Understanding Absolute Freehold Title And Restrictive Covenants In The UK Property Law

Absolute Freehold Title

Questions:

After being registered as proprietor with an absolute freehold title to 4 Oak Drive, Harold entered into a restrictive covenant for the benefit of 3 Acacia Avenue, a nearby property belonging to Bernard and Betty. Harold then granted a lease of 4 Oak Drive to James, for a term of nine years. In the lease Harold also granted James an option to purchase the freehold of the property at any time during the subsistence of the lease.

Advise James, Bernard and Betty what steps they need to take (if any) to protect their respective interests in 4 Oak Drive?

AND

Nicola and David were married in 2010 when together they purchased 2 Oak Drive. Although both contributed to the purchase price only Nicola was registered as sole proprietor of the property. David assumed that the property had been registered in their joint names.

In late 2014 Nicola and David began to have marital difficulties and David has since that time spent much of his time at his mother’s house.

In January 2015 Nicola approached the Tugby Building Society to enquire whether the Building Society would lend her some money. After a survey was made of the property Nicola granted the Building Society a mortgage of the property as security for a loan of 95% of the market value of the house.

Nicola has left the country with the mortgage monies and Ernie the milkman.

Advise David.

Would your answer differ if Nicola had appointed Ernie to be co-trustee and the mortgage money had been paid to them jointly?

1. The given case states that the primarily Harold has an absolute freehold over the property in 4 Oak Drive. On the other hand he enters into a restrictive covenant with the owners of 3 Acacia Avenue, Bernard and Betty. Harold later leases the property of 4 Oak Drive to James for a period of nine years. He also gives an option to James to purchase the free hold of the property at any time during the period of the lease.

An absolute freehold title to any property implies that the owner has an absolute title to the property. In case of a freeholder title the owner is exempted from paying the annual ground rent. This implies that the owner of the 4 Oak Drive property Harold has an absolute title to enter into any transaction with regard to the property.

A restrictive covenant is a kind of a private agreement between the owners of the land where one party can restrict the use of land which benefits the other land in some way or the other. In most cases restrictive covenants they are generally made on the title deeds for the property. In the case of restrictive covenants the parties of the property are generally not bound personally but the property is bound legally. This implies that such a covenant runs along with the land. Hence when the covenant is transferred from the original parties to new parties, the restrictive covenant still continues to exist. These covenants are enforceable by one landowner against another landowner even if the covenant is extremely old or seemed obsolete, provided that these covenants are restrictive. 

Restrictive Covenants in UK Property Law

If a restrictive covenant is ignored, the aggrieved party can sue for a claim of damages for such breach and also sue for an injunction. Damages awarded may be either compensatory or in lieu of an injunction. While judging a breach of restrictive covenant the court might take into account the negotiations between the parties for releasing the covenant and whether the claimant might have agreed to the breach in order to prevent the breach.

Further section 84 of the Law of Property Act 1925 or Article 5 of the Property (Northern Ireland) Order 1978, allows person who are interested in certain type of the land to apply to the Lands Tribunal and cancel or make appropriate modifications to any restriction in the land.

In the case of Federated Homes v Mill Lodge Properties, the court had held that the benefits of the covenant would be automatically be annexed to every portion of the land for which it was originally taken. 

Again in the case of Rees v Peters [2011], the Court of Appeal relied on the significance of considering the covenant under a unique context for a specific transaction.

In the given case, since Harold had entered into a restrictive covenant with Bernard and Betty for the benefit of their property, the owner of 4 Oak Drive has to abide by the restrictions mentioned in the covenant. If the covenant provides for restriction as to the leasing or any kind of transfer of the property, then any lease made on the property would be breach of the restrictive covenant on the property. Under such circumstances, Bernard and Betty have the right to sue Harold since he is the owner of the property for breach of the covenant. With regard to the breach, the owners of 3 Acacia Avenue, Bernard and Betty would be able to claim for damages for the breach of the restrictive covenant or can also claim for injunctions. The damages to be awarded can be either compensatory damages or the damages can be in lieu of the injunctions. Hence in order to protect the interests in the property the owners of 3 Acacia Avenue, Bernard and Betty can claim for these damages from Harold the owner of the property of 4 Oak Drive in case of any breach. In case of injunctions, Bernard and Betty can claim for a prohibitory injunction requiring the Harold to stop any particular act or can also claim for interim injunction that will prevent any possible breach of the restrictive covenant.

With regard to James, who is the lease holder of the property of 4 Oak Drive, if the conditions in the restrictive covenants are such that they require the leaseholder to abide by them then it is necessary for the leaseholder to abide by those rules. Every restrictive covenant is different from another and it is very essential to read the specified terms in the covenant. When a property is transferred to another person and the contract is signed by both parties they also agree to abide by the restrictive covenants in the contract. These covenants will be binding on the landowner until the time stated in the specified clause or as otherwise the clause states. Hence according to the property laws in United Kingdom, if James opts to purchase the freehold of the property of 4 Oak Drive, then the restrictive covenant on the land would automatically pass on to the new owner which would be James.

Legal Implications of Restrictive Covenants

In this regard another case may be mentioned Tulk v Moxhay (1848), where the Court had held that in most cases the restrictive covenant would run along with the land. This implies that the future owner of the land would be subject to the restrictions of the covenant.

Hence James would be liable for the restrictive covenant and in case of any breach the owners of 3 Acacia Avenue, Bernard and Betty would be able to claim for damages from James. However until James purchases the land he would not be liable for the restrictive covenant.

2. Under the English property laws when a property is purchased under joint names, all the co-owners of the property will be permitted to hold a legal estate as the joint tenants and the beneficial interests in that property will be held either as joint tenants or tenants in common. In the case of joint tenants there lies an equal share in the property.

The most easy way to identify whether the parties desire to own the property in equal or in unequal shares would be by making an expressed declaration to that extent with the help of the Land Registry form or with the help of any separate agreement. As a result of this a number of disputes that may arise resulting from the death of one partner or the breakdown of the relationship between the couple or the sale of the property.

With regard to the joint ownership of property there has always been a number of arising disputes. For instance there may be the uncertainties relating to the position of the joint owners who did not clearly express their declaration with the help of an express declaration of the interests. In the case of Stack v Dowden, it was expected that the House of Lords would clear the positions of the co-owners. However the later decision of the Supreme Court in the case of Jones v Kernott, the confusions relating to the issue was further enhanced and increased the laws in this area.

In the case of Stack v Dowden, the House of Lords stated that when no declaration of trust has been made by the parties, it will be assumed that they are joint tenants and hence would be entitled to the equal share in the property. This will be the rule until the other party can show the intentions to be different. In order to prove this a broad range of factors is required to be considered. In another case of Jones v Kernott, the Supreme Court however held that one of the manner in which this can be shown is that if the parties have the intention to hold the property in different shares. However, that cannot be done since the size of the shares may not be able to determine. Under such circumstances the court would have to identify what was just in the whole dealing of the course between the parties with regard to the property.

Consequences of Breaching Restrictive Covenants

Under such circumstances where the married persons wish to own the real estate property other than the spouse, then the other spouse is required to specify and disclaim or relinquish their ownership rights in the property.

In the given case the facts state that Nicola and David was a couple who got married in the year 2010 and also purchased the property of 2 Oak Drive. When the property was purchased even though both had contributed to the purchase money, there were not registered as the joint co-owners. Instead Nicola was registered as the sole owner of the property. Further during 2014, when there were marital differences between the couple David was staying in another home. Later Nicola being the sole owner mortgaged the property of 2 Oak Drive to Tugby Building Society as security for a loan of 95% of the market value of the house. She also left the country with the mortgage money with Ernie.

In the given case the biggest difficulty in the given case is the absence of the co-ownership between Nicola and David. Even though David had paid a certain amount of money for the property there was no evidence of that as the sole owner was registered as Nicola. However one remedy may be helpful under this condition that is the concept of undue influence.

The primary principle of the concept of undue influence was stated by Lord Nicholls in the case of Royal Bank of Scotland v Etridge(No. 2) 6. He held that the concept of undue influence is one of the grounds of relief to be developed by the courts is the court of conscience. The objective is that one person is not able to influence another person as a result of his or her position. In the given case, since Nicola was the wife of David, she was in an influential position to dominate the will of David to make her the owner of the property. Hence David can sue Nicola for undue influence in the given case.

In the second part of the problem, if Ernie had been the co-owner of the mortgage property and the money for the mortgage had been paid to them jointly, under such circumstances it is only possible to claim for damages only when the property was co-owned by David. Hence in order to sue Ernie for the mortgage money he first needs to prove that the property was co -owned by him along with Nicola. In order to prove that the property was co-owned by David it is necessary to establish that the purchase transaction was not made with the free will and consent of David. In most cases the law will presume that there existed the concept of undue influence when the complainant has placed trust and confidence in the other party with regard to the management of the affairs of the complainant. There exists some fiduciary relationship where it is presumed that trust and confidence existed in the parties automatically. For instance in the relationship between the client and a solicitor the presence of undue influence can be observed. However the relationship between husband and wife is not a fiduciary relationship and hence in order to prove undue influence it is essential that there existed trust and confidence in each other.

References

Clarke A and Kohler P, Property Law (Cambridge University Press 2005)

Cowan D, Housing Law And Policy (Cambridge University Press 2011)

Epstein R, Economics Of Property Law (Edward Elgar 2007)

Hewitson R, Property Law Statutes 2011-2012 (Taylor and Francis 2013)

Hodgkinson L, The Complete Guide To Letting Property (Kogan Page 2008)

Megarry R and Wade W, The Law Of Real Property (Stevens 1975)

Spiers D, Property Law (Dundee University Press 2008)

Federated Homes v Mill Lodge Properties (1980) 1 All ER

Jones v Kernott [2011] UKSC

Rees v Peters [2011] All ER (D)

Royal Bank of Scotland v Etridge [2015] (No 2)

Stack v Dowden [2007] UKHL

Tulk v Moxhay (1848) 41 ER