VCAT offers a potentially inexpensive means of testing a building materials covenant

In Rose Burwood Pty Ltd v Whitehorse CC [2021] VCAT 755, the Victorian Civil and Administrative Tribunal adopted a potentially inexpensive means of construing a building materials covenant.

The parties appear to have made written submissions to the Tribunal and a determination was made on the papers.

The Tribunal found that the grant of a permit would not authorise anything that would result in a breach of the covenants that required that the dwellings be constructed substantially of brick or brick veneer:

I find that the use of the face brickwork inlays on the external parts of the building to be the same as brick veneer. They will give the appearance of brick and sit upon an internal structure but do not form part of the structure of the building.  Although anyone viewing the walls will not be able to distinguish this feature.  There are sections of the external walls that will not be covered in the brick inlay tiles however the plans indicate that the external walls will be substantially brick veneer in the form of brick inlay tiles. The requirements of the covenants are therefore satisfied.

The building material considered was an inlay brick system that embeds clay brick tiles into precast concrete panels: https://www.pghbricks.com.au/inbrick

While the process may have avoided the costs associated with an appearance at VCAT, the decision suggests the permit application was made in 2019; the application for review lodged in 2020; and the decision handed down in July 2021.

In contrast, in Re Orangi, the Supreme Court heard and determined a buildings material covenant application in a little over three months. C/f: Dwivedi v Whitehorse CC [2015] VCAT 176.

The Supreme Court will not enforce all breaches of a restrictive covenant

It is important to remember that the Supreme Court will not enforce each and every breach of a restrictive covenant.

A plaintiff discovered this, to his detriment, in Manderson v Smith S ECI 2020 03378.

This case concerned a resident of Barwon Heads who applied for a mandatory injunction to compel his neighbours to remove at their cost, a fence constructed on their land, that the plaintiff asserted was in breach of a restrictive covenant.

Efthim AsJ found that while there had been a breach of the restrictive covenant, his Honour refused to uphold Manderson’s application:

56 Here the defendants’ fence was not erected entirely on the boundary line. A small part of it is erected outside Lot 3 and at best the fence encroaches the hatched area by approximately 6cm. The fence does breach the Covenant. However I agree with the defendants that any incursion by the front fence into the hatched area is de minimis. If I ordered that the fence be removed, then there is a possibility that vegetation would need to be removed or damaged. It could do more harm than leaving the fence where it is.

A curious aspect of the case was that the Plaintiff’s own fence was also in breach of the covenant:

28 In cross-examination Mr Manderson agreed that all properties in Warrenbeen Court have fences. He also agreed that he had a fence and a gate, and believes that the fence encroaches further than 6cm, and more like one to two metres, on to the hatched area on his lot (which is the area on which no buildings can be erected).

Manderson v Smith also serves as an important reminder to consider first and foremost, the underlying purpose of a restrictive covenant, rather than taking a technical or literal approach to the meaning of particular words. Here, the court agreed that while a fence might be a building as a matter of law; properly construed, the covenant was never intended to prevent boundary fences.

The benefitted land must be easily ascertainable

For a restrictive covenant to be legally valid, the following elements are required:

(a) the covenant must be negative;
(b) the burden of the covenant must be intended to run with the land; and
(c) the covenant must be given for the benefit of land, not simply for the benefit of the covenantee, and the covenant must touch and concern that land.

This last requirement was discussed by the Supreme Court in Re: Ferraro [2021] VSC 166.

In this case, Matthews AsJ was prepared to declare the covenant unenforceable without requiring the Plaintiff to advertise the application for declaration, because the covenant failed to satisfactorily identify the benefitted land:

47 The plaintiff submits, and I accept, that the wording of the Lot 106 Covenant appears to suggest that the parties intended to benefit those persons taking title from Kate Lynch, James Byrne and Harold Paul Dennehy, namely their ‘transferees’. The Lot 106 Covenant provides that the covenantor, Thomas Francis Brennan, ‘hereby covenants with the said Kate Lynch, James Byrne and Harold Paul Dennehy and their transferees’ (emphasis added).
48 The plaintiff submits that even with an express acknowledgement that a covenant was intended to benefit the transferees of the original covenantees, the third element of a valid restrictive covenant remains unmet where it is unclear who the relevant transferees of the original covenantees are and, therefore, which land is to benefit from the covenant.

The Court in Re: Ferraro endorsed the view that caution should be exercised in relying on extrinsic materials to construe a restrictive covenant, consistent with the High Court’s reasoning in Westfield Management Limited v Perpetual Trustee Co Limited (2007) 233 CLR 528.

The court rarely exercises its power to discharge a restrictive covenant entirely

The Supreme Court is typically unwilling to exercise its power to discharge a restrictive covenant entirely, preferring instead to modify a covenant to allow an applicant’s stated intentions.

The objective for applicants should therefore be to modify the restrictive covenant as modestly as possible, while comfortably facilitating the intended use or development. Applicants should appreciate that the responsible authority under the Planning and Environment Act 1987 (the municipal council at first instance and then the Victorian Civil and Administrative Tribunal on review), may require additional changes to any plans during the planning process.

That said, an application to discharge a restrictive covenant may be allowed where the Court finds that outcome appropriate to avoid future confusion:

In Re: Ambrens SCI 2016 03948, for instance, Lansdowne AsJ explained: “In many cases, modification of a restrictive covenant to allow an intended development will be more appropriate than discharge of the covenant. In this case, however, the Court considers that discharge of the Covenant is more appropriate than modification. The Court considers that the proposed form of modification, to allow the construction of ‘one residential building’ , could be unclear and so introduce confusion, and is not necessary given the nature of existing development proximate to the subject land and its zoning as residential.”

Similarly, in City of Stonnington v Wallish & Ors [2021] VSC 84, Ierodiaconou AsJ said: “Given the limited scope of the restrictions imposed by the covenants and for substantially the same reasons outlined above, I do not consider that my residual discretion should be exercised in the defendants’ favour. I accept that it is desirable for the covenants to be discharged in order for there to be clean titles on the subject land. Such a course will avoid any future confusion or disputes and will not cause the defendants substantial injury.”

These examples, however, are the exception rather than the rule.

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.

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.

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.