Positive Covenants in Freehold Transfers

A common example of where this becomes a problem is with freehold houses whose owners have covenanted to pay a proportionate cost of maintaining estate roads and gardens. The obligation to pay the charge is a positive covenant and therefore the obligation to pay ceases upon sale to a subsequent owner. Often this is catered for by the purchaser entering into a deed of covenant with the management company on transfer. It is however not uncommon for these formalities to be overlooked. There is a saving grace which is the benefit and burden principle which in certain circumstances resolves the situation in favour of the management company.

The benefit and burden principle was established in Halsall v Brizell [1957] CH 169 and further developed by in Davies v Jones [2009] EWCA Civ 1164. The principle established in Halsall v Brizell was that you may not accept the benefit without accepting the burden that accompanies it.

In Davies v Jones the Court of Appeal laid out three pre-requisite conditions which need to be in existence before the burden of a positive covenant will be enforceable against a covenantor’s successor(s) in title.

These are:

• Both the benefit and the burden must be contained within the same transaction. (In land transactions this condition is usually satisfied).
• There must be a correlation, the enjoyment must be relevant to the imposition of the burden, it must be reciprocal or conditional. (In land transactions this will involve an examination and interpretation of the relevant clauses).
• The person on whom the burden is imposed must have the opportunity to reject or disclaim the benefit.

(This condition again will be determined on the facts, for instance a successor in title could disclaim the right to use communal gardens but is unlikely to to disclaim the use of an estate road).

In Goodman the issues concerned the contribution to the maintenance of roadway (Roadway 4) on an industrial estate in Nottingham. The facts were unusual and involved the interpretation of “successor” but the points regarding the benefit and burden principle were clear:

• Sept 1986 D sells part of estate to E including private road
• D reserved a right of way over the road for itself and its successors
• E covenanted to maintain the road
• D covenanted that D and D’s successors would pay the cost of maintaining the road

In December 1986 D sold off further parts of the estate to G and other businesses as freehold units. In the transfers he granted a right to use the road even though he no longer owned it. It had been transferred to E in September 1986.

• G was granted a right to use the road
• G covenanted with D and D’s successors to contribute a reasonable proportion of the cost of maintaining the road
• The other transfers contained similar provisions

G disputed liability to contribute to the road repairs (there had also been an 1 metre extension to the road which was included in the repair bill). G disputed liability to pay citing privity of contract and to overcome this D assigned the benefit of the covenant to pay the contribution to E in September 2011.

G (and the other owners of the units) refused to pay the charges and proceedings were issued. At first instance G was found liable to contribute to both the road and the extension.

On appeal G pleaded:

• that the word “successors” in the December transfer did not apply as the road was already in the ownership of E when G purchased
• that the benefit and burden were not contained in the same transaction, benefit in the September transfer, burden in the December transfer
• that as the positive covenants had not been noted as an incumbrance at Land Registry.

The Court held:

• that the meaning of “successor” should not be interpreted narrowly, that G was aware that the land had been transferred to E and in any event the assignment of September 2011 made him liable in contract.

The Court then went on to consider the September transfer and the benefit and burden principle in accordance with the test in Davies v Jones.

• It was held that the September transfer contained the benefit and burden and that this was merely passed on as an appurtenant right in the December transfer thus complying with the first limb of the test.
• That the requirements of second limb were met despite the fact that the rights reserved were over all roads on the estate and the covenant to pay was in respect of only roadway 4.
• In respect of the non-registration point it was found that the burden in equity of a positive covenant doesn’t create an interest in registered land and so therefore does not require registration in order to bind successors in title to the original covenantor.
• That there was no liability to contribute to the extension as the use was means of licence. The Judge did however warn G that if payment was not made E could revoke the licence.

Goodman is an interesting case with unusual facts and illustrates that where a mechanism to ensure payment of estate charges is absent the benefit and burden principle can be used (providing the test is met) in respect of successors in part.