Restrictions of Land Law on Freedom of Contract

Some elements of UK land law are in contravention with the freedom to contract. However, for the most part it seems that the LPA has tried to uphold that right. This essay will present the ways in which elements of land law can be in contravention with the doctrine of freedom of contract. The first part will be a look at the freedom of contract in detail. Next will be a look at land law and its elements. Then an analysis of how freedom of contract can be restricted. The fourth part will analyse how elements of land law can do that. This part will also demonstrate the possibility of justification for limiting the doctrine of freedom of contract. The conclusion will present the argument that while freedom of contract is a right, it is not absolute. 

Freedom of Contract

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Freedom must encompass good faith, fair dealing and public policy. FOC is defined as the right of an adult or entity to choose who to engage with and the terms on which to engage without interference from government. It is outlined that each party should look out for their own interests.  Sir George Jessel MR in Sampson expressed his belief in the freedom to contract as well as the sanctity of that freedom. He urged that interference of this right should not be haphazard.

However, Lord Denning MR in Finney equated FOC to a form of oppression to the weak. It was after this that the justice system decided to apply the true construction of the contract as a way to bring a bit of equality to the doctrine of FOC.

UK Land Law

The Law of Property Act 1925 was put in place to cover all manner of conveyancing and property handling in England and Wales. In relation to contracts, this act terms these agreements as covenants. The covenants are meant to be the terms under which land and property can be used or disposed of. These terms cover both freehold and leasehold land and properties. 

In every covenant, there are two parties. The party that agrees to the covenant; covenantor and the party with whom the covenant is made; covenantee. There are also two ways in which a covenant can affect the land. The covenant may impose a burden or it may be beneficial to the land. Burden means that the owner of the land has agreed to or not to do something in favour of another land. This is the freehold covenant. A restrictive covenant is prohibitive of a specific action that affects the land. Whichever land that bears the burden is termed as the servient, the other is a dominant tenement.

If the land changes hands, the covenant burden and benefit may not be passed to the successor under common law. There are instances where the successor may be sued or allowed to sue under equity. LL is quite complicated with regard to the common law and equity requirements as they often clash. These different requirements by equity and common law also affect the remedies for said breach.

For a burden to run under equity then it must require that the party not do something. This can be properly demonstrated by Haywood where it was found that a proper test would be if there needs to be payment for compliance of the covenant. The covenant must also benefit and involve the dominant tenement. There must be an intention to burden the servient land. If a covenant carries all these conditions then it runs with the land. That means that successors are bound by equity to adhere. 

For the benefit to be enforceable under common law, it must involve the land. The covenantee must also hold legal title at date of the covenant as outlined by the LPA. The buyer must also derive title from original covenantee. The intent of the benefit to run with the land must also be clear. If the covenant is lacking one of these conditions then it is better to turn to equity for remedies. Equity offers annexation, assignment and building schemes as remedies where common law has failed to pass the benefit. 

Ways in Which Freedom of Contract Can be Restricted

  1. Term Parameters

Where the courts try to dictate the terms of the contract, this would be considered contravention of the FOC. The freedom to choose the terms of the contract is one of the three main elements of the FOC and even contract law. However, it may be right to go against the doctrine of FOC if the terms are contrary to the law of the land or morality. Doctrines like the implied terms may prove problematic in this respect.

  1. Length of Contract

A party in a contract has the right to agree to or refuse the terms of termination. This includes the right to agree to inclusion of a termination clause. It also includes the right to include a clause on extension of the contract duration. In some cases it may be deemed unfair to include a clause on compensation upon termination by one party. This would however be going against the doctrine of FOC.

  1. Damages

The parties of a contract have a right to include a clause on damages in their contract. However, the law of the land limits the damages that can be necessitated by a contract to only the appropriate level. If the damages set out in the contract exceed a genuine estimate then it is left up to the court to decide what would be appropriate. 

  1. Liability

There could be some cases in which the law excludes or limits one party of the contract from liability upon loss or damage of property. This goes against the part of terms in the doctrine of FOC. It limits the freedom of the parties from exercising their freedom to set out whatever terms they deem fit. 

LL Restricts FOC

  1. Privity of contract

This is a doctrine that requires no strangers in the enforcement of a contract. In relation to FOC, it ensures that the parties only enter into contract with a person of their choosing. Therefore an unwanted party will not be foisted on the parties of the covenant. This doctrine also ensures that the parties only work with the terms of their choosing and not ones imposed on them. In Dodd, the plaintiff wanted to enforce the terms of a restrictive covenant entered into with the original purchaser. It was held that since the plaintiff was only contract with the Ward brothers, they were not subject to the covenant. 

However in LL, one can get a reprieve for such a case under equity. The Moxhay rules could have enforced the burden to the defendant. He would not be required to pay anything to adhere to the covenant. The covenant had an identifiable dominant land. The dominant land was concerned. This would have forced Dodd and Kelsey into an unintentional covenant thus contravening their right to choose whom to contract with and whether to or not to contract with them. 

  1. Proprietary Estoppel

This is a doctrine that gives one party rights to the property of another party despite the absence of express terms. This is very useful in cases where the second party would have been lacking in good faith and fairness if he had denied the first party rights. The first element of this doctrine is assurance, passive or active. This is some sort of informal promise or surety that the first party would eventually gain rights to the land. The first party must also show that they relied on the assurance. So much so that it spurred some action. The first party must also demonstrate the actions they took based on the said assurance like improvements on  the land. The court may then decide that the remedy in this case would be to hand the first party the land. 

With respect to FOC, choosing to enforce conveyance would be forcing a covenant where there probably would not have been one. The second party would have lost the right to choose with whom to contract.

  1. Delay in Claim

In Graham the defendant had gone against his restrictive covenant and built a structure on the plaintiff’s land. The plaintiff waited a while to bring claim about the breach of covenant. The court recognised that really the defendant had done wrong and awarded damages to the plaintiff. However, it was held that the damages were discounted due to the fact that the plaintiff took too long to report the breach. The silence was considered approval of the action. Even though it was not in good faith or fairness for the plaintiff to wait until the defendant had incurred costs of building the structure, the plaintiff’s damages were still discounted.   

  1. Covenants and Third Parties

Under common law, covenants are only enforceable to third parties under very rare and very specific circumstances. This is unless they were expressly mentioned in the covenant. This is the first instance of pushing the third parties into covenants they might not have interest in thus robbing them of their right to choose who to contract with. 

Third parties might also unwittingly find themselves in covenants by equity. Refusal to pass benefits or burdens could warrant intervention by the court. If all rules are fulfilled, they could be compelled to adhere to the covenants. 

For a benefit to pass, one is required to implement annexation, assignment or building schemes. This is a form of dictation of terms by the LL thus leaving parties in the covenant unable to manoeuvre around these requirements. The law provides remedies which might require one to change their intention so that they do not have to suffer through the tests of whether a benefit or a burden should run. 

In section 84 of the LPA  guidelines are given on how to modify restrictions. Apart from being subject to public interest which is reasonable, the act goes on to state other conditions. One such condition is that the restriction would be deemed obsolete. The same section, subsection 2 basically says that approval of the modification would be at the discretion of the court. This leaves one at the hands of the court. In this respect, the court will have control over the terms of conveyance thus contravening FOC. 

  1. Section 42(2) of LPA

This section prevents the purchaser and seller from outlining in the contract the responsibility of the purchaser to undertake responsibility of some of the miscellaneous expenses expected to occur in the period of engagement. This section voids such a covenant. There could be some cases where the purchaser and seller would like to have that as a condition in their contract due to one reason or other. For example, the seller is unable to undertake such financial responsibilities thus come to an agreement with the purchaser to cover them then recover in some other non-material way. This section leaves the parties in a similar or same situation unable to outline the terms they desire thus violating their right to contract on their own terms. 

Statutory Necessity of FOC Restriction

FOC is a right but it is not absolute as the mandate of government is to protect citizens. The restrictions are meant to be based on actions. These actions could be deemed hazardous to public welfare. Restriction is also necessary in cases where the doctrine of FOC is used as an avenue for exploitation of unwitting persons. This is especially true in instances where proprietary estoppel has to be applied for conveyance to occur. The owner exploits the other person’s reliance on assurance with no intention to transfer rights, all under the guise of freedom.

Bibliography

Ellinger E. P. ‘Privity of Contract Under Section 56(1) of the Law of Property Act 1925’(1963) 26 MLR 399 ˂https://www.jstor.org/stable/1093211?seq=4#metadata_info_tab_contents˃ Accessed 17 May 2019

E-Law Resources, Land Law: Proprietary Estoppel ˂http://e-lawresources.co.uk/Land/Proprietary-estoppel.php˃ Accessed 17 may 2019

Law of Property Act 1925 ˂https://www.legislation.gov.uk/ukpga/Geo5/15-16/20˃ Accessed 17 May 2019

Phew Conveyancing, Breach of Contract in Property Sale Transations ˂http://www.phewconveyancing.co.uk/articles/breach-of-contract-in-property-sale-transaction˃

Weber D. ‘Restricting the Freedom of Contract: A Fundamental prohibition’ (2013) 16 YHRDLH 57 ˂https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1116&context=yhrdlj˃ Accessed 17 May 2019

–Freedom of Contract. ˂https://www.revolvy.com/page/Freedom-of-contract˃ Accessed 17 May 2019

–Freedom of Contract ˂https://www.upcounsel.com/freedom-of-contract˃ Accessed 17 May 2019

–Land Law: Freehold Restrictive Covenants ˂https://www.lawteacher.net/modules/land-law/covenants/freehold-restrictive-covenants/lecture.php˃ Accessed 17 May 2019

Gafford v Graham [1998] 77 P & C.R. 73 ˂net/cases/gafford-v-graham.php”>https://www.lawteacher.net/cases/gafford-v-graham.php˃ Accessed 17 May 2019

Haywood v Brunswick Permanent Benefit Building Society [1881] 8 QBD 403 ˂

https://www.lawteacher.net/cases/haywood-v-brunswick-1881.php

Printing & Numerical Registering Co. v Sampson [1875] 19 Eq 462 ˂https://www.revolvy.com/page/Printing-and-Numerical-Registering-Co-v-Sampson˃ Accesses 17 May 2019

Tulk v Moxhay [1848] 41 ER 1143 ˂https://www.casebriefs.com/blog/law/property/property…/tulk-v-moxhay-2/˃

Accesses 17 May 2019

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