Archive for the ‘Land Covenants’ Category

Austerberry confirmed

November 16, 2010

In Rhone v Stephens ([1994] 2 AC 310, HL) a house owner had covenanted with a neighbour who lived in the cottage next door to keep his own roof in repair. The roof fell into disrepair and the owner of the cottage sought to enforce the covenant. Ownership of the house and the cottage had changed hands since the covenant had been entered into. So the question was whether the burden of this positive covenant ran with the land and affected a successor-in-title of the original covenantor. The House of Lords followed the Austerberry decision and held that the burden of a positive covenant does not run with the land.

‘As between persons interested in land other than as landlord and tenant, the benefit of a covenant may run with the land at law but not the burden’. (per Lord Templeman at 317).

The position is the same in equity:

‘[E]quity supplements but does not contradict the common law … Equity does not contradict the common law by enforcing a restrictive covenant against a successor in title of the covenantor but prevents a successor from enforcing a right which he never acquired.’ (at 317)

‘Equity cannot compel an owner to comply with a positive covenant entered into by his successors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it. Enforcement of a positive covenant lies in contract; a positive covenant compels an owner to exercise his rights. Enforcement of a negative covenant lies in property; a negative covenant deprives the owner of a right over property.’ (at 318)

‘[Y]our Lordships were invited to overrule the decision of the Court of Appeal in the Austerberry case. To do so would destroy the distinction between law and equity.’ (at 321)

The burden of positive covenants does not run with the land

November 15, 2010

In Austerberry v Oldham Corp ((1885) L.R. 29 Ch.D. 750 CA (Eng)) the owners of a road had covenanted to keep it in repair. Oldham Corp bought the road. Were they, as successors in title, subject to the burden of the covenant? It was held that they were not. The burden of a covenant (positive or negative) does not run with the land at common law. It had already been decided in earlier cases that Tulk v Moxhay applied only to restrictive covenants.

Covenants that touch and concern land

November 12, 2010

In general, the passing of the benefit and burden of covenants (in the absence of express assignment) depends on whether the covenants concern the land or are merely personal. The Privy Council had to grapple with this distinction in Hua Chiao Commercial Bank Ltd v Chiaphua Industries Ltd ([1987] 2 W.L.R. 179, PC). This was an appeal from a decision of Hong Kong’s Court of Appeal. A five year lease required the tenant to pay a security deposit at the beginning of the lease. If the tenant performed the lease covenants then the landlord promised to repay the deposit at the end of the term. The landlord mortgaged the property by way of assignment to Hua Chiao and later went into liquidation. At the end of the term, the tenant sought to recover the deposit from Hua Chiao as successor-in-title of the original landlord. The question was whether the burden of the promise to repay had passed to Hua Chiao. Was it merely personal or did it ‘touch and concern’ the land?

The Privy Council held that it was merely personal and Hua Chiao, the successor, was not subject to the burden of the covenant. Lord Oliver of Aylmerton adopted the explanation of the test found in Cheshire and Burn’s Modern Law of Real Property, 13th ed, (1982), pp. 430 – 431:

‘If the covenant has direct reference to the land, if it lays down something which is to be done or is not to be done upon the land, or, and perhaps this is the clearest way of describing the test, if it affects the landlord in his normal capacity as landlord or the tenant in his normal capacity as tenant, it may be said to touch and concern the land.’ (at 107)

CPO s.39 and the annexation of the benefit of covenants

November 11, 2010

In Federated Homes Ltd v Mill Lodge Properties Ltd ([1980] 1 WLR 594) Mill Lodge bought one part of a larger development site. It agreed with the seller that it would not build more than 300 houses on the land that it had bought. If it were to exceed this limit, it would reduce the number of houses that could be built on the rest of the site because of a limitation imposed by the local authority. Federated Homes bought the rest of the development land in two separate portions. They learned that Mill Lodge planned to build an extra 32 houses on their land and they sought an injunction to restrain any breach of the covenant not to build more than 300 houses. There had been no assignment of the benefit of the covenant in respect of part of the land owned by Federated Homes. The question then was whether the benefit of the covenant was annexed to that land. Brightman LJ held that the English equivalent of CPO s.39 did indeed annex the benefit to each and every part of Federated Homes’ land:

‘If …  a covenant relating to land which is restrictive of the user thereof is enforceable at the suit of (1) a successor in title of the covenantee, (2) a person deriving title under the covenantee or under his successors in title, and (3) the owner or occupier of the land intended to be benefited by the covenant, it must, in my view, follow that the covenant runs with the land, because ex hypothesi every successor in title to the land, every derivative proprietor of the land and every other owner and occupier has a right by statute to the covenant. In other words, if the condition precedent of section 78 is satisfied — that is to say, there exists a covenant which touches and concerns the land of the covenantee — that covenant runs with the land for the benefit of his successors in title, persons deriving title under him or them and other owners and occupiers.’ (at 605)

The annexation was to each and every part of the land (at 606)

Does CPO s.41 apply to building schemes?

November 10, 2010

Sky Heart Ltd v Lee Hysan Co Ltd ([1999] 1 HKLRD 100, CFA) considered whether CPO s.41 applied to covenants created under a building scheme. There are two problems, each concerning s.41(2)(c):

1. The covenants may not have been expressed to be for the benefit of the land of the covenantee (this was a problem in Sky Heart);

2. In a building scheme, the covenantee may have parted with all interest in parts of the land covered by the scheme by the time that later purchasers enter into their covenants. Thus, it may seem that it is not possible in these cases to say that the covenant was for the benefit of the land that had already been sold.

Nevertheless, Lord Hoffman held that CPO s. 41 did apply to building schemes:

‘For my part, the overriding consideration is that s. 41 must have been intended to apply to building schemes … Somehow, therefore, the language has got to be made to fit.’ (at 120)

CPO s.41 and the common law / equitable rules on covenants

November 10, 2010

Another question considered in the CFA judgment in Sky Heart Ltd v Lee Hysan Co Ltd ([1999] 1 HKLRD 100, CFA) was the relationship between the CPO and the common law and equitable rules concerning land covenants. Lord Hoffman explained:

‘A covenant which satisfies the terms of s.41(1) and (2) will run with the land in accordance with s.41(3), notwithstanding any rule of law or equity. In such a case, it is unnecessary to go beyond the terms of the Ordinance and the fact that for some other reason the covenant might not have run with the land at common law or equity is irrelevant. The section is therefore a partial codification of the law. It is a codification because, so far as it goes, it is complete in itself but partial because it does not prevent a covenant falling outside its terms from running with the land under the old common law and equitable rules.’ (at 119)

Building schemes

November 10, 2010

Sky Heart Ltd v Lee Hysan Co Ltd ([1999] 1 HKLRD 100, CFA) provides an example of a building scheme. Here a landowner divided his land into plots. The assignments of each plot imposed restrictions on the type of building that could be constructed on each plot. The plaintiff learned that the defendant planned, in breach of the restrictions, to build a multi-storey development on one of the plots. The plaintiff owned a flat within the area that had originally been owned entirely by the covenantee. The plaintiff obtained an injunction preventing the proposed building in breach of covenant both at first instance and in the Court of Appeal. This was upheld by the Court of Final Appeal.

One of the grounds on which the injunction was granted was that the original owner of the land and the first purchasers from him had created a building scheme. Litton PJ observed:

‘The case law establishes that where, as a fact, a common vendor has laid out a piece of land in plots for the purpose of a general development, and puts forward a building scheme in relation to that piece of land, then [an equitable right for assignees to enforce the covenants between themselves] may arise, because the purchasers of the separate plots have a common interest in preserving the integrity of the development.’ (at 107)

The crucial question was whether all of the first purchasers of the plots had had a common intention that the covenants would be mutually enforceable amongst themselves. The Court of First Instance had found as a matter of fact that this common intention existed.

Does the benefit of a right to rename a building pass to a covenantee’s successors in title?

October 27, 2010

The Deed of Mutual Covenant (“DMC”) operates as a local law for the development that it covers. The original covenantors are, of course, bound by the terms of the DMC (for so long as they retain an interest in the land) as a simple matter of contractual obligation. Successors-in-title are also bound provided that the conditions laid down in section 41(2) of the Conveyancing and Property Ordinance are satisfied. Section 41(2)(c) requires that the covenant be “expressed and intended to benefit the land of the covenantee”. Thus, there is a distinction to be drawn between covenants that are linked to land ownership and purely personal covenants; only the former can satisfy CPO, s.41(2).

Bailey J. in Congleton Corporation v Pattison[1] had formulated the test as follows:

“the covenant must either affect the land as regards mode of occupation or it must be such as per se, and not merely from collateral circumstances, affect the value of the land”.

The simplicity and apparent logic of the distinction are deceptive, however, since its application to specific covenants has generated some illogical and arbitrary distinctions[2].

At issue in Pak Fah Yeow Investment (Hong Kong) Co Ltd v Proper Invest Group Ltd[3] was the question as to whether the right to rename a building conferred in the DMC benefitted the land of the covenantee. Such a right (and the exclusive right to use a car parking space) had been granted to the appellant’s predecessor in title by clause 3 of the DMC. When the appellant sought to exercise its naming right, it was resisted by the respondent, who succeeded at first instance. A declaration was granted that the appellant was not entitled to rename the building.

Clearly, the appellant faced an uphill struggle since the Court of Appeal had previously decided in Lamaya v Supreme Honour Development Ltd[4] that a naming right did not run with the land. It argued that the authority of Lamaya was diminished because, in Lamaya, counsel had conceded that the right to name a building was not an interest in land capable of passing by assignment; as a result, what Lamaya had said on the issue should be regarded as obiter.

Rogers VP, with whom the rest of the court concurred, saw force in the appellant’s arguments.  It is clear that an unfortunate choice of name could reduce the value of the building. In Union Insurance Society of Canton, Ltd v The Homgkong Land Co. Ltd.[5]Cons J held that changing the name of a building was a breach of the right to quiet enjoyment. This suggested that it was linked to the enjoyment of the land and further suggests that the right to rename the building falls within CPO, s.41(2).

The Court of Appeal, nevertheless, felt bound by its previous decision in Lamaya and rejected the appeal[6]. There was thus a discrepancy between the Court of Appeal’s stated view as to the merits of the case and its decision. A decision of the Court of Final Appeal on the matter would be helpful.

[1] (1808) 10 Wast 130.

[2] Grant v Edmundson [1931] 1 Ch. 1, 28 per Romer LJ.

[3] [2009] HKEC 341.

[4] [1991] HKC 198.

[5] (05/12/1977), HCA 386/1977.

[6] [2009] HKEC 341 at paras. 17 and 18.