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It is not sufficient simply to rely on a covenant between the original
parties – if the land is sold prior to the overage trigger event occurring
there will be no privity of contract between the respective owners
when the condition is eventually satisfied. Moreover, the burden of a
positive covenant does not run with the land at law or in equity (unlike
the burden of restrictive (i.e. negative) covenants which can run in
equity to bind a buyer). The fact that a subsequent buyer knew of the
covenant does not mean that he is bound by its provisions if it is a
positive covenant. Courts will look at the substance rather than the
form of a covenant in order to determine whether it is positive or
negative. Generally, covenants requiring expenditure of money for
their performance are positive in nature (e.g. Austerberry
Corporation v Oldham (1885) 29 ChD 750). Express obligations to
pay overage are therefore generally regarded as positive.
Accordingly, where an obligation to pay overage is contained in a
positive covenant, it must be supported by some other legal device.
One of the most common ways to protect a positive overage covenant
is to ensure that the buyer also covenants to ensure that its successors
in title will enter into a similar commitment to the seller. A restriction
is then placed against the buyer’s title preventing any dealing with the
land without the consent of the seller. This method of protecting
overage rights has the benefit of being simple and cost effective as a
standard form restriction can be used (Form N is the one most often
used for overage). The use of a restriction to secure overage obligations
is in wide use. However, where the land is to be purchased by way of
mortgage, the co-operation of the bank will be required.
Many different techniques have been developed to protect overage and
it is necessary to give consideration to the risks involved and what may
or may not be appropriate depending on the nature of transaction and
the parties thereto. For example, another form of possible protection is
the use of a ransom strip of land, which would be retained by the seller
so as to prevent development until the overage is paid. However, this
would not be applicable where the buyer has an alternative means of
access. An alternative mechanism is for the seller to take a charge over
the land to secure the future overage payment. However, this will not
usually be appropriate if the land is to be purchased with the aid of a
mortgage as the bank may insist upon having a sole legal mortgage
over the land. A lender may allow the seller to take a second mortgage
over the land but the lender will want to ensure that its mortgage takes
priority.
The seller could impose a restrictive covenant on the land, for example
a covenant not to build or develop the land. It should be noted that
attempting to rely on a simple restrictive covenant, without reference
to money, could cause its own problems. Use of this device requires
that the seller retain some land as there must be some land with the
benefit of the restrictive covenant. Under section 84(1)(aa) of the Law
of Property Act 1925 the Lands Tribunal (Upper Tribunal) has powers
to vary and/or release restrictive covenants where the covenant
prevents “some reasonable user” of the land for public or private
purposes. Moreover, compensation payable for variation or discharge
of such a covenant would be determined by reference to the “loss or
disadvantage” suffered by the discharge or variation – i.e. essentially
the diminution in value of the land that had benefited from the
covenant, rather than the development value of the developed land.
In summary, where the parties have agreed that overage provisions
will form part of a sale, practitioners must ensure that the sale
agreement is drafted clearly so as to address the issues of when
overage will be payable (the trigger event) and how much it will be (the
method of calculation). It is also vital to consider how best to secure the
overage obligation and which legal device is most suitable for the
particular transaction.
Andrew Sheftel
TC
ACQUIRING FREEHOLD
ARE MISSING
Cecily Crampin considers the options open to long leaseholders
When leases are long with little reversionary interest and ground rent is
low, it is not uncommon for landlords to go missing leaving properties in
an increasing state of disrepair. An obvious solution is for the lessees to
acquire the freehold. Advisors for lessees in situations such as these may
suggest collective enfranchisement using the missing landlord procedure.
This article suggests that an acquisition order should be considered as an
alternative route.
Acquisition orders, made by the county court under the Landlord and
Tenant Act 1987 (“LTA”) are often thought of as a second stage to the
court’s power to appoint a manager for premises. However, an acquisition
order can be made, even when there has been no such manager, if the
landlord is in breach of an obligation to the tenants that relates to the
management of the premises, and that breach is likely to continue. It is
this provision, s29(2) of the LTA, which assists where the landlord cannot
be found, since a landlord who cannot be traced will likely be in breach of
any covenants to repair, maintain, improve and insure the premises.
Tracing the landlord
Both applications for acquisition orders and claims for collective
enfranchisement usually start when the qualifying tenants issue a notice
to the landlord, the preliminary notice for acquisition orders and the
initial notice for enfranchisement. For both, the relevant statute sets out
what tenants should do if the landlord cannot be traced. The
requirements are similar.
Section 26 of the Leasehold Reform, Housing and Urban Development Act
1993 (“LRHUDA”) governs missing landlords in enfranchisement. Where
neither the freeholder nor any intermediate landlords can be found, the
tenants should apply to the county court for a vesting order. For
acquisition orders, an application under s27 of the LTA to dispense with
service of the preliminary notice must be made, as well as the application
for an acquisition order.
In both cases, the court may require the tenants to take further steps to
trace the landlord. No statutory suggestions are made for acquisition
orders, but the requirements are likely to be similar to those for
enfranchisement, in which advertisement is specifically mentioned
(LRHUDA s26(5)). In both cases, tenants should check the Land Register,
the electoral roll and the register of deaths, and consider advertising in
local and national papers.
Qualifying tenants and qualifying premises
The qualification requirements for acquisition orders are very similar to
those for collective enfranchisement. In both cases, qualifying tenants
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