Goodman v Elwood

 

The Message

A positive covenant may burden successors.

The Case

Under English law, a positive covenant (such as maintaining a wall or making a payment) does not run with the land. That means that if the person with the obligation sells the land, his successor is not automatically bound. Goodman v Elwood [4 September 2013] considered an exception where a successor to a positive covenant may be bound.

A company owned the freehold of an estate and there were some units on the estate, each adjoining a roadway. The units were held on long leases by Mr Goodman and others who were charged for using the road. The company was negotiating with the tenants to sell them the freehold in their units. Simultaneously the company was negotiating with Mr Elwood to sell him the freehold of a substantial part of the estate including the road.

Elwood completed his purchase which included the road. The company reserved for itself, its successors and tenants a right to use the road. Elwood covenanted to maintain the road and, in return, the company covenanted with Elwood that it and its successors to certain retained land on the estate would pay sums certified by Elwood’s surveyor to be fair and reasonable proportions of the expense incurred by Elwood in maintaining the road.

Subsequently, Goodman bought the freehold in his unit from the company. The transfer to Goodman obliged him to pay sums certified by the company’s surveyor as being a fair and reasonable proportion of expenses incurred by the company and its successors in maintaining the road. A dispute arose about Goodman and others’ contractual liability to contribute to maintenance, stemming from the company no longer being the owner of the road when it completed the sale to Goodman and not being able to carry out the works.

The company assigned to Elwood the benefit of Goodman’s covenant to pay. Elwood sued Goodman and others for arrears of contributions to maintenance. Goodman resisted on the basis that, since Elwood had incurred the expenses, Goodman had no liability. The Court of Appeal, however, disagreed and held Goodman and others liable.

A reasonable bystander would have known that the covenant’s purpose was to require the unit owners to contribute to the costs of road maintenance carried out by the company or its successors. To state otherwise would be to destroy the commercial purpose of the bargain.

It was also held that the positive covenant to pay the costs was enforceable against successors in title. This can happen where, in the same transaction, a right such as being able to use a road is, as a matter of substance, conditional on the user paying towards its maintenance, so that a successor has to pay for it if he wishes to use it.

In the case, there was a clear link between the right and the obligation to contribute. The document’s language contemplated payments not only by the company, but also by successors in title. Successors to part of the land like Goodman would, as a matter of equity, assume a burden of contribution appropriate to the land acquired. The burden of such a positive covenant would not need to be registered at the Land Registry.