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Dealing With Covenants And Building

Covenants can be tricky, but where there’s a will there can be a way for developers, writes Jenny Turner and Michael Brennan.

By: Jenny Turner

24 October 2023

Developers will be only too familiar with land covenants registered on the title of a property and the challenges they sometimes present.

Covenants are used by property owners to limit the future subdivision and development of neighbouring land, usually to preserve the character and nature of their neighbourhood. Typically, obligations or restrictions contained in covenants are binding for any future owner of that property and will often continue without expiry, unless the owners of every property affected agree to modify or “extinguish” them.

For developers, where there’s a will there is, on occasion, a way!

Where a property owner is bound by covenants or easements, Section 316 of the Property Law Act 2007 (PLA) allows the owner to apply to the courts to have these modified or extinguished, although not without providing significant evidence that none of the parties bound by the covenant will be in any way disadvantaged.

The court may, at its discretion, grant any such request after taking into account circumstances it considers relevant.

Recent cases underline the very important point that for a covenant to be changed in any way, let alone extinguished, the onus of proving that such modification will not negatively impact neighbouring properties protected by the existing covenant sits solely with the developer applicant.

Extinguished

In Chand v Auckland Council owners of a property affected by covenants preventing future subdivision applied to the court to have these extinguished. The owners cited recent changes to the Auckland Unitary Plan that provided for more intensive developments, and the public interest in providing higher density housing.

The court indicated it shouldn’t be too conservative in deciding whether to modify covenants, balancing this against loss that neighbouring property owners might suffer due to a change in their level of privacy, increased traffic and noise, and a decrease in value that may arise from higher density housing constructed on the neighbouring property.

But the court declined to modify the covenants as the applicants had failed to demonstrate that new two-storey housing near the property boundary wouldn’t negatively affect the privacy of the neighbouring properties.

Body Corporate 193056 v Paihia Property Holdings Corporate Trustee Limited concerned an applicant whose property was subject to a right of way easement in favour of a neighbouring property. That easement was in the middle of the applicant’s property, effectively limiting the applicant’s development potential and functioning like a restrictive covenant (a covenant not to do something).

Intangible Loss

The owner applied to relocate the right of way to their boundary to facilitate the development of their land. However, the court acknowledged that doing so would allow for intensive development that might result in the applicant’s neighbour suffering intangible loss such as an impairment of view, loss of privacy and unsightliness. The applicant failed to demonstrate that relocating the easement wouldn’t cause such injury, so the court refused the application.

Even with the recent introduction of more liberal zoning rules for our cities, the requirement for developers to prove “no loss” to neighbouring properties through modification to an existing covenant takes precedence. However, when a restrictive covenant is standing in the way of an opportunity to develop a property, developers should consider the PLA as a tool for removal or extinguishment of development restrictions, providing the argument stacks up.

Jenny Turner is a partner with Wynn Williams, specialising in property law, including residential development. This article has been co-written by Michael Brennan, an associate in Wynn Williams’ property team.

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