Report No. 70
Restrictive Covenants and Obligations Annexed to Ownership of Land
Questions concerning the rights of third persons may arise from covenants that are often entered into while transferring property. These covenants may impose a positive duty or a negative duty. The primary object in inserting such covenants, when property is transferred outright, is, in general, to preserve the saleable value of the residential amenities of the property of the transferor-though there may sometimes be other considerations not connected with the ownership or enjoyment of any particular property.
Whether such a covenant is binding qua contract between the parties to the covenant personally is a matter which depends on the law of contract and, to some extent, on the provisions in the Transfer of Property Act relevant to the subject, of which sections 10 to 12 have been already considered. The question now to be considered is whether such a covenant entered into by a person, while transferring or accepting a transfer of property, can be enforced against a future transferee.
In legal language, this question is concerned with the running of the burden of the convenant with the land. Conversely, when the person in whose favour the convenant was entered into-briefly, the beneficiary-transfers the property-the question may arise whether the transferee can claim the benefit of the covenant. In legal language, the question is concerned with the running of the benefit with the land.
36.2. Easement and leases.-
This has been one of the most difficult matters in the law of transfer. In order to avoid discussion on matters about which there is no controversy, it is desirable to leave out of the discussion rules relating to two spheres of the law, namely, easements and covenants contained in leases. In general easements bind the servient heritage and permanently ensure for the benefit of the dominant heritage, irrespective of who is the owner thereof.1
As regards leases, again, normal covenants in a lease will run with the land and with the reversion. It was realised very early even by those who administered the common law that covenants contained in a lease might have a wider operation than ordinary contracts. They were, in a sense, regarded as being annexed to an estate in the land so that they could be enforced by any one who took that estate in the land.2
1. Cheshire Modern Law of Real Property, (1972), pp. 578, 579.
2. Holdsworth History of English Law, Vol. 3, p. 158. See also Vol. 7, pp. 287 to 292.
36.3. Types of question arising.-
Leaving aside these two matters, the possible queries that theoretically could be raised on the subject of transfer of the burden of a covenant could be fourfold:
(1) The transferee assigns his interests to A. Can A enforce the covenants inserted in the transfer in favour of the original transferee and binding on the original transferor?
(2) The transferee assigns the interests to A. Can A be sued on the covenant inserted in the transfer binding on the original transferee.
(3) The transferor assigns his interests to Z. Can Z enforce the covenants inserted in the original transfer and binding on the original transferee.
(4) The transferor assigns his interests to Z. Can Z be sued upon the covenants contained in the original transfer and binding on the original transferee.
There could, of course, be complex situations raising more questions than one. For example, A having made B enter into a covenant for the beneficial enjoyment of a property belonging to A, transfers the property to C. B in his turn transfers the burdened property to D. The questions to be considered would be-and this is not necessarily an exhaustive enumeration:-
(a) Can C enforce a covenant entered into for his predecessor's benefit?
(b) Assuming that he can do so, can he do so against D who is not the original covenantor but his successor?
36.4. Act not comprehensive.-
Unfortunately, the Act does not deal, in a comprehensive manner, with these questions in the manner set out above. This is partly due to the fact that the law on the subject was not in such a condition that a codification could be easily and confidently suggested. Partly, such an attempt was also, rendered unnecessary by the fact that some of the covenants concerning the sale of immovable property have been set out in section 55, and similar is the position regarding mortgages, the intention being that these covenants would not be affected by the transfer of the property, after the sale or mortgage.
36.5. General rule privity.-
The general rule of the common law was that if there was privity of estate and not privity of contract, then only covenants which concern the land are enforceable. This rule became useful in relation to leases, mainly because privity of estate means that here is a tenure between the parties, that is, the relationship of landlord and tenant exists between them, though the contract was between the purchaser and the lessor.1
But if there is no privity of contract, nor of estate, then at common law, subject to two exceptions, no covenants are enforceable. The general rule is that covenants concerning the land are not, in the absence of privity of either type, enforceable. To this general rule, there were two important exceptions, namely, (a) the benefit of a covenant could be assigned with the lend for the benefit of which it was made if the covenant was one which touched and concerned the land, for example, the grantor's covenant for title concerning the land.
The benefit ran with the land conveyed, so that whoever is entitled to the land is entitled to the benefit of the covenant.2 Equity went further in enforcement of assignments of the benefits of the contracts generally, whether or not connected with land-a matter now governed, as to the procedure, by statute both in England and in India. Thus, the benefit of a contract became assignable. But the burden remained unassignable at common law, except when there was privity of estate.
1. Williams Real Property, (1966), p. 725, para. 2.
2. Williams Real Property, (1966), p. 726, para. 3.
36.6. Restrictive Covenants in equity.-
Equity added another exception. It allowed the assignment not only of the benefit (as stated above), but also of the burden of restrictive covenants.1
1. Williams Real Property, (1966), p. 726, para. 3.
36.7. Restrictive Covenants.-
A restrictive covenant is one imposing a negative obligation (for example, a covenant not to build), as opposed to a positive covenant (for example, a covenant to build); both the benefit and the burden of the restrictive covenant can run in equity only if there is both land which is benefitted and land which is burdened. And even this is subject to the qualification that a purchaser of a legal estate without notice takes it free from the burden. This qualification was based on the general principle1:-
"Legal rights are good against all the world; equitable rights are good against all persons except a bona fide purchaser of a legal estate for value without notice."
1. Phi11 Land Equity, 114, 115, referred to by Williams Real Property, (1966), p. 119, para. 3.
36.7A. Background of section 40.-
It is in this background that section 40 was enacted. The doctrine of equity relating to restrictive convenant was laid down in the leading case of Tulk v. Moxhay, (1848), and the provision in the first paragraph of section 40 is obviously based on that decision. There was, however, in 1882 one misconception as to scope of the rules as to enforcement of positive covenants, resulting from a misunderstanding of the observations made in Tulk v. Moxhay.
This misconception was removed in later English cases, and in conformity with the later trend, section 40, first paragraph was enacted in 1929, so as to remove positive covenants from its scope. So, after 1929, the burden of a positive covenant does not run against the transferee from the covenant or except where a statutory provision governs the matter. This non-enforceability of a positive covenant has, of course, nothing to do with the position as between the original covenantor and covenantee. We have discussed1 this aspect while considering section 11.
1. See discussion as to section 44.
36.8. Section 40-first paragraph.-
Coming to the details of section 40, first paragraph, we may state that its gist can, in simple language, be expressed thus. Where, on a transfer of property a restrictive covenant (covenant to restrain the enjoyment of a piece of immovable property) is entered into, such covenant can be enforced against a transferee of that property with notice or without value, if intended for securing the beneficial enjoyment of another piece of immovable property of the covenantor.
It may be noted that this proposition says nothing about personal covenants which do not purport to benefit the covenantee in the enforcement of immovable property whether such covenants are valid between the parties, and if so, whether they are enforceable against third persons who take the property from the covenantor are questions outside section 40. When they arise, they are to be determined with reference to the law of contracts and its rules relating to the legality of agreements and the assignments of contractual burdens.
36.9. Section 40-second paragraph.-
Section 40, second paragraph, dealt with an entirely different matter. It is not concerned necessarily with covenants entered into for the beneficial enjoyment of another piece of immovable property, reserved by the covenantee. Nor is it confined to covenants of a purely negative character. It devotes itself to "obligations annexed to the ownership of immovable property, arising out of contract."
These obligations do not, in postulates, amount to an interest in the property or to an easement therein. Nevertheless, the obligation can be enforced against the transferee of the property unless he be a transferee for value without notice. The word "obligation" emphasises the contractual element and is an apt word for another reason also-its enforceability only against a limited class of persons.
The principal examples of such obligations are-(a) the obligation resulting from a contractual right of pre-emption, and (b) an obligation undertaken by the owner of immovable property who has contracted to sell it.1 This does not amount to an interest in property, but, can yet be enforced against a transferee with notice or without value.
1. Section 54.
36.10. True position under section 40.-
It would appear that the position is fairly clear after the amendment of 1929, which is based on the English law.1 There was some difficulty before the amendment by reason of certain judicial decisions, holding that it was doubtful whether section 40 applied to affirmative covenants involving expenditure of money.2 On the whole, the view prevailed that the first part of section 40 was not applicable to affirmative convenants.3 In view of this position, a further amendment of section 40 is not called for.
1. Smith v. Colboural, (1914) 2 Ch 533.
2. AIR 1925 Born 183 (185).
3. AIR 1927 Cal 41.