Uncertainty surrounds restrictive covenants

LegalIssues: Given uncertainty about restrictive covenants, they are likely to remain an area where expert legal advice will be necessary, writes Carol Coulter, Legal Affairs Correspondent.

One of the biggest ever land transactions in Dublin was the sale of the Jurys Doyle hotel site in Ballsbridge to Sean Dunne for €240 million. It was sold subject to a restrictive covenant, which stated: "You will not be permitted to use the property as a 'hotel, motel, inn, guesthouse, aparthotel or hostel'." Thus the vendors continue to influence the use of the land long after it has been sold.

It is understood that the new purchaser is seeking a renegotiation of the covenant part of the contract.

This type of covenant is by no means unique, as there are often circumstances where a vendor attaches conditions to land being sold in the form of a restrictive covenant.

This area of law is regarded as one of the most difficult and complex in land law, and has been examined by the Law Reform Commission.

Most attention focuses on the extent to which a covenant can continue to bind the use of the land. When initially signed, the covenant is part of the contract signed between two parties and, provided both were well aware of what they were signing, they are bound by it as by any other contract. Where problems usually arise is where the land is sold on, and the new purchaser is faced with the existence of a restrictive covenant.

Covenants can exist in relation to both freehold and leasehold land. When land is held under a leasehold title, especially if this is for a long time, it is common for both the landlord and tenant to enter into a number of covenants concerning the use of the land for the duration of the lease.

Freehold covenants normally arise when the owner sells off part of his land. Because he is retaining the other part, it is understood that he will be concerned about the use of the neighbouring part. He may therefore require the purchaser to enter into various covenants that protect his and his successors' continued enjoyment of their remaining land.

These covenants are part of a more general law relating to land called "appurtenance rights", which also include rights of way, fishing rights or the right to cut turf. There are both positive (an obligation to do something) and negative (an obligation not to do something) covenants, but only negative covenants run on, says Marie Baker SC, an expert in land law. A positive covenant is a matter of contract only between the original signatories, while a negative contract will run on.

These freehold covenants may be an important factor in preserving the value of the land that had been retained by the vendor. However, major problems have arisen concerning the enforceability of such covenants, while no such problems exist in relation to the enforceability of leasehold covenants. Generally only those who can enforce a negative covenant are those who can show that the covenant benefits their land.

There are also certain covenants where conditions are attached to the use of the land without any adjoining land being involved. Typically this can arise when a church sells a building or land, and it restricts its use to ensure it is for the benefit of a specific section of the community, or to prevent it being put to a use deemed by the church to be inappropriate, like a nightclub.

For example, the Church of Ireland, through its organisation the Representative Church Body (RCB), has a number of restrictions attached to property it sells, including churches. They cannot be marketed as former churches, and they cannot be used for a religious purpose, for dancing, gambling, bingo, the sale of alcohol or any "immoral or base purpose".

However, an individual who buys any such property can apply to have these conditions lifted, by seeking the permission of the parish, the diocese and the RCB. If all three agree, then the property can be used for one of the excluded purposes.

Similar restrictions usually apply to land and buildings sold by the Catholic church.

This covenant forms part of the contract of sale, and is enforceable between the two parties to the contract. However, there is considerable doubt as to whether it is enforceable on an individual or company who might later buy the property, the "successor in title". The enforceability of covenants against successors in title has given rise to much legal debate.

The problems centre on the fact that the obligation to comply with a covenant does not pass on to a successor in title, that is, to the person or body who took over the ownership from the original purchaser of the covenanted land. There are no statutory provisions governing their enforceability, though the courts have dealt with some of these issues under the law of equity, according to Imelda Reynolds of Beauchamps solicitors.

Leasehold covenants, which usually involve both the tenant and the landlord handing on their interest to successors either by sale or inheritance, are enforceable in law against the successors. However, the Landlord and Tenant Act of 1978 prohibited the creation of new ground rents for dwellings. This created a shift to freehold conveyancing, reinforced by the conversion of a lot of leasehold titles to freehold ones.

As a result, there are more freehold covenants, and the questions concerning their enforceability arise more often. The law as it has developed provides for some limited enforceability, with restrictive covenants (not to use a property for a particular purpose, for example) passing on to successors.

Any dispute concerning a freehold covenant must end up in the courts, as there is no law regulating them. Therefore, there is no predictability as to the likely outcome of a dispute. If, for example, a person buys some covenanted land without the covenant being brought to his attention, then the covenant may not be enforceable.

As land use has changed in Ireland, this has become more serious. In apartment developments, for example, there is a high degree of interdependence between the various owners, and there may be a positive covenant on them to pay money or carry out works or do repairs. Apartments are always granted by lease to ensure enforceability of both positive and negative covenants.

All of this has given rise to a conveyancing nightmare, and the Law Reform Commission recommended a number of changes relating to covenants. In its report on the modernisation of land law and conveyancing, published last year, it recommended measures to ensure that covenants are enforceable, both by the purchaser and the vendor of land.

It also recommends that new land legislation should provide for the voiding or discharging of a covenant, at the request of the original purchaser or his successors, if the covenant has become "onerous", or where it has become obsolete. But, while the commission included a draft Bill in its report, so far this has not been included in the Government's immediate plans, and those dealing with the purchase of covenanted land must deal with the law as it stands.

Given its level of uncertainty, it is likely to remain one of the areas where recourse to expert legal advice will continue to be necessary.