Elwood v Goodman and others

Covenants – Benefit and burden – Respondent acquiring estate roads on industrial estate – Vendors reserving right for themselves and successors in title to use roads and giving covenant regarding contribution to maintenance costs – Appellants acquiring individual units on estate from same vendors and giving covenant to contribute to cost of maintaining roads – Whether covenant on its proper construction enforceable by respondent – Whether appellants liable under equitable principle of benefit and burden – Appellants held liable – Appeal allowed in part The appellants were the occupiers of light industrial units on an industrial estate that was served by a private access road. Originally the units had been held on long commercial leases that provided for the lessees to pay a charge to the freeholder of the estate for the use of the estate roads. However, in 1986 a consortium of lessees had negotiated to purchase the freehold of the units that they occupied. At the same time, the respondent had negotiated the purchase of the undeveloped part of the estate together with all the estate roads. The respondent’s purchase had been the first to complete, in September 1986. The transfer reserved to the vendors and their successors in title the right to use the estate roads and contained a corresponding covenant by the vendors and the owners for the time being of the units to contribute to the respondent’s costs of maintaining the portion of the access road onto which the vendors’ premises abutted. The subsequent transfers of the industrial units, which took place in December 1986, included the right for the purchasers to use the estate roads and a covenant on their part to pay a contribution, to be certified by the vendors’ surveyor, to the costs incurred by the vendors and their successors in maintaining the access road. The first and third appellants were the original transferees of their respective units, while the second appellant acquired his unit later from the original transferee. The respondent subsequently brought proceedings against the appellants to establish their liability to contribute to the maintenance costs for the access road. In connection with those proceedings, he obtained an assignment from the vendors of the benefit of the purchaser’s covenant in the December 1986 transfers; the vendors also irrevocably appointed him as the “vendors’ surveyor” for the purpose of certifying the contributions. The appellants accepted that the assignment was effective to pass to the respondent the benefit of the covenant and the right to enforce it. However, they contended that they were still not liable to pay since the reference in the covenant to “successors” of the vendors was purely prospective in effect, as from the date of the transfer, and could not include the respondent where he had acquired the access road from the vendors before that date; consequently, no expenditure by the respondent, either past or future, could be recovered under the covenant. That argument was rejected in the court below and the respondent’s claim was allowed. The appellants appealed. Held: The appeal was allowed in part. (1) Although a reference to successors in title would usually, by its nature, refer to subsequent owners of the relevant property, the meaning to be given to words in any contractual document depended on a consideration of the language against the admissible matrix of background fact. A reasonable person, having all the background knowledge that would reasonably have been available to the parties at the time of executing the document, would have known that the purpose of the covenant in the December 1986 transfers was to require the owners of the units to contribute to the costs of maintenance to the roads carried out by the vendors or their successors in title from the date of the transfer and that, prior to that transfer, title to the roads had passed to the respondent. That fact was a matter of public record, which the parties would have known from their searches of the register in respect of the vendors’ title, and would have been available to the reasonable bystander as part of the admissible factual matrix relevant to the construction of the December 1986 transfers. In those circumstances, the objective bystander was unlikely to conclude that the parties had intended by the wording of the covenant to exclude the very person who would be the owner and repairer of the access road for the foreseeable future. Such a construction would destroy the commercial purpose of the bargain. The respondent was a “successor” to the vendors; there was no reason to give that word the restricted meaning for which the appellants contended. It followed that they were contractually liable under the covenant to contribute towards the cost of the maintenance works that would otherwise fall within the terms of the covenant. (2) The appellants were also liable under the equitable principles of benefit and burden. For the burden of a positive covenant to be enforceable against the covenantor’s successor in title: (i) the benefit and burden had to be conferred in or by the same transaction; (ii) the receipt or enjoyment of the benefit had to be relevant to the imposition of the burden, in the sense of being conditional on or reciprocal to it, which was a matter of construction of the relevant deeds or other documents;  and (iii) the person on whom the burden was to be imposed had to have had the opportunity of rejecting or disclaiming it: Davies v Jones [2009] EWCA Civ 1164 applied. The second of those requirements was not met in relation to the December 1986 transfers since the covenant had not been given in return for the grant of the rights of way, which had been created by the reservation in the September 1986 transfer and simply passed to the appellants as rights appurtenant to the freehold title that they thereby acquired. However, all three requirements were met in relation to the September 1986 transfer of the estate roads, under which the vendors covenanted that they and their successors would contribute to the maintenance that the respondent agreed to carry out to the access road over which the rights of way were reserved.In that regard, there was nothing in the scheme of the conveyancing in the September transfer to indicate that the vendors intended to give only a personal covenant; moreover, the language of the covenant in that transfer in terms contemplated payments being made not only by the vendors but also by their successors in title. The requirement for the rights to be conditional on the performance of the payment obligations was a matter of substance rather than form: Wilkinson v Kerdene Ltd [2013] EWCA Civ 44. There was a clear and obvious link between the rights of way reserved over the access road and the obligation to contribute to the cost of repairs. It did not matter that there was a mismatch between the rights granted and the scope of the covenants, to the extent that the rights of way reserved under the September transfer were in general terms, over all the estate roads, whereas the covenant related to the maintenance of a specific part of the access road. A purchaser who succeeded to the rights of way on acquiring part of the retained land had to assume the burden of contribution appropriate to the land that he had acquired. There was no difficulty in principle with equity treating the new owner as liable to contribute a fair and reasonable proportion of the expenses incurred in the maintenance of the portion of the access road on which his unit abutted. That accorded with the terms of the covenant as applied to the property that the purchaser acquired and there was no reason in principle why that reduced obligation should not be enforced. It was directly proportionate to the legal estate that the successor had acquired, derived from the original conveyance. Nor did it matter that the burden of the covenant had not been registered against the vendor’s title. The burden in equity of a positive covenant did not require to be registered in order to bind successors in title. In order to be registrable, an incumbrance had to be capable of creating an estate or interest in the registered land. Since the burden in equity of a positive covenant did not have that effect, it did not need to be registered in order to bind successors in title of the original covenantor. (3) The court below had erred to the limited extent of finding that the appellants were liable to contribute to the costs of maintaining an additional strip of roadway, which the respondent had added to the access road in 1996 using part of the grass verge opposite the units, and street lights that had been constructed at the same time along the grass verge. There was no finding that the appellants had acquired a right of way over, as opposed to a licence to use, the additional strip, which did not form part of the access road at the date of either the September or the December 1986 transfers. In the absence of such a right, the burden of contributing to the cost of subsequent improvements did not satisfy the test of correlation between the rights granted and the obligation imposed. The appeal was allowed to that extent. Graham Machin (instructed by Elvin & Co, of Loughborough) appeared for the appellants; Martin Hutchings QC (instructed by DLA Piper LLP, of Sheffield) appeared for the respondent. Sally Dobson, barrister