Stress testing your restrictive covenant

When construing a restrictive covenant, a careful analysis of its various components is needed to understand its true effect, and indeed, whether it is effective at all.

For example, one covenant in Toorak dating back to the 1960s, purported to prevent part of the land from being developed to more than one storey. The sole beneficiary was the neighbouring land to the south. The dwelling had been constructed on the assumption the covenant was valid. However, close consideration of the chronology revealed that the purported covenantee had already sold the benefitted land by the time the covenant was signed and registered. The Supreme Court therefore agreed that the covenant was unenforceable, given that the covenantee had lost his ability to enter into the agreement at the time the covenant was purportedly made.[1]

In another case, a restrictive covenant in Altona had been the subject of extensive advertising in an application to modify what was believed to be a single dwelling restriction. However, closer examination revealed that the covenant suffered from the same flaw that was the subject of the following comment by Morris P in Thornton v Hobsons Bay City Council:[2]

11     In the present case the transferor has sought to identify the land to be benefited by reference to land remaining untransferred in a particular certificate of title. That method of identification purports to be a precise method. It follows, as Ms Tooher submitted, that there is less scope in such circumstances to use surrounding circumstances to identify the benefited land. The problem is that, at the time the transfer was made on 25 April 1953, certificate of title volume 6836, folio 089 was no longer in existence, it having been cancelled on 15 September 1952. Thus at that time there was no land remaining untransferred in that certificate of title. Hence notwithstanding the exactitude with which the draftsman of the covenant sought to achieve, in fact all he has achieved is a nonsense.

The Supreme Court agreed that the restrictive covenant was a nonsense and declared the restrictive covenant unenforceable.[3]

A degree of uncertainty now surrounds surprisingly common covenants that purport to require plans to be approved by a now deceased person or deregistered corporation. In Crest Nicholson Residential (South) Ltd v McAllister[4] the approval of the vendor, in that case a company, was required for any construction on the subject land. The vendor company had subsequently been dissolved, and given the lapse of time could no longer be re-registered. Neuberger J noted that reading the restriction as now absolute, conformed with its strict literal interpretation. However, he found that the restriction was discharged now that the vendor could not consent. Crest Nicholson was said to be “strongly persuasive” in 196 Hawthorn Road Pty Ltd v Duszniak.[5]

It should not be assumed that you will necessarily need to apply to the Supreme Court to have a covenant removed for reasons of defect or express limitation. For example, a covenant on the Mornington Peninsula was expressed to be for the benefit of the original vendor, its successors and transferees. The Covenant did not identify the land to be benefitted by the restriction contained in the Covenant. A letter to the Registrar of Titles was sufficient to have the covenant removed through the exercise of the Registrar’s powers under section 106 of the Transfer of Land Act 1958.

townsend@vicbar.com.au
(04) 1122 0277


[1] Re Thaqi: S ECI 2020 01338.

[2] [2004] VCAT 383.

[3] Re Tran S CI 2018 02425.

[4] [2003] 1 ALL ER 46, [52] (Neuberger J).

[5] [2020] VSC 235.

The Supreme Court is continuing to hear restrictive covenant applications under Stage 4 COVID-19 restrictions

For those of you who may be thinking of filing and serving an application pursuant to section 84 of the Property Law Act 1958, I am happy to report that the Supreme Court is continuing to hear matters via Zoom or similar teleconferencing facilities.

That’s not to say there may not be some accommodations that practitioners have to make to assist the Court in this regard, but to say that the Court is making every attempt to continue its work–certainly insofar as this jurisdiction is concerned.

And for that we are most grateful.

How to avoid creating a precedent in a section 84 modification application

A common challenge in settling an application to modify a restrictive covenant pursuant to section 84 of the Property Law Act 1958 is dealing with beneficiaries’ concerns that “if we agree to this application, future developers will rely on it as a precedent”.

Practitioners should be aware that most, if not all, judges are prepared to accommodate such concerns by spelling out in detail, why a modification in one case, should not be seen as a precedent for similar applications in the future.

A good example is the recent decision of Mukhtar AsJ in Tabrizi v Pedler & Ors S ECI 2019 05629 (3 July 2020) who took care to explain why the future applications might be considered differently:

In my judgment I think there are enough features of this application to say that on the confines of the peculiar or particular facts of this case, there is no good reason to refuse the consent order as sought. One cannot presage what other landowners in this neighbourhood or commercial developers may attempt to do in the future with this or any other application for a modification of a single dwelling covenant. However, because of the peculiar facts here, and in fairness to the defendants, what ought be stated here is that this decision is confined to its unique facts and not attributable to any neighbourhood-wide change to the neighbourhood that alters its predominant character as a single dwelling area.

Needless to say, there will need to be distinguishing characteristics in the application to attract such commentary by the Court, but most applications typically enjoy some form of distinguishing feature in order to be seriously considered for modification in the first place.

Is the Court still processing s84 applications?

For the time being, it is business as usual with the Supreme Court, insofar as the judges and their associates are still processing s84 applications, typically on the papers.

This may change at any time, with the imminent introduction of stage 2 of the COVID-19 shutdown in Victoria.

We are yet to know how trials are going to be processed, but there is a commitment amongst the legal and related professional communities to continue operating in a manner where those operations are consonant with sound public health outcomes.

Trials may well proceed either by way of video conferencing or subject to social distancing protocols such as having a limited number of people in the Court room at any one time.

I’ll update with further developments as they become known.

Changes to Supreme Court practice

Quite a few changes are now underway in Lonsdale Street, triggered in part by the retirement of Derham AsJ and the never-ending number of applications to vary covenants pursuant to section 84 of the Property Law Act 1958. Amongst these changes is the appointment of Judicial Registrars to hear first returns to determine the extent of notice to beneficiaries and the welcome return of Efthim AsJ to hear restrictive covenant and other cases in Court 2.

The focus of the Court seems to be on clearing a backlog of unpublished decisions and otherwise improving the speed with which with covenant cases are resolved. While these steps are good for the efficient conduct of the business of the court, the faster pace of hearings also places a greater obligation on practitioners to ensure that draft orders and submissions are forwarded to the judge’s associate a clear day or two in advance of the hearing, and with even greater attention to detail. The court appears to be particularly grateful for short written submissions to accompany applications on their first return.

The retirement of Derham AsJ is the end of an era for the restrictive covenant jurisdiction. His Honour presided over a veritable renaissance of restrictive covenant modifications that arguably began with Morris J’s analysis of what amounts to “substantial injury” in Stanhill v Jackson [2005] VSC 169 and his Honour’s summary of how to construe a restrictive covenant in Clare v Bedelis [2016] VSC 381 has likely been cited in every contested s84 application since its publication.

A new set of guidelines for practitioners is also believed to be awaiting finalisation that may lead to further efficiencies in procedure.

Can you still establish an easement by prescription (or long use) in Victoria?

It is not uncommon for a property owner to use their neighbour’s land as a means of access or egress, even though they may have no formal right to do so.

There may also be instances in which this use has continued unchallenged for such a length of time that to deny its existence could amount to injustice. In such cases, it might said that an easement by “prescription” or long use has been achieved.

If the use has carried out for an uninterrupted period of 20 years, a prescriptive easement can be established, subject to the following principles:

  1. enjoyment must be without violence, secrecy or consent and use must be ‘as of right’;
  2. the owner of the land in question must acquiesce in their neighbour’s exercise of the easement;
  3. the easement sought must be permanent; and
  4. there can be no unity of possession of both the alleged dominant and servient tenements (or parcels of land).

Given that these principles focus on the position of both the claimant and the owner of the land, it is necessary to consider both the acts of the claimant and the responses of the owner in assessing whether the 20-year time period has been established.

Although prescriptive easements have long been upheld in Victoria (for example, see Nelson v Hughes [1947] VLR 277), the legal position in Victoria is now unclear.

Victoria’s land ownership system, known as the Torrens Title System, is a method of recording and registering land ownerships and interests in the Register Book of the Office of Title. The Register aims to provide a true, correct and complete description of all land in Victoria.

One departure from this ideal is described in section 42(2)(d) of the Transfer of Land Act 1958 (Vic) which allows for easements ‘howsoever acquired’, suggesting that the acquisition of easements via prescription might still be a recognised principle under Victorian law:

42 Estate of registered proprietor paramount …

(2)           Notwithstanding anything in the foregoing the land which is included in any folio of the Register or registered instrument shall be subject to—

… (d)          any easements howsoever acquired subsisting over or upon or affecting the land;

As prescriptive easements are created through use, they are not recorded on the Register, leading to an apparent inconsistency between prescriptive easements and the Torrens system, as noted by the Court of Appeal in the recent case of Laming v Jennings [2018] VSCA 335:

186     Complex issues of statutory interpretation, legislative history and the continuing relevance of legal fictions which may conflict with the public policy underpinning the Torrens system are involved. 

The Court of Appeal concluded that the rationale of concepts such as prescriptive easements has diminished with the advent of modern systems for the registration of title:

195     … the historical rationale of legal fictions such as the doctrine of lost modern grant has significantly diminished with the advent of modern systems for the registration of title, comprehensive planning laws and more mature land law jurisprudence.

However, the Court did not definitively resolve the question as to what extent prescription remains compatible with the Torrens System:

186     … In our opinion, these issues were not sufficiently explored before us to enable us to reach an informed decision on ground 4. Accordingly, we will refrain from expressing a final view on the question raised by that ground until such time as it requires determination in a future case.

So it would seem that the existence of prescriptive easements in Victoria is still an open question. Where available, the prospect of establishing a road might be a safer bet.

Court clarifies notice required to create a binding building scheme

In Randell v Uhl [2019] VSC 668, Derham AsJ has clarified the notice required before the Court will find a party to be bound by the terms of a building scheme.

Where a building scheme is established, all purchasers and their assigns are bound by, and entitled to the benefit of a restrictive covenant.

Previously, it was not entirely clear how far a purchaser would need to search the Register of Titles to be on notice as to the existence of a building scheme.

In Randell, his Honour found a building scheme had been established, but found the plaintiff not bound by its terms because the existence of a scheme was not evident on the face of the title, or any documents referred to therein:

82      … If it were sufficient notice that the Head Title in this case bears the notification of a building scheme, it would require a person interested in purchasing the Land to search the Register further than the title search indicated and to go back to the Head Title and the original, or first edition, of the Subdivision. That would render conveyancing a hazardous and cumbersome operation beyond what is reasonable to expect.

83      In summary, I am satisfied that a building scheme was established but the notification of it was not sufficient to give notice of it to the plaintiffs because a search of the title of the Land by the plaintiffs did not, and would not, reveal the existence of the scheme either directly, or indirectly by reference to any instrument referred to in the search of the title.

References to purported Building Schemes commonly appear on title documents in Victoria, but under close judicial scrutiny they are rarely proven. A question now exists whether Randell has made this process of atrophication effectively complete.

Think carefully before applying for a planning permit to modify a restrictive covenant

Solicitors and planners need to be aware that when making an application to the Supreme Court to modify a restrictive covenant via s84 of the Property Law Act 1958, any earlier application to modify a restrictive covenant via the Planning and Environment Act 1987 process needs to be fully disclosed to the judge hearing the later s84 application.

Part of the reason for this is that the Court’s current practice is to ensure that each and every beneficiary who objected to an earlier application (irrespective of its statutory basis) receives notice of the subsequent s84 application.

This can have a significant impact on the degree of opposition to the s84 application by reason of the broader notice requirements triggered by the Planning and Environment Act 1987 process. Under the planning permit process, each person who has the benefit of the covenant must receive written notice of an application to modify or remove a restrictive covenant.

In contrast, in a s84 application, notice is at the direction of the judge, but this is typically far narrower than direct notice to all beneficiaries.

In recent times, we have found that the Court directing written notice to more distant beneficiaries can have a significant impact on the conduct of the s84 application, by triggering the opposition of parties that might otherwise not have been involved in the s84 process, were it not for this broader notice obligation.

It is often thought that there is little downside in making a speculative application to modify a covenant via the Planning and Environment Act 1987 process, before commencing an application in the Supreme Court, because the only downside is the cost of advertising and a modest application fee. If our experience is anything to go by, there is an additional consequence to consider.