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COVENANTS AFFECTING LAND

Enforceability of Land Covenants

A covenant, in the context of, or in relation to, land, is a reference to an obligation concerning the land, whether that obligation be positive or negative (i.e. restrictive) in nature. The purpose of land covenants is generally to preserve the value of the land and to protect its amenity and exclusivity. Most commonly, a buyer purchasing land in a new estate will discover that the contract contains various developer or building covenants, which the buyer must also assign to, pursuant to a deed of covenant, to any new buyer if the buyer decides to sell that land. 

Where the covenant is created by contract or deed between the original parties it is enforceable between the original parties on the basis of the law of contract (and there is no need for recourse to any other area of law or source of legal obligations). Where a person is not a party to the original contract, there are circumstances in which restrictive covenants that run with the land may  be enforceable in the law of equity (despite there being no privity of contract or privity of estate between the parties). 

At common law, on the other hand, the benefit or burden of a covenant does not run with the land, and therefore is not enforceable between successors in title, unless it can be shown that a relationship of privity of contract or privity of estate existed between the parties. Legislative provisions (such as sections 13, 53 and 55 of the Property Law Act 1974 (QLD)), to the effect that a covenant is made with the covenantor and the covenantor’s successors in title or that a third party may enforce the benefit of a covenant even though they are not expressly named in the original instrument, do not override this common law position.

Whether a covenant is enforceable in equity will depend on the characterisation of the covenant as either positive or negative (also known as a restrictive covenant) and the satisfaction of a number of other equitable conditions (for example, that the restrictive covenant “touches and concerns” the land in question).  A restrictive covenant (as the name suggests) restricts the use of the land and obliges the owner or the relevant interest holder of the servient tenement (i.e. the burdened land) not to use the land in some way which he or she would otherwise be entitled to use by virtue of that ownership or interest in contravention of the restrictive covenants running to the benefit of the dominant tenement (i.e. the benefited land). 

The law of equity (being, as some lawyers might refer to it, the law of conscience) will only enforce restrictive covenants between successors in title as enforcing positive covenants between non-contracting parties is, it has thus been considered, a step too far. Some examples of restrictive covenants may include prohibiting the owner of land from building no more than one house on that land (to be used as a private dwelling house only), prohibiting the erection of flats or sheds, imposing height limits on buildings, prohibiting the use of certain building materials, prohibiting the erection of fences, prohibiting the use of certain colours, or limiting the business/es that may be carried on that land.

A positive covenant on the other hand requires an act to be done and money to be expended in relation to the land. Whether a covenant is restrictive or positive in nature is a matter of substance not form. Importantly, a restrictive covenant creates an equitable interest in the land, and not merely a personal contractual right, hence the Courts preparedness to enforce restrictive covenants as between successors in title.

The law on covenants (and enforceability of restrictive covenants) is complex and full of technicalities and traps. If you wish to enforce (or deny the enforceability of) a covenant, or if you wish to seek to modify or extinguish a covenant by Court order, you need to speak to an experienced lawyer in property law and commercial litigation.


Do you have to be a party to the original contract to enforce a covenant?

You do not have to be a person expressly named as a party to the original contract (creating the covenants) in order to enforce the covenants, provided that the covenants are restrictive in nature, that is, they require the covenantor  (i.e. the owner of the burdened land) to refrain from some use of the burdened land rather than imposing any positive obligations.

The covenant must also have been made for the benefit of the original covenantee’s land rather than for the original covenantee personally, and must be capable of benefiting the land. As with all equitable proprietary interests, the covenant cannot be enforced against a bona fide third party purchaser of the burdened land without notice, but only against a person who acquired the land with notice of the covenant.

In what circumstances is a restrictive covenant enforceable by a successor in title?

A restrictive covenant may only be enforced by a successor in title if there is:

  1. an annexation of the benefit of the restrictive covenant to the land;
  2. an assignment of the restrictive covenant to the successor in title; or
  3. an application of the equitable principles of mutuality and reciprocity when it is created as part of a scheme of development or common building scheme.

With respect to paragraph 3, it is well recognised at law that developers may impose restrictions on the future use which purchasers of each of the subdivided lots may make of the land on the basis that the restrictions will bind and be capable of being enforced by and against all purchasers of the land in the subdivision.

What are the requirements of annexation to land?

If the benefit of a covenant is annexed to the land, it passes with the land and no express assignment is required.

For the benefit of a restrictive covenant to annex to the land, the following requirements must be met:

  1. the covenant must “touch and concern” the land to be benefited (which generally means that the covenant must affect the land to be benefited in some way, e.g. affect the nature, quality or mode of use or occupation or value of the land of the covenantee);
  2. the person seeking to enforce the covenant must be a successor in title to the original covenantee and have a legal interest in the land to be benefited;
  3. the covenant must have been intended to be for the benefit of the successors of the covenantee as well as for the covenantee personally; and
  4. the land which is benefited by the covenant must be identified or identifiable.

A covenant which is expressed to be for the personal benefit of the covenantee only, is not a covenant that “touches and concerns” the land, and therefore will not run with the land.

What are the enforceability requirements of covenants in schemes of development?

Generally, the following conditions must be satisfied before covenants in a scheme of development will be enforceable:

  1. the plaintiff and the defendant must derive title from a common vendor;
  2. the vendor must have laid out the development in lots subject to restrictions intended to be imposed on all lots sold;
  3. the vendor must have intended the restrictions to benefit all the lots sold; and
  4. the purchasers must have bought the lots with the intention that the restrictions were to be for the benefit of all the other lots in the scheme.

The law in this particular area is complex, and you should consult an experienced lawyer about your specific circumstances.

Are there any statutory requirements in Queensland for the creation of a covenant?

Unlike in some other States in Australia, in Queensland, there is no requirement for, and it is otherwise not possible, to register private covenants on the title of a lot, or lots. There are statutory requirements for instruments creating covenants where the covenantee is the State or the local government (but these are the only circumstances in which you might see a covenant registered on the title of a lot).

For such public covenants, the Land Title Act 1994 (Qld) (“LTA“) requires the instrument creating the covenant to include a description sufficient to identify the land including a description of the covenant itself. The LTA authorises the recording of a restrictive covenant on the certificate of title of the burdened land, but only if, as mentioned above, the covenantee under the instrument is the State or a local government.

What remedies are available for a breach of a restrictive covenant?

Where there is a breach of a restrictive covenant, the covenantee may enforce the covenant by injunction.

The Court however does have the discretion to award damages in addition to or in lieu of an injunction.

Damages may be:

  1. compensatory, based on, for example, the loss in the value of the land, or the cost of alleviating the effects of the breach; or
  2. assessed on the basis of the estimated cost to the party in breach of obtaining permission for the breach.

If the party is not the original covenantee, then equitable damages (as opposed to common law damages arising under the original contract) must be sought from the Court.

With injunctions, either a prohibitory or negative injunction may be sought (on a permanent or interlocutory basis, or quia timet basis, if the breach is merely threatened), or on a mandatory or positive basis, which requires compliance with the covenant (for example, an order for demolition of a structure which has been built contrary to a covenant).

Can a restrictive covenant be modified or extinguished?

Restrictive covenants may be modified or extinguished as follows:

  1. by equity declining to enforce the covenant (on equitable grounds, such as laches or acquiescence for refusing to enforce the covenant, or the covenant is impliedly or expressly released, for example);
  2. by operation of law when the same person becomes entitled to both the dominant and the servient tenements (but subject to certain exceptions, especially in relation to schemes of development);
  3. by agreement between those entitled to the land benefited and the land burdened;
  4. by conveyance of the land burdened to a bona fide purchaser for value without notice (this is because, in a dispute between priorities, a legal interest acquired without notice of an equitable interest will defeat the equitable interest); or
  5. by court order in the exercise of a statutory power.

In Queensland, the Supreme Court is empowered to modify or extinguish restrictive covenants pursuant to s 181 of the PLA.

Section 181(1) PLA holds that:

  1. Where land is subject to an easement or to a restriction arising under covenant or otherwise as to the user of the land, the court may from time to time, on the application of any person interested in the land, by order modify or wholly or partially extinguish the easement or restriction upon being satisfied:
    1. that because of change in the user of any land having the benefit of the easement or restriction, or in the character of the neighbourhood or other circumstances of the case which the court may deem material, the easement or restriction ought to be deemed obsolete; or
    2. that the continued existence of the easement or restriction would impede some reasonable user of the land subject to the easement or restriction, or that the easement or restriction, in impeding that user, either:
      1. does not secure to persons entitled to the benefit of it any practical benefits of substantial value, utility, or advantage to them; or
      2. is contrary to the public interest; and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the extinguishment or modification; or
    3. that the persons of full age and capacity for the time being or from time to time entitled to the easement or to the benefit of the restriction, whether in respect of estates in fee simple or any lesser estates or interests in the land to which the easement or the benefit of the restriction is annexed, have agreed to the easement or restriction being modified or wholly or partially extinguished, or by their acts or omissions may reasonably be considered to have abandoned the easement wholly or in part or waived the benefit of the restriction wholly or in part; or
    4. that the proposed modification or extinguishment will not substantially injure the persons entitled to the easement, or to the benefit of the restriction.

Contact Us

If you need legal advice or assistance in relation to covenants, or enforcing, extinguishing or modifying a restrictive covenant, please contact ADVIILAW today to speak to one of our experienced property and commercial litigation lawyers.

Contact us on 07 3088 7937 or email us at admin@adviilaw.com.au.

Disclaimer

This commentary is of a general nature only, containing some general information for the reader.

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