A Dried Up Rental Market…What are Freeholders to Do?
By the start of the 20th century, English land law had become extremely complex with the land ownership structure having changed beyond all recognition with many archaic estates (types of interest in land) still existing. Although many legal interests were recognised, (including certain conditional, determinable, and future interests) as well as straightforward freeholds and leaseholds, conveyancing was often problematic as it was difficult to tell exactly who had rights over a particular piece of land. Potential purchasers could not be certain that they had discovered all the rights and interests (encumbrances) that other people owned over the land they wanted to buy not did they know of those creditors who had the right to receive payments (known as charges). The housing of many people was also tied to their jobs.
So, In 1925 the Government of the day introduced the Law of Property Act 1925 the main statutory definition of the ownership and transfer of land. The central purpose of this Act was to reduce the number of legal estates that could exist in land so that buying and selling property would become much more simple. In short they kept freehold, characterised as ‘not being derived from, or conditional on, the estate of another’ and known as ‘fee simple in absolute possession’.
This meant that the freeholder owners of property in fee simple title held the right to:
- Own the property during their lifetime;
- Hold the land that buildings stand on for an infinite amount of time;
- Recover property;
- Use of the property;
- Commit waste upon the property;
- Mortgage the property;
- Put it up for security;
- Dispose of it either by deed or by will.
The other estate which was kept was that of leasehold, characterised as ‘an estate carved out of freehold’ and known as ‘terms of years absolute’. It’s origins actually date back to the manorial system of the Middle Ages where a form of land-holding was granted to tenants by the Lord of the Manor in the form of a title deed. A copy of this deed was recorded in the Manorial Court and as a result these land-holdings were known as copyholds.
In 1926 these copyholds were abolished and converted into freeholds or 999 year leases.This removed the manorial system so as a Lord of the Manor could only be Lord of land he directly owned, he was therefore compensated for the loss of this right.
After the second World War, flat occupation was really the only viable form of tenure as it was far more economical to build upwards in the form of blocks than outward in the form of houses. There was however a problem which started during the First World War. Around 90% of all housing in Britain was privately rented because people’s work and accommodation were tied. However, when landlords started taking advantage of the increased wages of munitions workers at the beginning of the war by arbitrarily raising rents, the first (temporary) Rent Act was passed in 1915 to try to prevent this. It didn’t work though and a further 12 Rent Acts were passed between 1920 and 1946. These not only limited the amounts by which the rents could be increased but also restricted the ability of the freeholder to evict. Whilst these Acts were not the only causes of the eventual drying up of the rental market they were nevertheless a major factor.
The idea of selling flats was pretty much unheard of, but as creating new feudal obligations was out of the question and the rental market had dried up, it became an increasingly interesting possibility as a potential means of raising outright capital for landlords.
Although many landlords didn’t want to give up their freeholds, those that did looked at the possibility of whether they could sell their individual freeholds, with buyers covenanting (promising) to take on specific maintenance obligations.
It wasn’t going to be easy though because there were distinct differences in the rules governing the enforceability of covenants (promises) in freehold law to those governing the covenants in leasehold law.
Freehold covenants are divided into ‘real’ and ‘personal’ and are most commonly used with references to sales or leases of land with a real covenant being a promise made concerning the use of the land.
These ‘real covenants’ were said to either ‘run with the land’ or ‘touch and concern the land’ meaning that:
- There had to be something attached to the land that could not be separated from it or sold without it, or;
- There had to be something inherent within the covenant itself, for example, covenants to pay rent or carry out repairs would ‘touch and concern’ the land but a covenant by the landlord to pay rates on other land wouldn’t. A covenant by the landlord to renew the lease would ‘touch and concern’ but not a covenant to sell the reversion at a stated price.
Variants Of Real Covenants
The real covenant had two variants – the ‘positive’ covenant (meaning to ‘do’ something such as to pay rent or to repair the property) and the ‘restrictive’ covenant (meaning ‘not’ to do something, such as cause a nuisance to neighbors). Both of these covenants had in turn a further two aspects to them – the ‘burden’ to either perform or not to perform by one party and the ‘benefits’ received by the other party as a result, who could then enforce them if they were not complied with.
Principles Of Real Covenants
In order to decide whether a real covenant ‘ran with the land’ there were two sets of principles – the common law rules which were always applied first and the equitable rules. Early English common land law restricted the use of the real covenant by not allowing the positive burden of freehold covenants between adjoining land owners to ‘run with the land’ in the same way a restrictive covenant did.
What this meant was that any landlord who owned a flat on a ground floor would be able to bind later buyers (successors in title) to any positive obligations because the covenant did ‘run with the land’. However, flats on the floors above were not on land and so didn’t have any specific land to run with. So successive owners of those flats were not bound to abide by any positive obligations such as keeping a structure in repair.
Whether these ‘flying freeholds’ were looked after well or badly depended on how each individual owner behaved and it was incredibly difficult to create a covenant to keep up the maintenance on these areas that would be binding through multiple sales of the properties.
So what did freeholders do next? They started to look at equitable law because those courts had devised the equitable servitude to address the perceived unfairness of the real covenant, more of which can be read here.