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Keeping track of positive covenants

If they can be enforced, positive covenants can be troublesome for buyers and developers alike. But due care can bring any obligations to light during a transaction and help manage them.

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Positive covenants can present problems for buyers and developers for a variety of reasons. In essence, as promises to perform particular duties, these covenants can typically be provided in the course of transactions such as sales. They tend to involve expenditure, specific works or maintenance; but the costs or the responsibility of these may, in some cases, be out of proportion to the main transaction.

The current beneficiary of a positive covenant may also be unclear, particularly if it is historic and the associated land is not easy to identify. So the first thing a potential buyer or developer should do is understand what they are buying. If not, they could run the risk of an inadvertent breach.

Positive covenants for ongoing maintenance or repairs may likewise be onerous, cumbersome or outdated. For example, the structure to be maintained may no longer exist, or be part demolished or redundant.

In contrast, restrictive covenants usually oblige a party to refrain from an action, such as changing the use of a property or building on land. While these are capable of binding or running with the land – meaning that the burden may pass to subsequent owners – this is not generally true of positive covenants. There are, however, specific mechanisms to enforce positive covenants on subsequent owners.

Keeping covenants alive.

One traditional way to do this is by a continuous chain of indemnity covenants. These run from the original burdened party to the current owner.

An indemnity covenant obliges a buyer to pay for certain losses suffered by their predecessor if the buyer, following its purchase of a property that is burdened by a positive covenant, subsequently breaches that covenant, and the original benefitting party seeks damages from the seller. If each subsequent buyer does the same, the chain will ensure that the positive covenant remains enforceable. However, one seller’s failure to obtain an indemnity covenant can limit enforceability.

Another way to ensure a positive covenant runs with the land is to use the main principle derived from Halsall v Brizell [1957] Ch 169. This states that the benefit of such a covenant must be taken in tandem with the corresponding burden. In Halsall, the benefitting party had the right to use a road, but also gave a positive covenant to contribute to its maintenance costs. The burdened party’s successors had to pay those costs to use the road.

Another method is for the owner of the benefitting land to reserve a so-called rentcharge with an annexed right of entry. The chargor can then enforce the positive covenant by taking possession of the land if the burdened party fails to comply. However, rentcharges are rarely used in practice, as they are awkward and expensive to draft and implement.

Case law and interpretative issues

Courts have applied the Halsall principle cautiously in recent years. All the same, they have still decided that certain positive covenants were enforceable.

In Wilkinson & Ors v Kerdene Ltd [2013] EWCA Civ 44, for example, bungalow owners had to pay for maintenance of roads, car parks and leisure facilities. The benefitting party was the owner of the holiday village.

Likewise, in Goodman and Ors v Elwood [2013] EWCA Civ 1103, the buyers of industrial units had to contribute to maintenance costs for an adjoining road.

Case law also reveals the difficulty of interpreting positive covenants as well as some grey areas. Fencing easements for example are obligations to maintain fences or hedges for the dominant – that is, benefitting – land. But as easements do not require the servient or burdened owner to spend money, a fencing easement may be more like a positive covenant.

In Churston Golf Club v Haddock [2018] EWHC 347 (Ch), it was initially decided that a covenant from a 1972 conveyance to maintain marked boundary fences, walls or hedges remained enforceable as a fencing easement. However, that decision was later overturned by the Court of Appeal.

Sometimes a covenant may contain both positive and negative elements, for example to maintain a road but not to use heavy-duty vehicles on it. Arguably the negative element should run with the land but the positive should not, unless an indemnity covenant is used. Alternatively, the positive covenant could apply under the Halsall principle if the burdened party uses the road.

A covenant may also be phrased in a restrictive way but have a positive effect. For example, a covenant not to permit the roof to become dilapidated actually implies a positive duty to keep it in good condition. In comparison, a seemingly positive covenant only to build offices on the premises may be considered restrictive by prohibiting construction of anything else.

Potential protection

Conducting a detailed title investigation is key to protection. This will involve looking at the official register, plan and title documents, and a physical inspection.

Ensuring that the seller provides full and detailed replies to enquiries can also flag up relevant information. This could include any ongoing maintenance costs or obligations to carry out works.

One option to explore is bespoke indemnity insurance. This can cover specified losses for a potential breach or enforcement of a covenant.

Such insurance is generally subject to satisfying certain conditions, though a relatively fair one-off premium is charged. It is also more commonly provided for restrictive covenants. Finding cover for positive covenants may thus be more difficult, and will probably only be provided on a case-by-case basis.

 

First published for RICS Journal 

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Anjana Pathare Dahya

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