In business law, vertical privity is the relationship between companies in a distribution chain (e.g. a manufacturer and a distributor). Those in vertical privity are jointly liable for product defects in the vertical chain.
Vertical privity is required in the real covenant of real property law. Real covenant is a written promise of a party to do or refrain from doing something related to the land. Instead of granting a property interest like an easement, it’s a promise regarding the land or a limitation of the contract, which will run with the land.
For the burden or benefit of the covenant to be enforceable, all of following requirements must be met: 1) original promise must satisfy the statute of frauds; 2) the original parties intent that the covenant runs with the land; 3) a horizontal and vertical privity relationship exist; 4) the covenant must touch and concern by restricting the servient estate owner’s right of using the land, or by authorizing dominant estate owner’s rights to require the servient estate to do something; 5) the succeeding party must have (actual, constructive or by inquiry) notice of the covenant.
Vertical privity is the relationship that exists between a party of original conveyance (i.e., grantor or grantee, promisor or promisee) and a subsequent party who acquires the real property (i.e., grantee’s assignee, purchaser). The subsequent party is bound by the real covenant if they have sufficient notice of it at the time of purchase. Vertical privity would not arise in connection with the conveyance of an easement interest.
Horizontal privity would be the connection between the original promising parties, which only run with the burdened property.
[Last updated in March of 2022 by the Wex Definitions Team]