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The Running of Covenants in Equitable Leases and Equitable Assignments of Legal Leases

Published online by Cambridge University Press:  16 January 2009

R. J. Smith
R. J. Smith
Affiliation:
Fellow, Magdalen College, Oxford. The author wishes to thank Professor H. W. R. Wade and Mr. J. D. Feltham for their helpful comments.
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Extract

It has long been established that covenants in legal leases are enforceable where there is privity of contract or privity of estate. Privity of contract exists where the litigants are the original parties to the lease and where the benefit of the covenant has been assigned. Privity of estate applies where the parties are in the relationship of landlord and tenant. Thus an assignee of the landlord's freehold reversion and an assignee (but not sub-lessee) of the lease are in privity of estate. The traditional view is that privity of estate requires a legal lease. This limits the running of covenants in equitable leases (there will be an equitable lease if the necessity for a deed has been overlooked or if there is merely an agreement for a lease). The principle that an equitable lease does not give rise to privity of estate has several important exceptions. Before these are considered, however, it is expedient to examine the general principle.

In recent years the principle has come under attack. The source of the attack emanates from the celebrated dicta of Jessel M.R. in Walsh v. Lonsdale, describing the effect of the Judicature Act 1873:

There are not two estate as there were formerly, one estate at common law by reason of the payment of the rent from year to year, and an estate in equity under the agreement. There is only one Court, and the equity rules prevail in it. The tenant holds under an agreement for a lease.

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Articles
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The Cambridge Law Journal , Volume 37 , Issue 1 , April 1978 , pp. 98 - 121
Copyright
Copyright © Cambridge Law Journal and Contributors 1978

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References

1 On the assignment of the lease, covenants run under the common law rule in Spencer's Case (1583) 5 Co.Rep. 16a. On the assignment of the reversion, covenants run under the Law of Property Act 1925, ss. 141, 142. In either case, the covenant must “touch and concern” the land.

2 Using this term whether or not there is a deed.

3 (1882) 21 Ch.D. 9, 14–15.

4 [1953] 1 Q.B. 234, 245–246, accepted by Romer L.J. at p. 247. Evershed M.R. appeared to rely on the possession of the assignee.

5 Dowell v. Dew (1843) 12 L.J.Ch. 158; cf. Purchase v. Lichfield Brewery Co. [1915] 1 K.B. 184Google Scholar, discussed infra p. 101. This assumes that the lease is not to contain a clause restricting assignment. Equally, contracts for the sale of land can be assigned: Wood v. Griffith (1818) 1 Swan. 43, 56; Williams on Title, 4th ed., p. 725.

6 Relying on Walsh v. Lonsdale (1882) 21 Ch.D. 9.

7 Cf. Haywood v. Brunswick Permanent Benefit B.S. (1881) 8 Q.B.D. 403.

8 (1842) 13 Sim. 228.

9 Earlier editions of Foa, General Law of Landlord and Tenant, suggest that the plaintiff succeeded either on a restrictive covenant basis (2nd ed., pp. 323, 325) or, semble, by being able to obtain specific performance (3rd ed., p. 380).

10 (1860) 7 C.B.(n.s.) 864.

11 At p. 879.

12 (1866) L.R. 2 Q.B. 120.

13 Problems arose because the lease was not under seal.

14 At pp. 123–124.

15 At p. 127.

16 [1915] 1 K.B. 184.

17 The view of Hanbury and Maudsley, Modern Equity, 10th ed., p. 62 that such a transaction must be by way of sub-lease since 1926 appears erroneous: Megarry and Wade, The Law of Real Property, 4th ed., p. 900.

18 See the leading case of Williams v. Bosanquet (1819) 1 Brod. & B. 238.

19 Cf. Cox v. Bishop (1857) De G.M. & G. 815, 824.

20 [1901] 2 Ch. 608, 616–619.

21 Subject to the land charges and the land registration legislation.

22 Coatsworth v. Johnson (1886) 55 L.J.Q.B. 220; Swain v. Ayres (1888) 21 Q.B.D. 289; Purchase v. Lichfield Brewery Co. [1915] 1 K.B. 184Google Scholar; Gray v. Spyer [1922] 2 Ch. 22, especially at p. 31.Google Scholar

23 Eauity. pp. 156–159. Contrast Hanbury and Maudsley, op. cit., pp. 18–19.

24 [1899] 1 Ch. 86, 90; reversed [1899] 2 Ch. 261 on other grounds. Cf. Joseph v. Lyons (1884) 15 Q.B.D. 280, 285 (Brett M.R.) and 285–286 (Cotton L.J.).

25 [1915] 1 K.B. 184.

26 Thus in Coatsworth v. Johnson (1886) 55 L.J.Q.B. 220, the equitable lessee's inability to claim specific performance was fatal to his action for trespass (a legal remedy). It was irrelevant that the lessor could have claimed specific performance.

27 Maudsley and Burn, Land Law: Cases and Materials, 3rd ed., p. 422.

28 Williams, Vendor and Purchaser, 4th ed., p. 597.

29 Which cannot be relied upon, for this would be assuming what the argument seeks to prove.

30 (1866) L.R. 2 Q.B. 120.

31 (1835) 1 Cr.M. & R. 834, 844.

32 With the major exception that the running of covenants in parol leases can provide great problems for assignees who may be unaware of the terms.

33 (1583) 5 Co.Rep. 16a.

34 Romer L.J. accepted the reasoning of Denning L.J. The dicta are also accepted by Woodfall, Landlord and Tenant, 27th ed., p. 484 and Foa, op. cit., 8th ed., p. 428, but ignored by Hill and Redman, Law of Landlord and Tenant, 16th ed., p. 574.

35 Infra, p. 112.

36 (1835) 1 Cr.M. & R. 834; also Birch v. Wright (1786) 1 T.R. 378.

37 Arden v. Sullivan (1850) 14 Q.B. 832; Cornish v. Stubbs (1870) L.R. 5 C.P. 334; Wyatt v. Cole (1877) 36 L.T. 613; Manchester Brewery Co. v. Coombs [1901] 2 Ch. 608.Google Scholar These are cases on the assignment of the reversion. The Grantees of Reversions Act 1540 required a deed for covenants to run.

38 Brydges v. Lewis (1842) 3 Q.B. 603 (although the failure of the defendant to plead non assumpsit largely destroys the authority of the case: cf. Lord Denman C.J. at p. 608); Smith v. Eggington (1874) L.R. 9 C.P. 145, 155, 157; Rye v. Purcell [1926] 1 K.B. 446, 455.Google Scholar

39 Smith v. Eggington (1874) L.R. 9 C.P. 145; Phillips v. Miller (1875) L.R. 10 C.P. 420 per Pollock B. at p. 431.

40 See Brydges v. Lewis (1842) 3 Q.B. 603, 605 (Patteson J. arguendo), 608.

41 Arden v. Sullivan (1850) 14 Q.B. at p. 840.

42 E.g., Williams, Vendor and Purchaser, 4th ed., p. 595; Hume v. Monro (1943) 67 C.L.R. 461, 482.Google Scholar But could the assignee argue that he is an assignee of an equitable interest with joinder therefore unnecessary? Most cases and commentators assume not, presumably because the equitable right is so closely connected with the contract, but this is not supported by all the cases: cf. Dowell v. Dew (1843) 12 L.J.Ch. 158; Buckland v. Papillon (1866) L.R. 1 Eq. 477; L.R. 2 Ch.App. 67.

43 Judicature Act 1873, s. 26 (6), see now Law of Property Act 1925, s. 136. Even before 1873, the impediment to the assignee was merely technical: Spicer v. Todd (1831) 1 Dowl. 306; Auster v. Holland (1846) 3 D. & L. 740.

44 Dowell v. Dew (1842) 12 L.J.Ch. 158 per Knight Bruce V.-C. at p. 162.

45 (1850) 14 Q.B. 832, 839.

46 (1860) 7 C.B.(n.s.) 864 per Crompton J. at pp. 879–880.

47 At most the assignee could get a lease granted to his assignor, of which he would then be an equitable assignee.

48 Cf. Phillips v. Miller (1875) L.R. 10 C.P. 420 per Pollock B. at p. 431.

49 Now the Law of Property Act 1925, s. 141.

50 [1926] 1 K.B. 446, 455.

51 E.g. Chapman v. Towner (1840) 6 M. & W. 100; Doe d. Rigge v. Bell (1793) 5 T.R. 471.

52 Beale v. Sanders (1837) 3 Bing.N.C. 850.

53 (1882) 21 Ch.D. 9, 14, quoted supra p. 98.

54 [1901] 2 Ch. 608, 617.

55 This is not apparent when considering whether a purchaser of the freehold is bound by the tenant's equitable or legal interest.

56 Borman v. Griffith [1930] 1 Ch. 493.Google Scholar

57 Rye v. Rye [1962] A.C. 496.Google Scholar

58 Thus a tenant whose possession is protected under the Rent Acts does not obtain a periodic tenancy, although it is the lessor who does not want such a tenancy: Morrison v. Jacobs [1945]Google Scholar K.B. 577, C.A.

59 Could this justify the result in Boyer v. Warbey [1953] 1 Q.B. 234Google Scholar? Cf. Evershed M.R. at p. 242.

60 Beale v. Sanders (1837) 3 Bing.N.C. 850; the point was largely conceded by counsel at p. 858.

61 See, e.g., the cases cited in Woodfall, op. cit., pp. 272–273.

62 Re Leeds and Batley Breweries Ltd. and Bradbury's Lease, Bradbury v. Grimble and Co. [1920] 2 Ch. 548, 551Google Scholar (tenant holding over).

63 Shiloh Spinners Ltd. v. Harding [1973]Google Scholar A.C. 691, 717–718 (in a somewhat different context). Relief against forfeiture is available: Law of Property Act 1925, s. 146 (5).

64 Swain v. Ayres (1888) 21 Q.B.D. 289; Coatsworth v. Johnson (1886) 55 L.J.Q.B. 220. Quaere whether relief is available: Pettit (1960) 24 Conv.(n.s.) 125.

65 Cf. Strong v. Stringer (1889) 61 L.T. 470, 473.

66 The modern authorities are Hopgood v. Brown [1955] 1 All E.R. 550, 561Google Scholar; Halsall V. Brizell [1957]Google Scholar Ch. 169; E.R. Ives Investment Ltd. v. High [1967] 2 Q.B 379Google Scholar; Tito v. Waddell (No. 2) [1977]Google Scholar Ch. 106, 289–311. See also Protective Holdings Ltd. v. M. & P. Transport Ltd. (1969) 7 D.L.R. (3d) 720.Google Scholar

67 Infra, p. 118.

68 Cf. Foa, op. cit., p. 430.

69 Cf. Beale v. Sounders (1837) 3 Bing.N.C. 850 per Tindal Ch at p. 859.

70 Woodfall, op. cit., Chap. 10; Foa, op. cit., pp. 403–414; Hill and Redman, op. cit., pp. 341–343.

71 Supra, p. 99, note 5. More recent authority is difficult to discover, although one can cite cases on the assignee of the reversion being able to sue on assignment principles: Manchester Brewery Co. v. Coombs [1901] 2 Ch. 608Google Scholar; Cole v. Kelly [1920] 2 K.B. 106Google Scholarper Lush J. at p. 116 arguendo.

72 [1958] Ch. 205.

73 Megarry, 73 L.Q.R. 452, suggests that this would be implied anyway by the Law of Property Act 1925, s. 78. Contra Mowbray, 74 L.Q.R. 242, 258, on the basis that a covenant which does not “touch and concern” is outside s. 78.

74 Re Johnston's Application [1950]Google Scholar Ch. 524, 531 supports such an intention; Re Button's Lease [1964]Google Scholar Ch. 263 leaves the question open.

75 Wade [1957] C.L.J. 148, 150. The present writer would respectfully agree.

76 Dowell v. Dew (1842) 12 L.J.Ch. 158 per Knight Bruce V.-C. at p. 162; cf. Bucklattd v. Papillon (1866) L.R. 1 Eq. 477, L.R. 2 Ch. 67.

77 Gilbey v. Cossey (1912) 106 L.T. 607.Google Scholar

78 Re-enacting, in almost identical terms, the Conveyancing Act 1881, ss. 10, 11.

79 E.g., Rickett v. Green [1910] 1 K.B. 253Google Scholar; Manchester Brewery Co. v. Coombs [1901] 2 Ch. 608Google Scholar, also holding that an agreement for a lease was outside the statute This is probably the explanation of Hastings v. North Eastern Railway Co. [1898] 2 Ch. 674, on appeal [1895] 1 Ch. 656.

80 Cf. Weg Motors Ltd. v. Hales [1962]Google Scholar Ch. 49 per Donovan L.J. ot p. 76; Breams Property Investment Co. Ltd. v. Stroulger [1948] 2 K.B. 1.Google Scholar

81 Cole v. Kelly [1920] 2 K.B. 106Google Scholar is often cited for this proposition. However, the point was not taken by counsel or the court; indeed, the lease may have been legal. Nevertheless, in Rye v. Purcell [1926] 1 K.B. 446, 452Google Scholar, McCardie J. treated the issue as settled. See also Denning L.J. in Boyer v. Warbey [1953] 1 Q.B. at p. 246.Google Scholar

82 Woodfall, op. cit., p. 485; Hill and Redman, op. cit., p. 578; Foa, op. cit., p. 103.

83 Swain v. Ayres (1888) 21 Q.B.D. 289; Coatsworth v. Johnson (1886) 55 L.J.Q.B. 220 (cases on forfeiture).

84 However, Megarry and Wade, op. cit., p. 735 and Wolstenholme and , Cherry, Conveyancing Statutes, 13th ed., Vol. 1, p. 25Google Scholar, do require that the agreement for the lease be capable of specific performance for ss. 141, 142 to apply. It is not clear whether this requirement is to be tested at the time of the action or at the time the agreement was entered into. The former seems preferable.

85 Law of Property Act 1925, s. 52.

86 But writing is required, unless there is part performance: Law of Property Act 1925, ss. 40, 53.

87 The leading cases are Moores v. Choat (1839) 8 Sim. 508; Robinson v. Rosher (1841) 1 Y. & C. C.C. 7; Moore v. Greg (1848) 2 Ph. 717 and Cox v. Bishop (1857) 8 De G.M. & G. 815. The leading cases for the rejected contrary view were Lucas v. Comerford (1790) 3 Bro.C.C. 166; 1 Ves. 235; 8 Sim. 499 (the reports differ) and Flight v. Bentley (1835) 7 Sim. 149. Of other cases supporting liability in the assignee, none is authoritative. Thus Close v. Wilberforce (1838) 1 Beav. 112 was distinguished in Moore v. Greg and Nokes v. Fish (1857) 3 Drew. 735 and probably overruled by Cox v. Bishop; Sanders v. Benson (1841) 4 Beav. 350 was overruled by Cox v. Bishop; Castellan v. Hobson (1870) L.R. 10 Eq. 47 and Wright v. Pitt (1870) L.R. 12 Eq. 408 were explained in Ramage v. Womack [1900] 1 Q.B. 116.Google Scholar

88 Cf. Williams v. Bosanquet (1819) 1 Brod. & B. 238. Cox v. Bishop (1857) 8 De G.M. & G. 815 did not involve a mortgage.

89 See especially Moores v. Choat (1839) 8 Sim. 508 and Moore v. Greg (1848) 2 Ph. 717.

90 Friary Holroyd and Heaky's Breweries Ltd. v. Singleton [1899] 1 Ch. 86, 90 (reversed [1899] 2 Ch. 261 on other grounds); Ramage v. Womack [1900] 1 Q.B. 116Google Scholar (defendant a beneficiary under a trust of a lease); Re Loom, Fulford v. Reversionary Interest Soc. Ltd. [1910] 2 Ch. 230, 234Google Scholar; Rodenhurst Estates Ltd. v. W.H. Barnes Ltd. [1936] 2 All E.R. 3, 6, 12Google Scholar; London and County (A. & D.) Ltd. v. Wilfred Sportsman Ltd. [1971]Google Scholar Ch. 764, 784 (after Boyer v. Warbey [1953] 1 Q.B. 234Google Scholar).

91 Op. cit., p. 816.

92 (1840) 3 Beav. 373.

93 So distinguished, arguendo, in Cox V. Bishop (1857) 8 De G.M. & G. 815, 819; counsel for the lessor did not bother to rely upon it!

94 [1915] 1 K.B. 184.

95 Beswick v. Beswick [1968]Google Scholar A.C. 58, 74–77, 80–81, 94, 106; contrast Lord Guest at pp. 86–87.

96 [1968] A.C. at pp. 76–77, 94, 106.

97 Hill and Redman, op. cit., p . 586, Foa, op.cit., p. 417; Megarry and Wade, op. cit., p. 729.

98 [1953] 1 Q.B. 234, 246.

99 In Moore v. Greg (1848) 2 Ph. 717, 720.

1 Law of Property Act 1925, s. 86.

2 As in some jurisdictions in the U.S.A.: American Law of Property, § 3.61; Tiffany, Real Property, 3rd ed., § 128.

3 Although Evershed M.R. described the defendant as a “contractual assignee” ([1953] 1 Q.B. 234, 242), this probably means an assignee of a contract (i.e., the lease) rather than an equitable assignee. The point is not taken elsewhere in the report.

4 Williams v. Heales (1874) L.R. 9 C.P. 177; Rodenhurst Estates Ltd. v. W. H. Barnes Ltd. [1936] 2 All E.R. 3.Google Scholar The principle was recognised, although not applicable on the facts, in Mayor etc. of Stratford-upon-Avon v. Parker [1914] 2 K.B. 562Google Scholar; Official Trustee of Charity Lands v. Ferriman Trust Ltd. [1937] 3 All E.R. 85Google Scholar; Stait v. Fenner [1912] 2 Ch. 504Google Scholar; Cadle v. Moody (1861) 30 L.J.Ex. 385. Cf. Doe d. Hemmings v. Durnford (1832) 2 Cr. & J. 667; Robinson v. Rosher (1841) 1 Y. & C.C.C. 7, 11.

5 Considered necessary in Rodenhurst Estates Ltd. v. W. H. Barnes Ltd. [1936] 2 All E.R. 3, 11, 12.Google Scholar

6 [1936] 2 All E.R. 3.

7 There is no overlap with the estoppel principle, for that will not apply if the lessor is aware that the assignment is equitable. An implied contract is highly unlikely if the lessor thinks that the assignment is legal, for he will assume that there is privity of estate.

8 Williams v. Heales (1874) L.R. 9 C.P. 177, 186; Ramage V. Womack [1900] 1 Q.B. 116, 121–122Google Scholar; Rodenhurst Estates Ltd. v. W. H. Barnes Ltd. [1936] 2 All E.R. 3.Google ScholarCf. An Essay on Equitable Tenancies under Legal Terms of Years (Sweet, 1849), summarised in a note to Moore v. Greg (1848) 2 De G. & S. 304, 308. The present writer has been unable to trace the essay.

9 (1857) 8 De G.M. & G. 815, 822. The point does not appear to have been fully argued; the judgment of Turner L.J. is much more guarded.

10 Unless the original lease is a periodic tenancy: Buckworth v. Simpson (1835) 1 Cr.M. & R. 834.

11 See, e.g., Encyclopaedia of Forms and Precedents, 4th ed., Vol. 12, p. 1377.

12 Apparently, the assignee would hold under a concurrent lease, making him the landlord of his assignor (the lessee)—an impossible and grotesque result. Contra if the assignor had a periodic tenancy, for it will have ceased: Arden v. Sullivan (1850) 14 Q.B. 832, 839.

13 But the “clean hands” defence will only apply if the assignee seeks the help of equity. If the assignor (lessee) consents to being made a party to an action against the lessor then the claim is wholly legal and the defence would not apply. As a breach of covenant will most likely also be a breach of the contract of assignment, the assignee probably could not compel joinder of the assignor in equity.

14 E.g., Lucas v. Comerford (1790) 3 Bro.C.C. 166.

15 (1857) 8 De G.M. & G. 815.

16 [1977] Ch. 106, 299–302.

17 This is consistent with the results of earlier cases, although there are some contrary dicta in, e.g., Moore v. Greg (1848) 2 Ph. 717. is At pp. 307–308. is Based on Megarry V.-C. at pp. 291–292; also Parkinson v. Reid (1966) 56 D.L.R. 2d 315Google Scholar, approved by Megarry V.-C. at pp. 295–296.

20 Cf.Hyde v . Moakes (1831) 5 C. & P. 42; Rodenhurst Estates Ltd. v. W. H. Barnes Ltd. [1936] 2 All E.R. 3, 6, 12Google Scholar; Distress for Rent Act 1737, s. 14.

21 Law of Property Act 1925, s. 136—this renders “clean hands” irrevelant, for the assignee is not seeking the help of equity.

22 Cf. Griffith v. Pelton [1958]Google Scholar Ch. 205, supra, p. 111.

23 [1898] 1 Ch. 86 (Romer J.); [1899] 2 Ch. 261 (C.A.). Cf.Re Adams and the Kensington Vestry (1884) 27 Ch.D . 394.

24 [1958] Ch. 205, 227.

25 Lindley M.R . in Friary Holroyd and Healey's Breweries Ltd. v. Singleton (1899) 81 L.T. 101, 103 (a fuller report than in the La w Reports; see also 15 T.L.R. 448). Quaere whether this would apply to covenants in favour of assigns by virtue of the La w of Property Act 1925, s. 78.

26 Per Lindley M.R. (1899) 81 L.T. 101, 103; cf. Romer L.J. in Woodall v. Clifton [1905] 2 Ch. 257, 269Google Scholararguendo and Warner Bros, Records Inc. v. Rollgreen Ltd. [1976]Google Scholar Q.B. 430. As for the need for joinder in an estate contract (of which an option is an example), see supra, p. 106, note 42.

27 The application of section 142 to equitable leases does not affect the contention that the whole interest (be it legal or equitable) must be vested in the assignee of the lease.

28 Cf. Lindley M.R. in Friary Holroyd and Healey's Breweries Ltd. v. Singleton (1899) 81 L.T. 101, 103.