Land Law and Transferrable Leaseholders Rights - Essay Example

English Land Law Module Module Number: Academic Year: Seminar Essay Question: Case Study Number: The Issues Alf had entered into a leasehold agreement with Bella, Charles, David and Eva. But Eva had recently terminated their lease agreement by relocating from the property. The primary legal issue is whether the agreements in which Alf had entered into with the tenants are binding on George when he finally obtains the freehold of the property from Alf. This is because none of the leases appears set to expire in the near future to warrant George’s enforcement of new terms. Leasehold The vast numbers of flats in the United Kingdom are inhabited based on leasehold; this encompasses every immovable property from new buildings, converted houses, 20th century tower blocks and Victorian flats. In this case, Bella, Charles and David had purchased a leasehold property owned by Alf, which basically grants them the legal rights legal right to effectively own the flats for the strict period of time specified in the agreements. Specifically Bella and Charles have purchased the legal rights to own the property for 2 years. David’s license is enforceable on yearly, though the payments are paid on a monthly basis1. Leaseholds such as the one in this case are binding agreements granted to the leaseholder (Bella, David and Charles) by the landlord (Alf), and define the duties of both parties. It states what kinds of services the leaseholder can anticipate from the landlord for the period within which the contract is valid. During the time they are deemed as having bought the legal rights to own the internal space, chattels, floor and the surfaces; they are therefore cushioned from any unreasonable changes to the contract. Alf as the landlord owns and repairs the outer surfaces of building, grounds and other rooms on behalf of the leaseholders using the moneys he obtains from the clients as specified in the contract form. Transferrable leaseholders’ rights Contrary to sharing absolute ownership, and without splitting property physically, Alf leased the enjoyment of his flats and the piece of land on which the property rests to the leaseholders through the licenses signed between both sides. The primary difference between full property ownership and leases is that under the latter agreement, any third party is normally obliged to enforce the agreement even if the property has changed hands under new freehold terms, and owing to more statutory safeguards for leaseholders, George should be ready to enforce the agreements between the tenants and Alf until for the remainder of their life. A license is regarded by law as an individualized duty, which in conventional theory was known to create legal rights that can be enforced only between the principal parties to the agreement2. Licenses may be raised under the implied terms of the law, for instance, when a client makes his or her way through the entrance to a retail store. The client apparently enjoys a bare license to walk through the shop, which cushions him from charges of trespass. He or she would validly remain within the premises for a reasonable period of time. Second, the enforceability of licenses may be validated by estoppel. In this case, the licenses in question arose from a binding agreement and have to be enforced to the end3. The tenants in this case have the rights to continue using the property for the duration of the license as it was decided in the case of Hurst v Picture Theatres Ltd [1915] 1 KB 1. In the English case law concerning the validity of licenses in land, the court ruled in favor of the “leaseholder.” Mr Hurst was evicted from a High Street Kensington cinema hall by an executive who reasonably thought that he did not have a valid ticket for the show. Buckley LJ said the business had no legal right to evict him; and even if his ticket had been recalled the business was found to have acted in violation of the contract between the two parties by roughing him up. According to the court, the customer could claim more damages for the injuries caused on his person. The ruling basically implies that even if George had revoked the licenses upon his assumption of the freehold to the property, he would still be under the obligation to allow the leaseholders to continue enjoying the rights to own the accommodation for the period of that the licenses would be valid4. In contrast, he can only revoke the licenses of the tenants who violate the contractual license granted by Alf. In the case of Thompson v Park [1944] KB 408, an instructor who attempted to forcibly reclaim his rights in an education facility was told he could not validly claim any remedy for his failure to seek the intervention of a court with regards to his comeback. If George attempted to revoke the licenses, he would have to part with damages caused on the tenants by his actions and because the amounts are oftentimes seen as insufficient, the courts could order specific performance requiring the freeholder to perform the remainder of obligations under the contracts. It is apparent that the only person whom George can validly block from his property is Eva, if she attempted to force herself back to the property5. Contract of Lease In the current situation, the lease license meets the thresholds for a contract as well. For short leases lasting for fewer than three years, the agreement between the two sides had basically created a contract in their relationship even without putting down the terms of performance on paper. Longer lease agreements, regardless of whether they fail to meet the correct conditions for registration will also come up in equity. This is especially true under the principle of expectation as set up in the case of Walsh v Lonsdale [1882] 21 Ch D 9. The ruling implied that the rights become claimable under constructive trust, which generally culminates in the cushioning of the rights of the actual tenants6. Formally defined under the Law of Property Act (LPA) 1925 § 205(1) as the condition for absolute period of time, a lease splits property based on time, and with the agreement comes essential safeguards for leaseholders against any unfavorable actions by freeholders or landlords. Under the Landlord and Tenant Act 1954 and the subsequent Rent Act 1977, these protections have been given more priority, especially against irrational escalations of rental charges and for issuing a right for the stay of tenancy agreement without a proper justification for its revocation. This safeguard is particularly important in this case, considering that the tenants demonstrated unequal bargaining power as evident in the disparities in payments and the durations of the lease7. The Landlord and Tenant Act 1985 Despite the significance of these legal safeguards, most of them have been repealed to allow for more freedom in the market as the trigger of value. The Landlord and Tenant Act 1985 in particular provides, perhaps the most important regulation of the freeholders’ obligations owed to their tenants under Section 11. Under the provision, landlords must maintain the general structures, mechanical and heating systems for short-term agreements. In light of this, George would assume the responsibilities of Alf with regard to the repair and or adding additional tenants to the agreements. In doing so, Fiona would stand no chance of continuing to use the property as soon as it changes hands. But, in spite of the seemingly clear definition, the provision has triggered a significant number of litigations, with most cases seeking courts’ interpretation of the term a "lease"8. In the case of Street v Mountford [1985] UKHL 4, the court identified the realistic exclusive tenure of an immovable asset as being the test for differentiating between a license and a lease. The plaintiff paid certain “license” charges for occupying the property, and had been formalized upon the enactment of the agreement that imposed the legal safeguards cushioning leases from irrational escalations of rent under the Rent Act 1977, hence could not be invoked. She successfully argued that the arrangement was a lease because she had exclusive possession of the property. In this case, Alf’s retaining of the keys to almost every part of the property cannot be construed as having any effect on the “exclusive possession” of the property because the reason for his doing his possession of the keys was to have access to the places which needed repair. He had no proprietary interests that are transferrable to George9. In nutshell, George is under the obligation to inherit the property as it is and perform all of the obligations that Alf had entered into concerning the property. The duty is thrust upon him by the increasingly pro-consumer English law. Owing to the reasonable expectations of the tenants that their licenses would stand the test of time as agreed upon with the landlord, the agreements would remain valid as long as the leaseholders perform their side of the bargain under the contract. Question # 2 The primary legal issues in this case are whether Sarah can, by virtue of her inheritance of the property from her father, act against: a) Mary and Oliver for breaching the terms of the covenant requiring them to carry out only environmentally friendly practices on the land; b) Ned and Phillip for breaching the terms of the covenant requiring them to refrain from any commercial uses of the land. The Law of Covenant The UK’s law recognizes real covenants as enforceable. The covenants that were agreed upon with Mary and Ned in separate conditions are referred to as negative covenants because they practically imposed limitations on the new land owners regarding the manner in which they could use the land. All that Sarah needs is to establish that the agreements were covenants appurtenant or covenants that would be transferable with the land. This implies that Oliver and Phillip would be bound by the covenants signed in the 1990s restricting “unfavorable” uses of the property. If she established that that the negative covenants could only apply to the principals who obtained the parcels of lands in question from her father and not future owners, the resulting “covenant in gross” would practically limit her enforcement powers10. If the covenant agreement that Sarah’s father entered into with Mary and Ned constituted affirmative covenants, then she may not enforce the obligations specifying the use of the land on third parties under the English law. By comparison, the United States’ system also has exemptions for the enforcement of affirmative covenants because in the real sense the implied terms of landlords placing such restrictions is basically to protect the land from perceived deterioration rather than impair the actions of the principal landowners with whom they had a covenant. Such covenants may be indicated in the deed and, as a way of acting in good faith, should be divulged to subsequent buyers to facilitate its enforcement. However, as the land changes hands over time and the principal promisee under the agreement cedes control of the property by death or further sub-division of the property, implementing the covenant may become slack due to the difficulty in establishing the exact beneficiary of the land. In both cases covered in this paper, the land was only transferred to secondary parties, who with appropriate disclosure could have acted upon the covenant but chose not to, thus enforceable. The Law The covenant agreed upon between Leonard and Mary on the one hand and Ned on the other hand must meet the test specified under LRA 1925 s 84(1). If Sarah proved the validity of the restrictive covenant before a Lands Tribunal, the jury can enforce, discharge or amend it. She can make an application to the Tribunal by citing a number of reasons, for instance, on grounds that changes to the nature of the property are and would be materially negative to the land, thus they substantially affect the use of the land as agreed upon under the covenant. In the case of Mary-Olivia, Sarah would argue that the felling down of a number of trees on the border with "Lushland" to pave way for the construction of several large sheds is in breach of the covenant, which required Mary and implied similar terms on subsequent land-owners of the land to maintain trees along the boundary between the property and Lushland. In addition, she could argue that the garage for repair of agricultural machinery and vehicles in the sheds would materially contravene the “environmental friendly practices” included in the covenant and only an injunction applied either singly or in addition to compensation would enforce the covenant. In the case of Ned-Phillip, the setting up of yoga and the healing center substantially violates the non-commercial terms of the covenant as agreed upon by Leonard and Ned, thus warrants similar actions. Regardless, the Lands Tribunal reserves the right to annul restrictions which impair proper use of land if the landlord of the remaining land does not obtain any tangible gains from the limitation. In a number of circumstances, the Tribunal could strike out or adjust a restriction, provided the applicant agrees to compensate the original owner of the land or their successor an agreed amount of pecuniary remedies. However, the validity of the restrictive covenant must be established for the covenants to apply. For instance, land on which the restrictive covenant was entered must be clearly defined and any successive acquisitions spelt out properly. The need to adjust the terms of a covenant was evident in the case of Rees v Peters [2011] All ER (D) 193, in which the Court of Appeal underscored the importance of interpreting a covenant based on its distinct context. The court stressed the need for exploring the details relating to the particular transaction, rather than construing the agreements based on the conventional conditions, which may have changed over time11. Common Law In English common law, the duty to perform a restrictive covenant will not suffice, but for cases in which strict privity of the property has been established; that is, where a landlord-tenant agreement is provable. Courts normally enforce the relationship, though, in a restrictive manner under the thresholds of benefit-burden rule. The doctrine implies that whoever carries the burden must be allowed to enjoy the benefits. In the case of Halsall v Brizell [1957] Ch 169, the court established that a covenant obligating the maintenance of roads bound a successor, because the new holder of the office had chosen to benefit from the trappings of power that were inherent in the office. In light of the ruling, Sarah would argue that by inheriting her father’s property she is technically entitled to compensatory benefits relating to the breach of the covenant, since she is the one who shoulders the burden of managing the huge swathes of land left in her control by virtue of her father’s will. In contrast, the ruling in the case of Halsall v Brizell sought to limit situations where the gains can be associated with a particular liability and where the successors of a covenantors in property can practically opt to arrogate themselves the gains. In light of this, Sara’s attempt to enforce the restrictive covenant requiring Mary to play her part in maintaining the common boundary by keeping the trees might not suffice if she has no rights within the lieu of the covenant to use the trees or benefit from the trees for that matter. This would then prompt Sarah to explore other possible, but credible benefits of the trees along the border. The use of the trees as windbreakers or as a clear demarcation of the boundary, for example, could be valid reasons to support her campaign for a stay of the trees under the covenant12. Generally, covenants have a higher enforcement threshold than easements, since their validity is dependent upon an agreement or a promise, but not automatically by purchase or lease of the property. In the precedent case of Tulk v Moxhay [1848] 41 ER 1143, the property owner assured a neighbor of his intention to keep the area non-developed, but the covenant was broken by a subsequent buyer who was aware of the agreement. The subsequent landlord had attempted to erect a building on the land in breach of the covenant. In his decision, Lord Cottenham LC decided that an earlier covenant may obligate subsequent owners, provided the intent of the covenantees was to continue the use of the land as had been agreed before by the principals13. Sarah’s Proprietary role Sarah’s rights to own the property and enforce the covenants established by her father are supported by the LPA 1925, s78 and s 79. Section 78 empowers Sarah as successor in the title to her father who would benefit from the agreement, to implement the covenant, while Section 79, considers the enforcement of a covenant as proprietary rather than personal, and thus must be binding on her. In addition, the enforcement is not subject to the contractual restrictions mentioned in the ruling on Morrells of Oxford Ltd v Oxford United Football Club [2001] Ch 459 where the court held that the plaintiff could not obtain an order barring the Oxford UFC from proceeding with building a bar, because despite the fact that the defendant’s predecessor had given assurances not to in the early 1960s, the contract was not explicit enough with regard to imposing the obligation upon the successors14. In this case, Sarah can seek court injunctions as a way of enforcing the covenant, but considering that the breaches had taken place and it might be prejudicial to Phillip’s and Oliver’s use of the lands, she could be granted compensatory payments that is commensurate to the breach of the rights. She could be granted a percentage of the profits earned from the machinery repair facility and the yoga and herbal medicine businesses in compensation. The court adopted this approach in the case of Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, in which the defendant was ordered to settle 5% of the expected profits in damages. Regardless, the court may still impose an injunction against the two violators of the covenant even if they have established the premises which they intend to use for business purposes. This is especially true considering the ruling in the case of Mortimer v Bailey [2005] 1 EGLR 75 in which the court ordered an injunction after the completion of a building. The ruling served to avert such illegalities among parties who may opt to rush construction projects for purposes of obtaining the mercies of the courts despite their covenant breaches. To avoid more losses courts would sparingly use orders for demolition of such structures15. Conclusion Generally, courts have generally aided the successful enforcement of restrictive covenants whether or not the enforcer is the principal or their successor by applying the principle of proprietorship. In the enforcement, there has been a need to modify the terms of the covenant when the need arises. Unlike affirmative covenants, the obligation to enforce a restrictive covenant is normally construed as transferrable with the land, so that subsequent owners or tenants must conform to the restriction. Courts normally experience difficulty in determining who reserves the benefit of a limiting covenant. The problem normally arises even where the initial report on the property was clear. Further subdivision and eventual sale of the land as smaller parcels can precipitate a situation in which the benefit is shared among very many owners and tenants, thus unenforceable. In Sarah’s case, the covenant is enforceable because she can prove her beneficiary rights. 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