”.

• There was also reference to the contracts of sale in the subdivision containing similar covenants.

• At trial – Jacobs J - held that it was intended that there should be a building scheme. All purchasers had the nature of the covenant brought to their attention and knew that they would be bound by a building covenant and that they were entitled to a building covenant imposed on other lots to protect their interest.

Re Martyn (1965) 65 SR (NSW) 387

• On appeal – following Pirie Walsh J finds at 394, that the registered proprietor of land under the Real Property Act was free from the equitable obligation or burden, which would have been imposed upon the land by the operation of the equitable principles relating to a common building scheme

Re Louis and the Conveyancing Act [1971] 1 NSWLR. 164

• Different Court of Appeal – Jacobs JA• Equity, it is true, extended that law to comprehend

building schemes where legal requirements as to the form of instrument had not been complied with. I see nothing in s. 88(3) which enables the notification upon the register of anything other than an instrument which complies with the law, even though the intrinsic validity of the instrument depends upon an equitable doctrine.

• S 88 must still be complied with – so there must still be a “clear indication”

Hosking & Anor v Haas (No 2) [2009] NSWSC 1328

• Bergin CJ in Eq• Common building scheme alleged to prevent a shed from building

built• The plaintiffs and the defendants “derived” their title from a

common vendor• AT [38]: In my view reciprocity of obligation was clearly intended

for this Estate. The fact that there are some differences in some of the covenants, as described in paragraphs [24] to [28] of the first judgment, does not negative the existence of or destroy a Scheme. Similarly the fact that four of the Lots were sold without covenants does not negative the existence of or destroy a Scheme. I will deal further with this latter matter when dealing with the fourth requirement in Elliston v Reacher.

Hosking v Haas (No 2) [2009] NSWSC 1328

• Third requirement: [47] I am satisfied, notwithstanding the reservation of Mitmac’s rights to deal with the land without the imposition of a covenant, that the intention was that the covenants were for the benefit of all the Lots intended to be sold.

• Fourth requirement: at [51] evidence accepted that the Lot Owners have claimed they had an understanding that a common building standard applied to all of the Lots in the Estate

• Covenant upheld – shed ordered to be dismantled

Interpretation of covenants

• Ordinary principles of interpretation apply. Normally the words of a covenant are interpreted in their colloquial or ordinary sense, not in any technical or legal sense: see Bradbrook and Neave, Easements and Restrictive Covenants in Australia (2nd Ed, 2000) [15.5]; Ex parte High Standard Constructions Ltd (1928) 29 SR (NSW) 274 at 278 per Harvey CJ in Eq.

Interpretation of covenants• Ferella v Otvosi [2005] NSWSC 962 at [21] per Hamilton J : In this case, the

covenant was created in a transfer under the Real Property Act 1900 (“the RPA”), which is, on registration, to have the effect of a deed: RPA s 36(11). In any event, the covenant has the nature of a grant by the transferee of rights affecting the land. That rule is that, in case of doubt or ambiguity, a covenant or grant should be construed against the covenantor or grantor.

• Covenant: That not more than one main building shall be erected upon the said land and that such building shall not be more than two storeys in height

• Land sloped down to harbour shore – could they build two storeys from the highest point or two storeys from wherever the land was?

• Held not uncertain: two storeys from ground level not the highest ground level. Construction was halted

The effect of covenants in Torrens

• There was no power to record covenants so they were unenforceable against Rps who had made no promises to honour the covenant

• In 1930, s 88(3) was introduced to allow the recording of a covenant on the register

• The covenant must comply with s 88(1) in terms of detail• The covenant takes effect as a recorded interest and future

RPs get the benefit and burden BUT recording does not guarantee effectiveness – so not ‘registered’

• The old rules apply as to whether the covenant can be enforced – the interest remains equitable

Extinguishment of Covenants• Common ownership in old system would destroy covenants: Kerridge v

Foley (1964) 82 WN (NSW) (Pt 1) 293 – ‘a person cannot be regarded subject to the burden of a covenant of which he alone has the benefit’.

• Torrens - Post Investments v Wilson (1990) 26 NSWLR 598 – ‘the doctrine of extinguishment by merger has no place in the law in so far as land registered under the provision of the RPA is concerned’ (at 640).

• Post 2005 created covenants – s 47(7):(7) An affecting interest (being an affecting interest that benefits land) recorded in the Register shall not be extinguished solely by reason of the same person becoming proprietor of separate parcels of land respectively burdened and benefited by the affecting interest, notwithstanding any rule of law or equity in that behalf.

Extinguishment of Covenants

• old systems – BFPVWN defeats equitable interest (unlikely not to have notice)

• Torrens – registration of interest – take subject to s 42

Extinguishment of Covenants

• Release of Covenants• Person(s) entitled to benefit may release it at general law by

deed or if just in writing – provided equity will specifically enforce the contract.

• Torrens – Deed of release registered in the Register.• Implied release – Benefitted owner has impliedly released

covenant if:– Submitted to long inconsistent course of use;– Disregarded breaches such that reasonable person would assume

release; or– Where character of neighbourhood has changed so much that

there is no value left in the covenant.

Extinguishment of CovenantsThe Conveyancing Act s 89 allows Supreme Court to modify or wholly extinguish

covenants where:• change of use of land or neighbourhood conveyance deemed obsolete, or impacts

reasonable use of burdened land.• Benefit holders have offered to release or waived rights to covenant.Idea is for removal of covenants that have no practical utility to the benefitted land. If

you use the first limb you must show either that the changes in the neighbourhood or use of the benefitted land have made the covenant obsolete; or impeded the reasonable use of burdened land with no practical benefit to benefitted land.

Obsolete – if the purpose of the covenant can still be fulfilled (or one of the purposes) it won’t be obsolete.

Reasonable use – Courts tend to give this a narrow construction (although not clear if narrow or broad is required). Question tends to be – does the covenant hinder, to a real, sensible, degree, the land being reasonably used, having due regard to the situation it occupies, the land surrounding and the purpose of the covenants.

Extinguishment of Covenants

• Post Investments v Wilson (1990) 26 NSWLR 598• This case involved the subdivision of a largish piece

of land in Mosman. The owner of the estate kept a large bit of land on which was built a large house which had nice gardens and a magnificent view. In 1910, subdivided 4 lots on the road with a covenant preventing the building of anything except a private dwelling house no more than one storey high on each of the lots.

Extinguishment of Covenants

• In the mid 1980’s three of the lots came into the common ownership of one Mr Reed and his company Post Investments. Reed wanted to knock down the three existing houses and put up an apartment block of five various sizes apartments over five levels. Post sought an order under s 89 that the covenants were obsolete and / or impeded reasonable uses of the land especially as the areas had been zoned for medium density housing and some other blocks on the street had been converted to medium density.

Extinguishment of Covenants

• Powell JA: Obsolete? – Designed to protect the view of the main house and privacy of garden. Still doing this job. Therefore not obsolete.

• Reasonable uses? – Some of the neighbourhood converted to medium density but not all – still houses left. Use as single dwelling properties has continued for 70 odd years – no reason why still cannot be used in this way – and done in keeping with the character of the neighbourhood - no order of extinguishment made

• Reed restrained from breaching the covenants.

Section 28 of the Environmental Planning and Assessment Act 1979

• (2) For the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with a consent granted under this Act, an environmental planning instrument may provide that, to the extent necessary to serve that purpose, a regulatory instrument specified in that environmental planning instrument shall not apply to any such development or shall apply subject to the modifications specified in that environmental planning instrument.

• (3) A provision referred to in subsection (2) shall have effect according to its tenor, but only if the Governor has, before the making of the environmental planning instrument, approved of the provision.

Cumerlong Holdings Pty Ltd v Dalcross Properties Pty Ltd [2011] HCA 27

• Werona Avenue and Stanhope Road, Killara.• Dalcross Hospital next door• Land covenanted to not be used for hospital

purposes• Development approved under LEP• LEP had not been approved by Governor

Cumerlong Holdings Pty Ltd v Dalcross Properties Pty Ltd [2011] HCA 27

• Within the meaning of s 28(2), LEP 194 is an environmental planning instrument which, by its engagement with the provisions of the Ordinance, including cl 68(2), provides and specifies that, to the extent necessary to serve the purpose of enabling development to be carried out in accordance with LEP 194, the restrictive covenant of which the appellant's land has the benefit shall not apply to the land which it is sought to develop and use for the purposes of a hospital. But LEP 194 cannot have this effect because approval, as required by s 28(3), was not given