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Where land is subject to stringent covenants and easements, owners might find themselves in a position where they are unintentionally and unknowingly in breach of the covenant or easement, or purchased land that is burdened by an interest that restricts use of land for which it was intended. This is why it is important to obtain proper legal advice and carry out thorough due diligence before purchasing, building or renovating a home. Breaches of a covenant or easement may lead to a successful title requisition by a potential buyer, and you may face difficulty selling your home.
If parties are unable to reach a voluntary agreement to vary, and rectification of the breach is impossible or economically unrealistic, you may consider seeking a court intervention. Although courts are generally reluctant to intervene and change what contracting parties have agreed, section 317 of the PLA provides grounds on which intervention may be awarded. This position was confirmed in a recent case by the Supreme Court (Synlait Milk Limited v New Zealand Industrial Park Limited [2020] NZSC 157) where section 317 was accepted as parliament’s express intention that easements and covenant may be modified and extinguished via court order. The question is – when will the courts do so?
What is a Land Covenant?
A land covenant is a promise or agreement that the covenantor will or will not do something in relation to land. Once the covenant is registered on the title in correct form, the obligation runs with the land and binds future land owners for the term stated in the covenant instrument or, if not stated, in perpetuity. As examples, a land covenant may contain the following restrictions and obligations –
- Height restrictions of buildings, structures and/ or trees;
- Specifications of building materials and design;
- Restrictions on further subdivision of the land;
- Reverse sensitivity/covenants not to object; and
- Resource Management Act 1991 related covenants imposed for conservation purposes (for example requirements for the protection of native vegetation and pest control).
What is an Easement?
An easement registered against the title allows a grantee (the party benefiting from the easement) rights to use the grantor’s (party burdened by the easement) land for a specified purpose in a specified way. The grantor will usually have a corresponding duty to allow the grantee to carry out its rights. The following are examples of common types of easement:
- Right of way – vehicular or pedestrian;
- Right to convey water, electricity, telecommunications and/or computer media;
- Right to drain water or sewage;
- Right to overhang eaves; and
- Party wall.
Application for removal/ modification: section 317 of the PLA
All applications must be served on the entitled parties as well as the territorial authority of the affected land. The starting point is that covenants and easements are a contract relating land, and courts will be hesitant to override contractual property rights in the absence of good reason.
Case Examples
A. By agreement or waiver of all entitled persons – PLA s317(1)(c)
“Person entitled” is defined as an owner or occupier of the land who is entitled to enforce the easement or covenant. In your endeavour to obtain agreement, you should be mindful of all the entitled parties each of whom will be somewhere on a spectrum from remaining indifferent or vehemently opposed to your application. Consider the practical ways an entitled party benefits from the covenant or easement.
- What is the nature of the benefit the entitled party may lose and how best could you negotiate an amicable agreement?
- Consider whether modification of the covenant rather than a complete removal is workable.
- How could the new interest be worded so that it minimally interferes with the entitled party’s benefits? Could those rights be substituted in another way?
- Agreeing to cover the cost of an entitled party’s reasonable legal fees could also incentivise an agreement.
Under the 1952 Act (prior to its 1986 amendment) a successful application under this ground required the express agreements by all entitled parties which made the need for this section redundant as an express agreement to amend inevitably lead to a voluntary variation as opposed to an application for court order. The section now allows agreement by entitled parties to be implied from the act or omission of the entitled party.
Wilkinson v Campbell [2020] NZHC 159 was an application by an owner of the property bound by a height restriction. The previous owner of the property added a second storey to part of the house, and while the renovation complied with Council regulations, the owner was in breach of the height restriction in favour of its eight neighbouring properties. Five of the six respondents provided express consent to allow the property to remain as is. With regard to the remaining respondent, it was the court’s view that they had implicitly waived their right to the benefit of the covenant as they purchased their home after the covenantor’s home had stood in its current form for 12 years, and because the respondents failed to take steps in the proceeding after they had been made aware of the breach. If you are an owner who benefits from a covenant or easement, sitting on your hands may amount to an implied waiver of your rights.
B. No substantial injury to any entitled persons – PLA s317(1)(d)
To rely on section 317(1)(d), an applicant must satisfy the a court that the modification or removal “will not substantially injure any person entitled.” “Substantial” injury means injury that is “real, considerable, significant, as against insignificant, unreal or trifling” [Plato v Ashton (1984) 2 NZCPR 191]. The onus is on the applicant to prove a lack of substantial injury to the covenantee and this ground stands independently and is not limited by matters under sections 317(1)(a)-(c) of the PLA.
In Pollard v Williams [2019] NZHC 2029, a covenant required the owners of a 10 lot development to construct only new dwellings and to not relocate existing housings or use second hand materials. The Williamses intended to relocate a native timber, 1911 historic homestead. The homestead would be renovated to look new and finished to a high standard from the outside with the interior being restored in its original state as much as possible. All entitled parties, with the exception of Mr Pollard, agreed to vary the covenant that stood in the way of the Williamses’ plans. In the District Court, Judge Cathcart ruled in favour of the applicants and allowed the modification under section 317(1)(d) of the PLA. Mr Pollard appealed the decision.
Justice Cooke’s analysis began with a discussion on the purpose of the covenant. He turned to the specific wording of the covenant terms and noted in this particular case, the purpose of the covenant is to maintain the visual appearance of the development and to prevent anything that may become an eyesore to the entitled parties. The wording of the covenant was not so prescriptive as to require a particular style or quality of build. It was disclosed during cross examination of Mr Pollard that it was not the design or the look the property that he had concerns about. Rather, it was the concern that by allowing the modification of the covenant, the covenantees would set an unwelcome precedent that would have an adverse impact on the existing property interests of the development. The High Court upheld the decision of the lower court and noted that this proposal was so unique and one-off in its nature that a similar undertaking is unlikely to be carried out by other lot owners especially given the expense involved. The anticipated injury of setting an unwarranted precedent was not substantial in its circumstances.
C. A change in circumstance, or where a covenant/ easement imposes a restriction different from what was reasonably foreseen – PLA s317(1)(a) and (b)
Under section 317(1)(a) of the PLA, a common argument is that the relative advantages and disadvantages flowing from the covenant have become disproportionate due to a change in circumstance since the creation of the covenant, a change that is so different from what was reasonably foreseen by original parties. In the case of Re Barfilon Investment Limited [2019] NZHC 780 the court allowed the removal of a covenant that precluded the construction of a low cost building in the Drury, South Auckland area. The court noted a combination of factors, which included the issue of the Special Housing Order by Council, the change in zoning from Rural to Residential (zone mixture of Apartment Building, Mixed Housing Urban and Suburban etc.), and the issue of Council’s resource consent that effectively allowed the building of a large number of affordable houses. These factors combined, provided a sufficient change in circumstance since 1995 when the restriction was first put in place.
A careful look at Council documents including the LIM report as a starting point may be necessary to make an application under section 317(1)(a) and (b) of the PLA. Pay special attention to zone changes or Orders issued by Council that affect the intended use and development of the land.
D. The covenant is contrary to public policy, enactment or rule of law or any other reason where it would be just and equitable – PLA s317(1)(e) and (f)
Sections 317(1)(e) and (f) are grounds applicable to covenants only. The sub-sections were added on recommendation by the Law Commission and were seen as as necessary to balance the abuse of a covenantor’s power, particularly in situations where there is no benefitting land.
Sub-section (e) invites a balancing of public policy considerations against upholding property rights and the sanctity of contract. In Re Barfilon Investment Limited [2019] NZHC 780, the respondent argued that by keeping a covenant preventing the building of low cost homes would have minimal affect on the larger development as there was no suggestion that the remainder of the project could not proceed if the covenant was not modified. The court held that this argument could go both ways as it meant that the effects of the project were inevitable even if the court decided not to intervene and modify the covenant. With the scale not being quite tipped, the court concluded that it would modify the covenant taking into consideration the general public interest and need for large scale affordable housing development conveyed in the Special Housing Order issued by Council earlier.
Equitable reasons by themselves may not be a sufficient reason for the court to exercise its discretion. However equitable grounds, along with policy reasons should not be unnoticed as it may be the extra push required for a Judge to award an intervention.
Final Thoughts
The above examples are by no means an exhaustive list of considerations but rather a snapshot of prior examples where court intervention has been successful. As confirmed in the Synlait Milk case and by Suzanne Robertson QC in her Property Lawyer Journal article, the courts will take a two staged approached. Firstly, whether a section 317 ground is found, and secondly, whether court discretion should be exercised in light of all relevant factors. The second part of the analysis remains broad and undefined and intervention is to remain a discretionary order made by the courts.
If you have any questions about the subject matter, please get in touch with our Property and Litigation team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
