Restrictive Covenants: When an Obligation Runs with the Land
Chapter Seventeen
Syllabus topic 1.2, "Restrictive Covenants"
Pages 88 to 92 of 378
In one line
If you promise not to use your land in a particular way, that promise can bind the next person who buys the land, provided he knew about it or paid nothing for the land.
In exam wording: section 40 provides that a right to restrain the enjoyment of another's immovable property for the more beneficial enjoyment of one's own, and the benefit of an obligation arising out of contract and annexed to the ownership of immovable property but not amounting to an interest or easement, may be enforced against a transferee with notice or a gratuitous transferee, but not against a transferee for consideration without notice.
Why the law lets a covenant run
The starting point of contract law is privity: a contract binds the people who made it and nobody else. If that were the whole story, a covenant restricting the use of land would be worthless, because the covenantor could sell the land the next day and the buyer would take it free.
That would defeat sensible arrangements. A person who sells half his garden and takes a promise that nothing will be built on it has bought quiet and light for the half he kept, and paid for it in the price. The law protects that by letting the burden of the promise attach to the land itself, so that it follows the land into the hands of those who take with knowledge of it.
But the protection has a limit, and the limit is notice. A purchaser who pays full value knowing nothing of the covenant cannot fairly be bound by a bargain he never saw, so the law lets him take free. The section is therefore a compromise between the covenantee's expectation and the innocent purchaser's security, and it is resolved exactly as section 39 resolves the maintenance question.
The provision itself
Section 40 has two limbs, and they are different in kind.
The first limb, a restrictive right. Where, for the more beneficial enjoyment of his own immoveable property, a third person has, independently of any interest in the immoveable property of another or of any easement thereon, a right to restrain the enjoyment in a particular manner of that other property.
Notice what is being described: a right to stop somebody doing something on his own land, which is not an ownership interest in that land and is not an easement. It sits in a category of its own, and section 40 exists because it did not fit anywhere else.
The second limb, the benefit of a contractual obligation. Where a third person is entitled to the benefit of an obligation arising out of contract and annexed to the ownership of immoveable property, but not amounting to an interest therein or easement thereon.
Restrictive Covenants: When an Obligation Runs with the Land
The enforcement rule, common to both. Such a right or obligation may be enforced against a transferee with notice of it, or against a gratuitous transferee of the property affected, but not against a transferee for consideration and without notice of the right or obligation, nor against such property in his hands.
The Act's illustration shows the second limb doing its most important work:
A contracts to sell Sultanpur to B. While the contract is still in force he sells Sultanpur to C, who has notice of the contract. B may enforce the contract against C to the same extent as against A.
This is worth dwelling on, because it is the practical heart of the section for an Indian student. An agreement to sell creates no interest in the land: section 54 says in terms that a contract for sale does not of itself create any interest in or charge on the property. So the buyer under an agreement to sell has no proprietary right. What he has is the benefit of an obligation annexed to the ownership of the land, and section 40 lets him enforce it against a later purchaser who had notice. That is the statutory foundation of a suit for specific performance against a subsequent transferee.
What the right is, and is not
Section 40 describes the right in negatives twice: not an interest in the property, not an easement. Its exact nature is best put as an equity annexed to the land, enforceable against those who take the land with notice.
The consequence is that it does not bind the world. It binds:
- a transferee with notice, actual, constructive or imputed under section 3; and
- a gratuitous transferee, whether or not he had notice, because he gave nothing.
It does not bind a transferee for consideration without notice, who is the classic bona fide purchaser, and it does not bind the property in his hands, so it cannot be revived if the property later passes to someone who does know.
Section 40 and the second paragraph of section 11
These two provisions are two halves of one idea, and holding them together answers most problems on this topic.
Section 11 says a direction as to how an absolute interest is to be enjoyed is disregarded. The second paragraph of section 11 excepts a direction made in respect of one piece of immovable property for the purpose of securing the beneficial enjoyment of another piece of such property, and preserves the transferor's right to enforce it.
Section 40 then tells you against whom such a right can be enforced once the burdened land has changed hands.
Restrictive Covenants: When an Obligation Runs with the Land
So the sequence in a problem is: is there a direction restricting the use of land? If it protects the transferor's other land, section 11's second paragraph saves it from being struck out. If the burdened land has since been sold, section 40 decides whether the new owner is bound, and the answer turns on notice and consideration.
A worked example
Vidya owns two adjoining plots at Chembur, plot A and plot B. She sells plot B to Waman by a registered deed containing a covenant that Waman and those claiming under him will not build above one storey on plot B. Vidya keeps plot A, whose sea view the covenant protects.
Is the covenant good in the first place? Yes. It is a direction restricting the use of plot B, made for the beneficial enjoyment of plot A, which Vidya retained. The second paragraph of section 11 preserves it, and it falls within the first limb of section 40 as a right to restrain the enjoyment of another's property for the more beneficial enjoyment of one's own.
Waman sells plot B to Xerxes, whose sale deed recites the covenant. Xerxes has actual notice. Vidya may enforce the covenant against him under section 40.
Waman instead sells plot B to Yusuf for full value. The covenant was in a registered deed, and Explanation I to section 3 deems a person acquiring the property to have notice of a registered instrument that the law required to be registered and which was properly registered. Yusuf is fixed with constructive notice and is bound.
Waman gifts plot B to his son Zain, who has never heard of the covenant. Zain is a gratuitous transferee and is bound whether or not he had notice.
Waman sells plot B to a buyer for full value in a State where the deed was not registrable and nothing put the buyer on enquiry. That buyer is a transferee for consideration without notice, takes free, and the covenant cannot afterwards be enforced against the property in his hands.
Now the illustration's situation. Suppose instead Vidya had contracted to sell plot A to Anil, and while that contract was still in force sold plot A to Bhushan, who knew of Anil's agreement. Anil has no interest in plot A, since a contract for sale creates none. But under section 40 he may enforce the contract against Bhushan to the same extent as against Vidya.
What it does NOT mean
It does not create an interest in land. Section 40 says so twice: the right is independent of any interest in the other property and does not amount to an interest or easement.
Restrictive Covenants: When an Obligation Runs with the Land
It does not bind everybody. Only a transferee with notice, or a gratuitous transferee.
It does not survive a sale to a purchaser for value without notice. The section adds that it cannot be enforced against the property in his hands, so the equity is destroyed rather than suspended.
It is not an easement. An easement is a right in the land of another, acquired and extinguished under the Indian Easements Act 1882. A covenant under section 40 is contractual in origin and binds by notice.
A positive obligation is not generally enforced by this route. The first limb is a right to restrain enjoyment. The second limb speaks of an obligation annexed to ownership, and the illustration is a contract of sale; a covenant requiring the owner to spend money is a different matter and is not what the section is aimed at.
It is not the same as sections 10 to 12. Those strike restrictions down. This enforces them.
Distinctions
| Sections 10, 11 and 12 | Section 40 | |
|---|---|---|
| What the Act does with the restriction | Strikes it down | Enforces it |
| The restriction attacks | The transferee's power to alienate, or his freedom to enjoy an absolute interest | The use of land, for the benefit of the covenantee's own land |
| Whose interest it serves | Nobody's, beyond the transferor's wish for control | The beneficial enjoyment of the transferor's other immovable property |
| Result | The transfer stands, the condition is void | The obligation binds transferees with notice and gratuitous transferees |
| Easement | Right under section 40 | |
|---|---|---|
| Nature | A right in the land of another | Not an interest in land and not an easement |
| Source | Grant, prescription or necessity, under the Indian Easements Act 1882 | Contract, annexed to ownership |
| Binds | The servient land generally | A transferee with notice, or a gratuitous transferee |
| Registration | May be required | Notice is what matters, and registration supplies it |
Quick revision
- Section 40 has two limbs: a right to restrain the enjoyment of another's land for the more beneficial enjoyment of one's own; and the benefit of an obligation arising out of contract and annexed to the ownership of immovable property.
- Neither amounts to an interest in the land or an easement.
- Enforceable against a transferee with notice and against a gratuitous transferee; not against a transferee for consideration without notice, nor against the property in his hands.
- Notice includes constructive and imputed notice under section 3, and a registered deed supplies it by Explanation I.
- The illustration is the key: A contracts to sell Sultanpur to B, then sells to C who has notice; B may enforce against C as against A. This is the basis of specific performance against a later purchaser.
- Pairs with the second paragraph of section 11, which saves a direction made to secure the beneficial enjoyment of the transferor's other property.
- Contrast sections 10 to 12, which strike restrictions down.
Restrictive Covenants: When an Obligation Runs with the Land
Test yourself
1. What kind of right does section 40 protect? A right to restrain the enjoyment of another's immovable property for the more beneficial enjoyment of one's own, held independently of any interest in that property or easement over it; and the benefit of an obligation arising out of contract and annexed to the ownership of immovable property but not amounting to an interest or easement.
2. Against whom can it be enforced? Against a transferee who has notice of it, and against a gratuitous transferee. Not against a transferee for consideration without notice, nor against the property in his hands.
3. A sells a plot with a covenant not to build a factory on it. The buyer resells to X for full value, the covenant appearing in the registered deed. Is X bound? Yes. Explanation I to section 3 fixes X with notice of a properly registered instrument that the law required to be registered, so X is a transferee with notice and section 40 binds him.
4. Does an agreement to sell create an interest in the land? No. Section 54 provides that a contract for sale does not of itself create any interest in or charge on the property. The buyer's protection against a later purchaser comes from section 40, which lets him enforce the obligation against a transferee with notice.
5. How does section 40 differ from section 11? Section 11 disregards a direction as to the enjoyment of an absolute interest; its second paragraph excepts a direction securing the beneficial enjoyment of the transferor's other property. Section 40 then decides against which later owners such a right can be enforced.
6. Is a covenant under section 40 an easement? No. The section says the right is independent of any easement and does not amount to one. An easement is a right in the land of another under the Indian Easements Act 1882; a section 40 right is contractual in origin and binds by notice.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.