If you’re a law student, you might find the case of Amsprop Trading Ltd v Harris Distribution Ltd [1997] 1 W.L.R. 1025 really useful. It sheds light on how covenants are enforced and how we interpret the Law of Property Act 1925. The case also highlights the challenges of third-party rights in property law, particularly focusing on the limits of benefits that can be derived from covenants by those who were not originally involved in the agreement. 

  • In the case of Amsprop Trading Ltd v Harris Distribution Ltd [1997] 1 W.L.R. 1025, it was held that the Law of Property Act 1925 section 56 is that someone who is not a party to a deed cannot take the benefit of a covenant related to it, even if they have been named as such in the deed.

Facts of the Case Amsprop Trading Ltd v Harris Distribution Ltd

  • D was the sub-tenant of a property who had a covenant with the tenant to maintain and repair the property.
  • In addition, D had agreed to allow the landlord, C’s predecessor, to enter the property to examine repairs and recover the associated costs.
  • Having taken over as landlord of the property, C was unable to recover the costs of repair from D because they were not a party to the covenant.
  • C brought an action against D, alleging that the covenant was meant for the clear benefit of the landlord.
  • As such, under the Law of Property Act 1925 s56, ‘a person may take an immediate or other interest in land or other property, or the benefit of any condition, right of entry, covenant or agreement over or respecting land or other property, although he may not be named as a party to the conveyance or other instrument.’

Issues in Amsprop Trading Ltd v Harris Distribution Ltd

  • Was C, a third party to the agreement between their predecessor and the subtenant D, entitled to derive a benefit from the covenant on the basis of the 1925 Act?

Held by the High Court (Chancery Division)

  • Finding for D that since C was not one of the parties of the original covenant, they could only gain an advantage under the 1925 Act if the covenant was made for their individual benefit. Since the original covenant was made for the benefit of the preceding landlord, C was not entitled to benefit from it.

Neuberger J

  • On the facts C cannot claim to be a party to the covenant. It was expressly made solely by the parties of the original landlord and D as the subtenant of the property.
  • In Drive Yourself Hire Co v Strutt [1954] 1 Q.B. 250, Lord Denning considered that s56 of the 1925 Act allowed the courts to go back to the common law and allow third parties to sue on contracts expressly made for their individual benefit, or at least in cases concerning property.
  • With respect, Lord Denning’s view cannot stand in the light of the decision of the House of Lords in Beswick v Beswick [1968] A.C. 58. That case held that a third party cannot sue on a contract simply because it is made for their express benefit; it must purport to be made with them as a party to it.
  • “A provision such as a [Jervis v Harris] clause (which allows a landlord entry to examine what repairs need doing and claim the cost of doing them), which gives the landlords substantial powers, and in particular the power to carry out work at the tenant’s expense, should be construed narrowly rather than widely [1040].”

Significance of the Case in Legal Development

This case is pivotal for understanding the constraints on third-party rights under UK property law:

  1. Beswick v Beswick [1968]: Clarified the limitations on third-party rights to enforce contractual provisions, directly influencing the interpretation in Amsprop.
  2. Drive Yourself Hire Co (London) Ltd v Strutt [1954]: Discussed earlier in judgments and addressed how third parties might benefit from contracts they are not party to, which was contrasted in Amsprop.
  3. Jervis v Harris [1996]: Provides context on clauses similar to those discussed in Amsprop, specifically around landlord and tenant relationships and repair obligations.

Exam Questions and Answers

Below, you will find answers to questions that are most commonly asked based on this case.

How does current UK law reconcile the limitations imposed by Amsprop on third-party rights with modern commercial practices?

Under current UK law, particularly following the Amsprop case, there is a careful balancing act between protecting property rights and facilitating modern commercial practices. The Landlord and Tenant (Covenants) Act 1995, for example, addresses some limitations seen in Amsprop by allowing for the enforceability of covenants to successors in title, which is critical in dynamic commercial environments. This legislative shift supports more flexible, market-driven property dealings while still respecting the framework established by historical cases.

What are the broader implications of this case for lease agreements in commercial real estate?

The principles from Amsprop particularly impact commercial lease agreements, where clauses typically extend beyond the duration of individual tenancies. The case underscores the necessity for clear, consistent covenants in leases and the importance of ensuring these covenants are enforceable and appropriate for subsequent parties. This has led to more stringent drafting of lease documents to ensure that rights and obligations are clearly defined and transferable, which is vital in the fluid commercial property market.

Given the constraints on third-party rights in property law as highlighted in Amsprop, what impact does this case have on urban development and regeneration projects, especially in areas with complex property ownership structures?

The constraints on third-party rights as highlighted in Amsprop influence urban development, particularly in areas with fragmented property ownership. Developers often need to negotiate rights with multiple stakeholders, which can complicate regeneration efforts. The case has led to increased use of development agreements and detailed negotiations to ensure that all necessary rights are secured and covenants are enforceable by future developers and owners, facilitating smoother development processes.