Restrictive covenants – proposals for change

The report identifies proposed changes to the law in relation to restrictive covenants.

• A covenant intended to restrict the use of land for the benefit of another party’s land.
• A restrictive covenant attaches to the land to bind successors in title where as a positive covenant cannot. 
• In deciding whether a covenant is a restrictive covenant or a positive covenant, a positive covenant is likely to be a covenant where it is necessary to spend money to observe it whereas a restrictive covenant is not likely to involve any expenditure.
• Restrictive covenants prevent some action or activity taking place on the land subject to the covenant. Common examples are “no trade or business be carried on the land” or “no more than one dwellinghouse be erected on the land”.

Prior to 1926 a restrictive covenant had to be expressly binding on successors in title for the burden to bind the land on transfer. Post 1 January 1926 the presumption is that any covenant relating to any land of the covenantor is capable of being bound by him and is made by the covenantor on behalf of himself and his successors in title and thus binds the land (Section 79 – Law of Property Act 1925).

The benefit of the covenant will pass with land stated to have its benefit provided that the covenantee (i.e. the land owner who has the right to enforce the covenant) retains land capable of being benefited and such land is defined with reasonable certainty and the covenant touches and concerns the land i.e. the covenant must be one that is beneficial to the owner of land.

Questions arise as to who can enforce the covenant. If a covenant is made for the benefit of a particular parcel of land then each and every part of that  land would be capable of benefiting from the covenant.

For a covenant to be enforceable if the covenant was dated prior to the 1 January 1926 it would only bind a purchaser for value if he has actual notice of it.

A covenant dated on or after the 1 January 1926 will not be binding on a purchaser for value even if he has actual notice unless it is registered as a land charge in the appropriate register. Therefore, in relation to unregistered land this will be by way of a Class D (ii) land charge and in registered land by way of an entry in the charges register.

Restrictive covenants can be modified or discharged either by agreement or unity of seisin (whereby both the dominant and serviant land (i.e. the two relevant parts of land that has the benefit and burden of the covenant) passes into the hands of the same person) or under Section 84 of the Law of Property Act 1925 by way of an application to the Lands Tribunal. The grounds needed are that the restriction ought to be deemed obsolete because of changes in the neighbourhood or the restriction offers no practical benefits of a substantial value or advantage to those entitled to the benefit or that the restrictive covenant is contrary to public interest and that money would be an adequate compensation for the loss or disadvantage.

Finally a restrictive covenant can be modified or discharged under Section 37(1) of the Town and Country Planning Act 1990 which applies to land which has been appropriated by a local authority for planning purposes. 

The Law Commission report dated 7 June 2011 proposed the following changes to the law relating to restrictive covenants:-

• An introduction of land obligations to replace restrictive covenants. These will be legal interests and as such registrable against the titles of both the land with the benefit and burden of the land obligation.
• Land obligations will include positive covenants so that it would be possible to enforce both positive and negative obligations against successors in title.
• If the title to the properties both benefiting and being burdened are registered land and in the same ownership then obligations and covenants will still be capable of being registered notwithstanding the fact that they are in common ownership and possession. This means a developer will be able to create land obligations and covenants on the title to properties before the sale of individual plots.
• The Lands Tribunal will receive extended powers to make orders declaring whether or not land is affected by a restriction, the nature of the restriction and whether it is enforceable.

It is proposed that the new rules will only apply to covenants entered into after the new Act comes into force and it will therefore still be necessary to understand and apply the existing law in respect of any restrictive covenants pre-dating any changes in the law.