Freehold covenants
Cameron Stewart (thanks to Jim
Helman and Shae McCrystal – errors
are mine)
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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).
(c) Cameron Stewart 2009
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).
(c) Cameron Stewart 2009
Introduction
A (Covenantor)
B (Covenantee)
C
D
Burden of Covenant
Benefit of Covenant
(c) Cameron Stewart 2009
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?
(c) Cameron Stewart 2009
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?
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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?
(c) Cameron Stewart 2009
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
• It is a conveyancer’ s short hand which does not change the
common law position: Rhone v Stephens [1994] 2 WLR 429 per Lord
Templemen – the English equivalent of the section is only intended
to remove conveyancing difficulties and makes it unnecessary to
refer to successors in title.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Ways around Austerberry
• In 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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Ways around Austerberry
• 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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Ways around Austerberry
• Nevertheless In Rufa v Cross [1981] Qd R 365 (3) 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.
(c) Cameron Stewart 2009
Ways around Austerberry
• 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.
(c) Cameron Stewart 2009
Ways around Austerberry
• 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.
(c) Cameron Stewart 2009
Ways around Austerberry
• 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”.
(c) Cameron Stewart 2009
Ways around Austerberry
• Clifford v Dove [2003] NSWSC 938 in a dispute involving an
easement granted in which the owner of the dominant
tenement was given the right to use cattleyards belonging to
the owner of the servient tenement. The owner of the
servient tenement tried to enforce a covenant to pay for
repairs to the cattle yard against the owner of the dominant
tenement, arguing that it was an essential part of the grant of
the easement. Justice Bryson refused to follow Frater v
Findlay on the basis that the obligation was imposed on the
grantee – not as an essential element of the grant of
easement but as an additional covenant providing for a
contribution to repair.
(c) Cameron Stewart 2009
Ways around Austerberry
• 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.
• Burden/benefit principle didn’t work as servient tenement
owner got no benefit
• Result : not enforceable
• Lesson? Make the obligation an essential part of the
easement
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Ways around Austerberry
• Rentcharges - A rentcharge 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.
(c) Cameron Stewart 2009
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”.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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”.
(c) Cameron Stewart 2009
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).
(c) Cameron Stewart 2009
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)
(c) Cameron Stewart 2009
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.”
(c) Cameron Stewart 2009
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?
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Notice
• Notice includes actual constructive and
imputed notice
• Torrens system has slightly different rules.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Do you need notice of the benefit?
• Rogers v Hosegood [1900] 2Ch 388, 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.
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Assignment of covenants
Covenants can also be assigned under s 12 CA
1. 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 charge
3. 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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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).
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Building Schemes
• How do you create covenants over a subdivision?
• Problem of privity of contract overcome by
doctrine of equity
• Re Louis and the Conveyancing Act [1971] 1
NSWLR 164
• Ferella v Otvosi [2005] NSWSC 962
• Hosking v Haas [2009] NSWSC 624
• No longer hugely problematic because of of s 88B
CA
• Not examinable
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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
• Held not uncertain: two storeys from ground level not the
highest ground level. Construction was halted
(c) Cameron Stewart 2009
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
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Extinguishment of Covenants
• old systems – BFPVWN defeats equitable
interest (unlikely not to have notice)
• Torrens – registration of interest – take subject
to s 42
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
Extinguishment of Covenants
The 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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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.
(c) Cameron Stewart 2009
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 (c)breaching
the covenants.
Cameron Stewart 2009