Legal notes Allyson Colby considers a recent case that demonstrates the issues that can arise when Halsall is applied in disputes over positive covenants
Key points
• Unregistered positive obligations may bind successors in title to freehold land under the rule in Halsall v Brizell
• This could create headaches for conveyancers investigating title to registered land
Positive covenants are binding as between the immediate contracting parties, but do not bind successors in title to freehold land at law or in equity. The rule dates back to Austerberry v Oldham Corporation (1885) 29 Ch D 750 and has been heavily criticised. Nonetheless, it was endorsed by the House of Lords in Rhone v Stephens [1994] 2 EGLR 181, even though it creates practical difficulties for landowners. As a result, there is no direct way in which positive obligations, for example to keep a building in repair, or to pay an estate service charge, can be enforced against subsequent owners of the burdened land.
None of the conveyancing devices invented to circumvent the rule provide a simple and effective solution. Parliament has enacted some statutory exceptions and the courts have also created a common law exception to the rule. Halsall v Brizell [1957] 1 All ER 371 applies where a deed grants rights and imposes positive obligations linked with those rights. It means that positive obligations can therefore be enforced against successors in title who accept the benefits granted by the deed.
The wrong order
Subsequent cases appeared to limit the application of Halsall. However, recent decisions suggest that it may be back in fashion. The litigation in Elwood v Goodman [2013] EWCA Civ 1103; [2013] PLSCS 219 followed a hiccup in a sequence of transfers. The owner of an estate agreed to sell the freeholds of a row of light industrial units to its tenants, who held long commercial leases and paid a service charge for the repair of the estate roads. The estate owner also agreed to sell bare land opposite the units, and the estate road that served them, to a third party who agreed to grant rights of way in return for a contribution to the costs of maintenance.
The sale to the third party took place first. The estate owner reserved rights of way over the roads included in the transfer and covenanted that it and its successors in title would pay a fair and reasonable proportion of the cost of the upkeep of the roadway that served the industrial units.
The sales to the tenants soon followed. Their transfers included rights of way and covenants that the transferees and their successors in title would pay the seller their fair share of the maintenance expenses incurred by the seller and its successors in title in respect of the service road. However, the covenants were expressed to be in favour of the estate owner, even though it no longer owned the road. The estate owner subsequently assigned the benefit of the transferees’ covenants to the new owner of the service road, but the transferees were still reluctant to pay up.
Interpreting the covenant
The transferees claimed to have no liability to the new owner of the road because he was already on the scene when they bought their freeholds and was not, therefore, a “successor in title” to the seller. They argued that the phrase should be interpreted prospectively, as opposed to retrospectively.
The court was unimpressed. It accepted that mentions of successors in title usually mean subsequent owners, but reminded the transferees that the words in any contract must be construed by reference to the factual matrix at the time of the transaction. The fact that the road had changed hands would have been revealed by checks at the Land Registry. The new owner of the roadway was, on any view, a “successor in title” to the seller and the court could see no reason for interpreting the transfers restrictively and destroying the commercial purpose of the bargain.
Not the end of the story
However, this was not the only difficulty. One of the units had been sold on and the new owner refused to contribute to the upkeep of the road on the ground that positive obligations do not run with land.
The Court of Appeal used the rule in Halsall to trump Austerberry. This applies where benefits and burdens are conferred in the same transaction. The benefit and burden must be reciprocal, in the sense that the former must be conditional on the latter, and successors in title must be able to choose between enjoying the right and paying for it, or giving up the right and saving their money.
The road owner accepted that there was no reciprocity between the rights of way and the transferees’ covenants, because the rights were created by the reservation in the previous transfer and the estate owner had simply passed them on. However, he persuaded the court that the Halsall requirements could be satisfied by referring back to the transfer to him, which established the rights of way and obliged the seller to contribute to the cost of repairs. In other words, the court backtracked to the earlier transaction.
The court refused to distinguish Halsall on the ground that there was a mismatch between the rights granted and the covenants for payment in the transfers. The estate owner had reserved rights of way over all the roads transferred, but covenanted specifically to pay for the upkeep of the length of the road that served the units, while the transferees had agreed to share the costs. However, the court ruled that the owner of the unit could be required to accept a reduced obligation directly proportionate to the land that he had acquired. It added, without comment, that it was theoretically possible for the landowner to surrender his right of way. Consequently, there was nothing to prevent the court from applying Halsall.
Registration
Should the burden of the seller’s positive covenants have been registered in the charges register in order to bind successors? The court noted the absence of any previous authority on the point and decided that, to be registrable, an incumbrance must be capable of creating an estate or interest in the registered land. Positive covenants do not do this; they create personal rights instead. Therefore, the positive covenants did not need to be registered to bind successors in title of the original covenantor who chose to exercise their rights of way.
A pragmatic solution to a technical legal problem? Possibly. However, the ruling could create headaches for conveyancers investigating title to land if the courts can backtrack in this way, especially if the registers of title do not record such liabilities.
Allyson Colby is a property law consultant
