Supreme Court accepts a rooming house is a legitimate ‘comparator’ when modifying a single dwelling covenant

In April 2019, in Re: EAPE (Holdings) Pty Ltd [2019] VSC 242, the Supreme Court found that when advancing a case for the modification of a single dwelling covenant, it is legitimate to say that the proposal for modification should be compared against a rooming house–an as-of-right land use arguably providing accommodation to the lowest end of the rental market.

This is potentially significant, because until this time, the comparator typically used in argument before the Court is a large single dwelling that would not need planning permission. In other words, applicants often argue:

– I can build this large house without modifying the covenant;

– given that my proposal for two or more dwellings is lower in impact than a large house, I should be allowed to modify the covenant for there is, relatively speaking, no substantial injury to beneficiaries by the covenant being so modified.

Now, applicants before the Court can legitimately invite the court to compare the proposed modification with the impact that beneficiaries might experience if the land was instead developed and used as a rooming house, with the increased activity, noise and parking impacts that routinely accompany such uses.

In EAPE the Court placed considerable emphasis on the plaintiff’s apparently genuine intentions to pursue the rooming house option in the event the modification was not granted, but one can imagine judges in future cases simply being convinced that a rooming house was a reasonably likely outcome of its refusal to modify a covenant: see Prowse v Johnston [2012] VSC 4 at 120.

Easements FAQs (Frequently Asked Questions)

What is an easement?

An easement comes in a number of forms but may generally be described as the right to use another person’s land without occupying it.

It may be a private right between specified landowners, or an easement in gross, granted to a public authority by operation of statute. Easements may be implied if not expressly created; and easements may be prescribed by using land for at least 20 years without secrecy, permission or force.

What types of easements are there?

  1. A private easement is a property right to make a limited use of land by someone other than an owner. It cannot give exclusive possession, and must be for the benefit of other land (the dominant land).
  2. An easement in gross is an easement for the benefit of the holder of the easement (usually a service provider) which is not attached to dominant land. It is not recognised at common law and is a creature of statute. An example might be a drainage easement along the rear of a number residential properties in favour of a water authority.
  3. An implied easement is an easement that is not expressly created by grant or reservation in an instrument or by statute but is implied by common law or statute so that the land can continue to be used in a particular way.
  4. A prescriptive easement is an easement acquired by using land for at least 20 years without secrecy, permission or force.

What are the key elements of a private easement?

  1. There must be a dominant and servient tenement;
  2. the easement must accommodate the dominant tenement;
  3. the owners of the dominant and servient tenements must be different from each other; and
  4. the right or claim must be capable of being the subject matter of a grant.

In Victoria, private easements can be expressly created by grant or reservation:

  • Creating an easement by ‘grant’ means that the servient owner grants the dominant owner an easement over his or her land for the benefit of the dominant land.
  • An easement is created by ‘reservation’ when a vendor conveys land to a purchaser but reserves an easement over that land, for the benefit of other land that the vendor owns.

How do I know if land is burdened by an easement?

Typically, if land is burdened by an easement, it will be noted under the heading “Encumbrances, Caveats and Notices” on a register search or on a plan of subdivision.

However, under section 42(2)(d) of the Transfer of Land Act 1958, all easements, ‘howsoever acquired’, exist over land even if they do not appear on the register. This is significant, because while covenants can fall away if they not clear on the face of the title, easements may survive the sale process even if they are not revealed on an inspection of the Register.

How do I know if land is benefited by an easement?

Assessing who takes the benefit of an easement requires careful analysis.

The benefit of private easements cannot flow to the public at large. The exception is an easement in gross, which will confer a licence upon the person for whom the right was created.  Easements in gross are commonly created in favour of statutory bodies, such as the local government  or water authorities.

That said, the case of Anderson & Anor v City of Stonnington & Anor [2016] VSC 374 provides a detailed explanation of how easements can become roads, and if and when that occurs, the operation of the Road Management Act 2004, may mean the easement is permanently displaced.

How can I remove or modify an easement?

Presently, there is no judicial means of removing or modifying easements in Victoria.

There are two options: claim of abandonment and s 23 of the Subdivision Act 1988 in combination with the Planning and Environment Act 1987.

Claims for abandonment are notoriously difficult to prosecute. In Brookville Pty Ltd v O’Loghlen [2007] VSC 67, Kaye J found that in order to establish abandonment, the plaintiff must prove that the owner of the dominant tenement intended to relinquish their rights to the easement forever.

Section 23 of the Subdivision Act 1988 in combination with the Planning and Environment Act 1987, allow for easements to be removed or varied, without the consent of or compensation being paid to beneficiaries. For this to occur, a planning permit must first be granted under clause 52.02 of the relevant planning scheme, the purpose of which is “to enable the removal and variation of an easement or restrictions to enable a use or development that complies with the planning scheme after the interests of affected people are considered.” An example of this in operation can be found in Warner Crest Pty Ltd v Stonnington CC [2019] VCAT 36.

How is an express subdivisional easement created?

There are overlapping provisions for the creation of express subdivisional easements contained in two different statutes:

  1. section 12(1) of the Subdivision Act 1988; and
  2. section 98(a) of the Transfer of Land Act 1958.

Section 12(1) of the Subdivision Act 1988 requires all proposed and existing easements to be specified in subdivision plans. These easements are then created upon registration of the plan. Easements created under this section are in addition to those created under section 98(a) of the Transfer of Land Act 1958.

Section 36 of the Subdivision Act 1988 also provides for an owner of land to acquire an easement compulsorily over other land in the subdivision or consolidation, or in the vicinity, if granted leave to do so by the Victorian Civil and Administrative Tribunal. The best step by step analysis of this provision can be seen in JT Snipe Investments Pty Ltd v Hume CC (Red Dot) [2007] VCAT 1831, however, Gale v Frankston CC [2019] VCAT 62 suggested a slight change in emphasis.

How is a prescriptive easement created?

Another way easements can arise without being expressly created is under a common law rule called prescription. A prescriptive easement can be acquired by what is called ‘long user’ or 20 years of continuous use.

Victoria retains many common law rules of implication and prescription that predate the subdivisional planning system, as well as the new statutory provisions for implied subdivisional easements.

In Laming v Jennings [2018] VSCA 335, the Court of Appeal made some interesting comments about the apparent inconsistency of prescriptive easements with the Torrens system. It concluded by noting that 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.

Do covenants prohibiting advertising hoardings prevent real estate signage?

It’s long been thought that a covenant prohibiting the use of land for advertising hoardings would make the putting up for display of real estate signage, a breach of that covenant.

A recent decision of the Supreme Court has thrown that view into doubt. In Re: Zhang 2018 VSC 721, Derham AsJ assessed a covenant that provided:

No hoarding for advertisement purposes shall be erected on the said lot hereby transferred.

His Honour concluded that if one looks at the intention of the covenant, it might be said that real estate signage and other domestic forms of advertising were not intended to be prohibited:

This part of the covenant is a basic form of advertising control. In the Easton Report, the opinion is given that it is now obsolete as large commercial advertising hoardings are no longer able to be placed in residential areas.  Small residential signs, real estate signs and signs relating to a lawful use on the land are the only signs generally allowed under present day planning controls.   Mr Gambaro suggested that the restriction was intended to prevent ‘suburban neighbourhood homes for families’ being turned into business premises. There was no opposition by any person to the discharge of this part of the covenant.  It is in my view obsolete as a form of planning control.  Indeed, Mr Gambaro had, at the time of my view, affixed to the fence of his property an array of boards advertising a candidate for election to, I think, the local Council.

The Macquarie Dictionary defines:

-‘hoarding’, relevantly, as ‘a large board on which advertisements or notices are displayed; a billboard’;

-‘advertisement’ as any device or public announcement, as a printed notice in a newspaper, commercial film on television, a neon sign, etc., designed to attract public attention, bring in custom, etc. 

Construed literally, this restriction would prevent the erection on the land of a real estate ‘for sale’ or ‘for lease’ sign, for example, or a board supporting a candidate for election. But when construed in the context of a residential property in a residential neighbourhood, it seems to me that the purpose of the restriction is not to prevent reasonable advertising of properties for sale or for lease, or supporting a candidate for election.  Its purpose is to prevent the erection on the Land of a board on which are displayed advertisements, particularly business advertisements, of a kind unconnected with the residential character of the land.  Thus, advertising a business or advertisements for the sale of goods or land (other than the land in question) are covered by this restriction.  In my opinion, the reasonable reader knows that in the Melbourne metropolitan area, ‘for sale’ signs on properties using a large board, sometimes with pictures of the dwelling, and details of its features is so common (and permitted by the planning laws) that to construe this restriction in accordance with its literal meaning would be to misread its purpose. 

In other words, real estate signage might be said to be ancillary to the use of land as a dwelling.

Could that reasoning be extended to permit signage for medical centres and other uses permitted in residential areas, where that signage is to promote goods and services available on the land?

 

Supreme Court modifies Urban Land Authority covenant

It has been estimated that there may be as many as 35,000 covenants created by in Victoria by the Urban Land Authority, or statutory corporations that have carried on similar functions, including:

  • Urban Land Corporation;
  • Urban or Regional Land Corporation;
  • Victorian Urban Development Authority; or
  • Development Victoria.

These restrictive covenants can contain a combination of orthodox and unorthodox covenants, for instance:

i) there will not be erected on the land hereby transferred any building other than one house and usual outbuildings; and
ii) such house will not have less than seventy five percent (75%) of all external walls (save for provisions of windows, doors, fascias and gables) of brick or brick veneer; and
iii) such house will be for his own occupation; and
iv) he shall occupy the said house as his home for a period of at least five years.

Significantly, these covenants are unlike ordinary covenants that transfer the benefit to enforce a covenant to other landowners in the neighbourhood. Rather, the covenants are created by statute, and the only party with the ability to enforce the covenant may be the statutory corporation that created the covenant (or its successor).

However, officers of those authorities have expressed the view that they will not consent or assist in the removal of existing covenants. That is, they say, a matter for the responsible authority pursuant to the Planning and Environment Act 1987–typically Councils, or VCAT on review.

Yet at least one Council says it has no ability to remove the covenant, via the Planning and Environment Act 1987. Thus, there seems to be a lack of consensus on how these covenants may be modified or removed.

However, we now know that the Supreme Court of Victoria does have the power, and is prepared to modify statutory covenants in appropriate circumstances. See Re: Hamdan S CI 2018 02512.

Plaintiffs, prove your case

The Supreme Court has again dismissed an application to vary a covenant by reason of a plaintiff’s failure to discharge its evidentiary burden under s84(1)(c) of the Property Law Act 1958.

In Del Papa v Falting & Ors, Lansdowne AsJ held:

80 It is important to keep in mind, however, that the burden is not on the defendants to establish injury; rather, it is on the plaintiff to discount it. Mr Chapman concedes that he did not inspect the rear of the Subject Land and so its interface with the only adjacent benefited land, that owned by the eleventh and twelfth defendants. Accordingly, there is no evidence that there will be no substantial direct injury to this portion of benefited land.

81 This absence of evidence in relation to direct impact on the land of the eleventh and twelfth defendants, does undermine the plaintiff’s case pursuant to s 84(1)(c). The more significant factor in its failure, is, however, that the plaintiff has failed, in my view, to show that there will be no substantially injurious precedential effect of the proposed modification.

The Court was also unimpressed with the Plaintiff’s bifurcated application:

20 Mr Del Papa’s evidence is that he and his wife would be prepared to build in accordance with schematic design plans dated February 2017 that he attaches to his affidavit. An enlarged version is Exhibit F. These plans show two options. Option A is for two very substantial two storey dwellings, one five bedroom plus rumpus room and study, and one four bedroom plus rumpus room and study. Option B is for three slightly smaller, but still very substantial, two storey dwellings, each five bedroom plus rumpus room.

131 I would also have been troubled by the fact that the proposed development is not even certain as to number of dwellings, as the plaintiff seeks either a two, or a three, lot subdivision. This is a matter that the Court can of course determine, if persuaded to grant the application, but it does raise a question as to the degree of commitment of the plaintiff to pursue her advanced proposals if the application is granted.

The take away lesson for applicants is that when you move from an uncontested application to a contested hearing, you need to make a first-principles re-assessment of the evidentiary basis of your application: revisit the plans, revisit the site and reassess the forensic basis upon which you say a precedent will not be created.

The brutal consequences of breaching a restrictive covenant

In Manderson v Wright (No 2) [2018] VSC 162, the Supreme Court revealed the devastating potential consequences of breaching a restrictive covenant.

In this case Justice John Dixon ordered the demolition of about $1 million of building renovations at a property at Barwon Heads, saying the building works occurred outside the permitted building envelope governed by a restrictive covenant, “I am not persuaded in all of the circumstances that the hardship to the defendant from a demolition order is out of all proportion to the relief assured to the plaintiff.”

A subsequent decision on costs of the proceedings, saw the unsuccessful defendant, Ms Wright, liable for 50% of the costs of the proceeding, claimed by the plaintiff to be $460,000.

VCAT restates the difficulties in amending a covenant through the planning process

VCAT has again shown how difficult it is to modify a covenant via the Planning and Environment Act 1987 process, when a beneficiary of the covenant opposes the application.

In Stuart v Mornington Peninsula SC [2018] VCAT 67, the permit applicant sought a permit to vary a covenant that limited the height of a boundary fence to 18 inches (0.46m) in height. The application sought to allow a fence ranging in heights between about 1.5m to 2.2m, extending for a length of ~30m.

The Council refused the application on the basis that it could not be satisfied that the proposed covenant variation met the tests required by section 60(5) of the Planning and Environment Act 1987, because an objection had been received from a beneficiary who expressed a perceived detriment.

The applicant submitted that there would be no detriment to any beneficiary in allowing the new fence and that the objection was so clearly without merit that it should be considered to be vexatious or not made with good faith within the meaning of s 60(5) of the PE Act.

The objector submitted that the variation of the covenant would be detrimental to the enjoyment of her property, the amenity of the area and contrary to the purposes of the covenant.

The Tribunal also entertained the submissions of another objector who was not a beneficiary of the covenant, consistent with DP Gibson’s ruling in Hill v Campaspe SC (Red Dot) (2011) VCAT.

The Tribunal explained that because the covenant was created or registered before 25 June 1991, s 60(5) of the Act applies. This provides:

(5)     The responsible authority must not grant a permit which allows the removal or variation of a restriction referred to in subsection (4) unless it is satisfied that—

(a)    the owner of any land benefited by the restriction (other than an owner who, before or after the making of the application for the permit but not more than three months before its making, has consented in writing to the grant of the permit) will be unlikely to suffer any detriment of any kind (including any perceived detriment) as a consequence of the removal or variation of the restriction; and

(b)    if that owner has objected to the grant of the permit, the objection is vexatious or not made in good faith.

The decision maker is required to be satisfied of both limbs of s 60(5) before directing the grant of a permit for the variation of the covenant.

Ultimately, the Tribunal rejected the application because it did not find the beneficiaries’ objection to be vexatious or not made in good faith. This was so, even though the beneficiary would not be able to see the fence from her own property.

The take away lesson from this case is that if you are attempting to modify a covenant created before 25 June 1991 and you have a beneficiary opposing that application, it is rarely, if ever, worthwhile taking the matter on appeal to VCAT. Your remedy is more likely to be via the Property Law Act 1958 or Supreme Court process.

Restrictive Covenants FAQs (Frequently Asked Questions)

What is a restrictive covenant?

A restrictive covenant is a contract that runs with the land, that is negative in nature. More particularly, a restrictive covenant is an agreement creating an obligation which is negative or restrictive, forbidding the commission of some act. In its most common form it is a contract between neighbouring land owners by which the covenantee determined to maintain the value of a parcel of land or to preserve its enjoyment, acquires a right to restrain the other party, namely the covenantor, from using the land in a certain way: Fitt v Luxury Developments Pty Ltd (2000) VSC 258. The land subject to a restrictive covenant is known as the burdened land and the land with the corresponding ability to enforce the covenant is known as the benefited land.

How do I know if land is burdened by a restrictive covenant

If a restrictive covenant burdens or runs with a parcel of land, it should be noted under the heading “Encumbrances, Caveats and Notices” on a certificate of title available from Landata. You can then search Landata again for the relevant covenant that is often contained within a Transfer of Land, or ask a title searching firm to do this for you. One such title searching firm is Feigl & Newell on (03) 9620 7022.

How do I know if land has the benefit of a restrictive covenant?

Typically, the extent of beneficiaries can be discerned from a careful reading of the words of the covenant itself, but this may require further title searches and a careful examination of the Parent Title. Some covenants purport to convey the benefit of a covenant to all land in a subdivision, which may not be legally effective, see Re Mack and the Conveyancing Act [1975] NSWLR 623. Before you become a party to proceedings concerning the modification or enforcement of a covenant, seek advice from a lawyer with experience in this area. Many people assume that because their land is located within an estate burdened by a network of similar covenants, they are necessarily a beneficiary to other comparable covenants, which may not be the case. See too, the section on Building Schemes, below.

How do I vary or modify a restrictive covenant?

There are several ways in which restrictive covenants can be varied or modified, but the two most common means are via a planning permit application to the local council or by application to the Supreme Court.

There is an initial appeal to applying for a permit to modify a covenant via the planning permit or Planning and Environment Act 1987 process, because it is seen to be cheaper and easier, but this appeal diminishes when one understands that all beneficiaries need to be notified (unless a pre-existing breach is being regularised) and for covenants created before 25 June 1991, only one genuine objection from a beneficiary is sufficient to bring the process to an abrupt halt.

For this reason, applications that might be seen as even slightly controversial, such as increasing the number of dwellings on a lot, routinely go straight to the Supreme Court. Most applications to the Supreme Court are successful as they proceed through the process without sustained objection, but the challenge here is to pitch your application at something a judge will be comfortable with, for the Courts have traditionally acted with caution when it comes to modifying restrictive covenants.

For more information about the various options for modifying or removing a restrictive covenant in Victoria see here.

How do I modify a covenant through the Supreme Court?

To modify a covenant through the Property Law Act 1958, or Supreme Court, process, an applicant will typically need a planning report prepared by a planner with experience in this area of law and an Originating Motion drafted by a solicitor. There are numerous other procedural requirements that invariably require the involvement of an experienced and competent lawyer.

Once the application is lodged with the Court, a hearing is convened at which directions for advertising is given by an Associate Judge. Typically the notification process will take eight to ten weeks before a further hearing is convened at which objections may be considered by the Court.

If no objectors appear to be heard, which is routinely the case, the Court will consider granting the relief sought, but a judge may still want to be convinced about the appropriateness of the application. If it is positively received, relief may be granted at that time. However, if the matter is contested, directions may be given for the exchange of evidence and submissions and the hearing may be listed some six months or so later for determination.

A detailed description of the process of modifying or removing a restrictive covenant in the Supreme Court is set out here along with a comprehensive collection of precedents.

How do I object to an application to vary a restrictive covenant?

An objection to vary a restrictive covenant does not need to take any particular form. However, it is useful to understand what the Court deems to be a relevant or persuasive reason to object against what is typically seen as being irrelevant or difficult to establish. A useful indication was given by Justice Cavanough in Prowse v Johnston who gave weight to objections that complained of loss of character, loss of privacy, the bulk of the proposed building, additional noise, traffic, parking and access issues and most importantly, that of precedent, that is, is this proposal the thin edge of the wedge?

An article setting out the process of objecting to a restrictive covenant in Victoria is set out here.

The Supreme Court published a guide for objectors in December 2017.

What is a building scheme?

Where a building scheme, or scheme of development is established, all purchasers and their assigns are bound by, and entitled to the benefit of, the restrictive covenant. However, notwithstanding the frequency with which they are discussed, in Victoria, they are something of a unicorn–often talked about, but never actually seen. The real difficulty in attempting to uphold a building scheme in this state is establishing that a purchaser of land was or should have been aware that a building scheme was in place prior to purchase and therefore ought to be bound by its terms. An authority that helpfully sets the relevant principles is Vrakas v Mills [2006] VSC 463.

How to interpret a restrictive covenant

An article setting out some principles for the construction or interpretation of a restrictive covenant in Victoria is set out here.

Should I buy land subject to a restrictive covenant?

If the land is of no use to you unless the covenant is modified, it is probably unwise to buy it. The process of modifying a covenant is often too uncertain, too time consuming and too expensive to justify taking the risk. Covenants can cost as little as a few thousand dollars to modify if things go well. On the other hand, parties have spent close to half a million dollars to modify covenants without success. Equally, some modifications may be completed within weeks. Others may take years. Most applications to modify covenants receive little or no sustained opposition, others ignite well orchestrated and well resourced community campaigns. Any estimate as to prospects is just a well informed guess. If you’re not dissuaded, get a beneficiary report from Feigl and Newell and then find a lawyer with experience in the modification of restrictive covenants to give you an estimate of the likely opposition to change. You may be lucky and find there only a few beneficiaries who live some distance away.

How can I find a restrictive covenant lawyer?

The modification or removal of restrictive covenants is a specialised area of law and regularly done by only a handful of lawyers in Victoria. An article setting out a reliable means of finding a lawyer with experience in the jurisdiction is set out here.

Costs in an application to modify a restrictive covenant

An article summarising the principles in relation to orders of costs in s84/Supreme Court proceedings is set out here.

Representing yourself in an application to modify a restrictive covenant

Judges make every effort to accommodate self-represented litigants. The Supreme Court even has a self-represented litigant coordinator who may be able to provide you with some guidance.

Traditionally, the practice has been to set the matter down for a contested hearing in the normal manner, with the exchange of evidence and submissions. This can involve much time and a large amount of preparation. But more recently, the Supreme Court has facilitated self-represented litigants in covenant cases, by giving people an opportunity to present a short submission at the second return of the application, that is, immediately after advertising. In this way, litigants in person can put a short summary of their views to the judge, without becoming a party to the proceedings; without the need to prepare evidence or cross examine witnesses; and without the potential costs consequences of running a contested case to its conclusion. It must be remembered though, that this will occur in the course of a busy Court list and the judge’s capacity or preparedness to entertain detailed submissions will be limited. The Plaintiff also may elect to not press its case at this second return, and may ask the Court to set the case down on a future occasion, at which time the application can be heard and determined in a more considered manner.

Further, although there are cases in which the court has refused applications to modify covenants, even where there are no parties in opposition such as in Re: Jensen and in Re: Morihovitis, in practice, it is probably fair to say that a defendant has far lower prospects of success if they are not represented, and the plaintiff’s case is not thoroughly tested.

As mentioned above, the matters you wish to put before the Court are set out here.

Mediation and applications to modify restrictive covenants

An article explaining the role and utility of mediating covenant disputes in the Supreme Court is set out here.

How do I deal with a restrictive covenant that gives a discretion to a deregistered company?

An article setting out the process for dealing with a restrictive covenant that confers a discretion on a deregistered company is set out here.

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