A common instrument registered against a title is a land covenant. Land covenants can have implications for both current and future owners – if care is not taken to adhere to their exact requirements, they can create complex, costly and time-consuming situations.
In this guide, we delve into the intricacies of land covenants in New Zealand, explore their purposes, types, enforcement, removal, and the implications of non-compliance.
What is a land covenant?
A land covenant is a legally binding agreement that imposes certain restrictions or requirements. It is registered against a title and affects how a landowner (including the occupants, tenants, agents or workers) can use the land. This affected land is known as the “burdened land”.
The land covenant is often for the benefit of another property (such as neighbouring land, or the other properties in a development). In some cases, though, the land covenant may be “in gross”, being for the benefit of a specific person or legal entity (such as a Council or residents’ society/homeowners’ association). This land (or party) is known as the “benefitted land” (or “benefitted party”).
Historically, the burdened and benefitted land were called the “servient tenement” and “dominant tenement” respectively.
Land covenants are usually registered in perpetuity. In some cases, land covenants (or certain provisions in them) may have an expiry date or expire on certain conditions. If a land covenant is of limited duration, this is often (but not always) recorded on the title – the terms of the covenant should always be carefully reviewed to determine if there are expiry factors.
Purpose and types of land covenants
Land covenants serve various purposes. These range from preserving the aesthetic appeal of a neighbourhood, to ensuring compliance with specific building standards, or to protecting environmental features.
There are two types of land covenants: positive and negative. Positive covenants contain rules that require a property owner to do something, such as to build using particular materials or to build and maintain a fence. On the other hand, restrictive covenants prevent a landowner from doing something, such as preventing them from subdividing or building over a certain height.
It is important to note that land covenants are private arrangements, and as such Councils do not consider them when issuing resource consents. This can result in an activity being permitted under the district plan (for example, subdivision) but not being permitted under a land covenant. Obtaining a resource consent will not negate your obligations under a land covenant.
Enforcement and breaches
Land covenants will often contain mechanisms for enforcing the provisions, including liquidated damages for non-compliance. Land covenants also commonly contain provisions for how any dispute should be resolved in the first instance. As such, when a breach occurs or is alleged, the covenant terms need to be reviewed to ensure that the correct processes (for giving notices of the breach, dispute resolution and enforcement) are followed.
Ultimately, land covenants can be enforced in the Courts by any benefitting party/-ies. This may be required if the land covenant does not contain any express dispute resolution provisions, or if the dispute cannot be resolved under the covenant provisions (for example, the breaching party refuses to remedy the breach). Court remedies include injunctions, forced compliance and/or damages.
Removing or modifying a land covenant
A land covenant can be revoked or varied with the unanimous consent of all the parties involved (both burdened and benefitting). Any chargeholder (such as a mortgagee or encumbrancee) and caveator of the benefitted land must also consent to the revocation or variation of the land covenant. Each party would need to sign revocation or variation instruments as well as registration forms. The revocation or variation instruments would be registered against the titles to the benefitted and burdened land.
Revoking or amending a land covenant by unanimous consent is almost always the most straightforward and cost-effective option. However, sometimes unanimous consent is not possible or feasible (for example if there are a significant number of benefitted properties). In these circumstances, a court application would be required.
The High Court has jurisdiction to modify or extinguish land covenants under section 317 of the Property Law Act 2007 (PLA). Section 317 provides that a land covenant may be modified or extinguished in the following circumstances:
- there has been a change since its creation in all or any of the following:
-the nature or extent of the use of the benefited land, the burdened land, or both;
-the character of the neighbourhood; or
-any other circumstance the court considers relevant;
- continuation of the land covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from what could reasonably have been foreseen by the original parties at the time of its creation;
- every person has agreed the land covenant should be modified or extinguished, or may reasonably be considered (by acts or omissions) to have abandoned or waived the right to the covenant;
- the proposed modification or extinguishment will not substantially injure any person;
- the land covenant is contrary to public policy, or to any enactment or rule of law; or
- for any other reason if the court considers it just and equitable.
If successful, the court order would be registered against the titles to the benefitted and burdened land.
Recent cases
Recent cases have produced different outcomes for applications under section 317 of the PLA.
2020 Supreme Court decision of Synlait Milk Ltd v New Zealand Industrial Park Ltd (Synlait)
The land covenant in question in Synlait restricted the use of the burdened land (owned by Synlait Milk Ltd, SML) to farming and forestry, and the purpose was to protect the benefited land’s owner’s (New Zealand Industrial Park Ltd, NZIPL) ability to undertake quarrying activities. The land covenant was for a term of 200 years.
The Supreme Court (SC) in Synlait held that the broad language of section 317 of the PLA indicated that cases do not need to be exceptional and that Parliament clearly intended that property rights under land covenants can justifiably be taken away. The SC held that the land covenant could be modified for several reasons:
- modification would not substantially injure NZIPL;
- there was a low chance that an application for resource consent for quarrying activities would be made, and if it was obtaining consent would be complex and difficult;
- the presence of a factory on SML’s burdened land would have a low impact on any future resource consent application for a quarry;
- changes in the neighbourhood meant that the land covenant should be modified, and planning changes had altered the character from rural to major industrial and residential (and uses permitted for SML’s burdened land by the land covenant were now non-complying activities);
- the subdivision of the benefited land and changes of ownership were relevant factors;
- it was notable that areas of the benefited land were not subject to restrictive covenants even though they were closer to the quarry site than the burdened land; and
- the term of the land covenant was not of great significance because they did not have a continuing purpose.
2021 Court of Appeal decision of Chand v Auckland Council (Chand)
However, shortly after the SC had cautioned in Synlait against interpreting property rights too broadly, the Court of Appeal (CoA) returned to a more conservative approach in Chand.
The land covenant in question in Chand applied to eight titles and limited subdivision and construction. All properties were the burdened and benefitting land. The Chands’ lot was 2,229 m2, which they proposed to subdivide into five. There had been valuation evidence that modification of the land covenant would substantially injure the other owners of about $100,000 on the value of each neighbouring property. However, the Chands disputed this valuation evidence and suggested that the damage to the neighbours was mostly loss of amenity value during construction, and the enduring loss should be valued between $7,000-$10,000 per property.
The CoA held that modifying the land covenant in question would cause enduring injury in the form of loss of view, loss of privacy and intrusion of traffic and noise to the other owners. The CoA refused to modify the land covenant and therefore re-elevated property rights and emphasised their importance.
2022 High Court decision of Siganporia v Auckland Council (Siganporia)
This High Court (HC) case involved a land covenant registered in 1967. Despite none of the respondents opposing the application under section 317 of the PLA, the HC did not agree to the modification request. The HC found that there was no evidence to establish a change in the character of the neighbourhood between the land covenant being registered in 1967 and the present day, and that such a land covenant provides a purchaser with assurance that minimum standards will be maintained into the future for sites within the subdivision.
The HC also noted that a land covenant may be imposed because the possibility of change is foreseen and is sought to be resisted. The HC also refused to vary the land covenant on public policy grounds, and speculated that a successful public policy argument may apply to compulsory acquisitions under the Public Works Act 1981 or if a land covenant precluded a transfer to someone of a particular race or gender.
Summary
In contrast to the SC’s expansive approach in Synlait, the CoA in Chand and the HC in Siganporia applied a conservative approach to applications under section 317 of the PLA. Across all three cases, the Courts’ approach to applications under section 317 of the PLA was fact dependent and there was a high evidentiary requirement before the Courts will interfere with existing registered property rights.
Application of the Commerce Act 1986 to anti-competitive covenants
Section 27 of the Commerce Act 1986 (CA) prohibits provisions in contracts, arrangements or understandings which have the purpose, effect or likely effect of substantially lessening competition. Section 28 of the CA specifically prohibits covenants (including registered or unregistered land covenants) that have such a purpose, effect or likely effect, and provides that these covenants are unenforceable. In June 2022, sections 28A through 28D inclusive of the CA were inserted to prevent the use of land covenants restricting competition in the grocery sector.
If it is established that a land covenant is in breach of the CA, penalties can be heavy. There are certain exceptions to these provisions, including covenants which the Commerce Commission has previously granted an authorisation or given a clearance.
Summary
The implications of land covenants can be significant for both current and future owners. Before purchasing a property subject to a land covenant, it is essential to thoroughly understand the terms and implications of the land covenant, as they could restrict certain land uses or development plans. Failure to comply with land covenant requirements can lead to costly legal disputes and may hinder future property transactions.
For further information on land covenants, including applications under the PLA, please contact a member of our property team.
Special thanks to Associate Patrick Rozendaal for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
