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Where a property has been transferred and the Council is now both covenantor and covenantee, but the covenants also benefit adjoining owners, can the Council execute a deed of release with itself? The specific covenants relate to rent not exceeding LHA rates. Would the covenants be extinguished by unity of ownership?
Property covenants may exist in a lease (ie, covenants between landlord and tenant or other parties to the lease) or in respect of freehold land. If it is a leasehold covenant, the question is whether there has been merger of the lease interest with the superior interest.
However, the query refers to a deed of release, not a deed of variation, so we assume that the question relates to a freehold covenant. We further assume that all the formalities such as annexation and notice are met, and that there are no unusual features, limits or powers of release in the wording of the covenant.
Unity of seisin (meaning unity of both ownership and possession) will extinguish the covenant in relation to the land in common ownership. This is because a party cannot contract with itself. If that is the case, the covenant is released by operation of law. While a deed of release will clarify matters and may ease removal of the notice on the register (if the land is registered), it would not technically be necessary.
The exception is where there is a building scheme. This requires, among other things, a series of mutually enforceable covenants between freehold owners of plots over an identified area, which covenants were intended to create a 'local law' as between owners. In a building scheme, unity of seisin would not usually extinguish the covenant. If the Council can release the covenant, that would only affect the position as between the two plots. Furthermore, the covenant might inadvertently 'reappear' if one of the plots is sold separately to the other without an express intention to the contrary (see Brunner v Greenslade).
Irrespective of whether or not there is a building scheme, the covenant would still benefit, and be enforceable by, the adjoining owners with the benefit of the covenant. There is power under section 84 of the Law of Property Act 1925 to discharge or modify a restrictive covenant where it limits user and should be considered obsolete, confers no benefit or advantage, or where all those entitled to the benefit agree to, or would be unaffected by, its release. However, this would require the Upper Tribunal to agree that a limit on rent receivable equates to a restriction on user.
This article was first published by LexisNexis. Please find the link here
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