Covenants under transfer of property

In General Sense, covenants is an agreement in writing creating an obligation.

under property law, covenants are conditions which restricted the enjoyment of property. Does such covenants are legally bound?. As per sec.11 of transfer of property act, no condition that restrict the enjoyment of property shall be imposed.

The answer is yes, but only when the privity of contract or privity of estate exists. The privity of contract means the legal relationship between the parties entered into the agreement and privity of estate means the relationship of owner and tenant must exists between them.

Covenants running with Land

Sec.40 – Burden of obligation imposing restriction on use of land

This section states that – restrictive covenants and contractual covenants

Restrictive covenants – 

Restrictive covenants are also known as negative covenants, imposing an obligation to restrain from performing an act is called restrictive or negative covenants. These are enforceable by court of law and such covenants imposes the said obligation on the subsequent transferee also, such rights are not easements. If the covenant is for personal contract, then such covenants does not impose said obligation or condition on the transferee. There are 2 exceptions for this rule :

A. Leases 

Leases are considered as personal contract but also imposes the obligation like covenant to pay rent on said date.

B. Covenants annexed to the land

A covenants is said to annexed to land and binds on assignee since inception.

The essentials for covenants annexed to the land are –

1. Made with covenantee who has interest in the land

2. Must concern or touch the land

Contractual Covenants – 

This section enacts that when a third person is entitled to benefit of an obligation out of the contract and annexed to ownership, but neither easement not interest in the property.

For Instance, A contracts to sell his plot to B, when contract is still alive, he sells to C who has notice of the contract. B may enforce the contract against C as same as A.

In simple terms, the third person out of the contract shall be imposed an obligation and is regarded as an exception to this rule and sec.40 can be enforced against a gratuitous transferee or a transferee for consideration with notice of the contract. 

The exception for this rule :

A. Transferee for consideration without notice and against such property

This section can enforceable against the transferee with notice, the onus is on transferee regarding the consideration. Even with notice the transferee is not liable until the sale is executed by an agreement.

Famous Case Law

Tulk Vs. Moxhay, 1848

The Tulk v Moxhay case is a landmark English land law case that established the principle that restrictive covenants can “run with the land” in equity. 

The Case: 

Tulk, the original landowner, sold a parcel of land in Leicester Square, London, to a buyer with a covenant that the land would remain “uncovered with buildings” to preserve the square’s open character. The land went through several transactions, eventually being purchased by Moxhay. Moxhay, aware of the covenant, intended to build on the land. 

The Ruling: 

The court ruled in favor of Tulk, granting an injunction to prevent Moxhay from building on the square. Lord Cottenham, the presiding judge, reasoned that: If an equity (the right to enforce the covenant) is attached to the property by the owner, No one purchasing with notice of that equity can stand in a different situation from the party from whom he purchased.