One key principle underpinning English law is that a person cannot be liable for a contract unless he was a party to it. Consequently, positive obligations do not bind successors in title of a covenantor at law or in equity: Austerberry v Oldham Corporation (1885) 29 Ch D 750.
The rule has been widely criticised, but hopes that it might be overturned were dashed by
In Davies v Jones [2009] EWCA Civ 1164; [2009] PLSCS 305, a purchaser assigned the benefit of a contract to purchase land to a third party, who paid the amount required to complete in return for a transfer of the land. Provision was made in the original sale contract for the purchaser to retain £100,000 from the purchase price until the site was cleared. The new owner subsequently refused to release the retention following completion of the work.
The seller tried to recover the retention from both parties. His claim against the original purchaser failed and he was left to pursue a claim against the new owner. At trial, the judge held that the parties had clearly understood that the original purchaser’s rights would pass to the new owner and, having taken the benefit of that arrangement, the new owner was bound to release the retention if the conditions for payment of the money were satisfied.
The Court of Appeal disagreed. It ruled that a “clear understanding” was insufficient; an arrangement imposing a benefit and burden must have legal effect and, because the transaction related to land, the arrangement should have been recorded in a deed or other document.
The doctrine might have applied if the original purchaser had assigned the benefit of the sale contract to the new owner conditionally upon compliance with the obligations imposed by that contract. No such stipulation was made. Consequently, the court did not need to decide whether the conditions for the application of the doctrine in Halsall had actually been met. Those conditions are: (i) that the benefit and burden were imposed in the same transaction; (ii) there must be a reciprocal relationship between the benefit and burden; and (iii) a successor in title must be able to choose between enjoying the right and paying for it, or giving up the right and saving his money.
The failure to prohibit any assignment of the contract, or to include a covenant in the transfer requiring the buyer to comply with the obligations in the original sale contract, cost the seller dear. The decision serves as a useful reminder that sellers should not be lulled into a false sense of security by Halsall and that reliance on the doctrine should be only a last resort.
Allyson Colby is a property law consultant
