Court of Appeal eschews recourse to the Planning and Environment Act 1987 when construing a restriction on a plan

It’s long been established that equitable restrictive covenants or restrictive covenants inter partes should be construed in a common sense and non-technical way, with the objective being to ascertain the intention of the parties by reference to the words in their context. See Clare v Bedelis [2016] VSC 381 at [31]

Arguably, this approach to interpretation should not be strictly applied to a restriction in a plan created by way of the Subdivision Act 1988 (Vic).

As the learned authors of the Victorian Law Reform Commission’s report on Easements and Restrictive Covenants (VLRC Report) explained, equitable restrictive covenants and restrictions on a plan are not the same:

6.40 It is commonly assumed that a restriction created by registration of a plan is a restrictive covenant and that all lot owners in the subdivision have the benefit of it. The idea is likely to have been fostered by the inclusion of ‘restrictive covenant’ in the definition of ‘restriction’ in the Subdivision Act. It also finds some support from administrative provisions recently inserted into the Transfer of Land Act, which refer to a ‘restrictive covenant created by plan’.

6.41 We disagree with this assumption. A restriction created in a plan is not one that equity would recognise or enforce, as the restriction is not created for the benefit of specified land. Equity has strict requirements about identifying the benefited land.

In Manderson v Smith [2021] VSCA 359, the Court of Appeal was asked to construe a restriction arising out of a now-expired plan of subdivision, however, their Honours did not see fit to draw the distinction made in the VLRC Report.

Rather, Beach and Kennedy JJA were content to have recourse to a dictionary definition of a term in the restriction, namely “building”, and eschewed reliance on the definition of “building” in the Planning and Environment Act 1987:

42 Restriction 2 prohibits the ‘develop[ment]’ of the land ‘other than in accordance with’ the NDP. Even presuming that the construction of a boundary fence constitutes a development of the land, the fence is only ‘other than in accordance with’ the NDP if it properly constitutes a ‘building’, or ‘part of a building’ the subject of the prohibition in the NDP.

43 The Macquarie Dictionary definition of a ’building’ is as follows:

1. a substantial structure with a roof and walls, as a shed, house, department store, etc.
2. the act, business, or art of constructing houses, etc.

There is nothing in this definition which suggests that a ‘building’ should extend to a boundary fence. In this respect, we would respectfully disagree with Emerton J that it was appropriate to have recourse to the definition contained in the Planning and Environment Act 1987.
The matter does not appear to have been the subject of contested submission. In any event, we do not consider that any such recourse is necessary or appropriate. Although the Permit is to be interpreted pursuant to the definitions in that Act, the Permit is spent. It would also be unnecessary to include the words, ‘or part of a building’ if that definition applied, because the statutory definition already includes ‘and part of a building’.

Such an approach, their Honours found, would be consistent with the principles summarised in Clare v Bedelis and avoided a technical or legal approach.

The tantalising point made in the VLRC report about jurisdiction was not taken and will need to be fought another day:

6.43 If, as we maintain, statutory restrictions are not restrictive covenants, they are enforceable under administrative law rather than as property rights. Administrative law is the branch of public law that regulates the exercise of public powers and duties. Statutory duties and restrictions can be enforced by obtaining an injunction or declaration by a court. The Attorney-General has the right to enforce the public interest in the observance of a statutory duty or a restriction, and can apply to a court for an injunction or declaration or authorise somebody else to do it.

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.

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.

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.

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.

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.

The Court sounds a note of caution to ambitious developers

The Supreme Court has refused an application to modify a single dwelling covenant to allow a 21 apartment development over two lots (~1,400sqm) in 9 Highlands Road in Thomastown–notwithstanding the absence of objectors in Court to oppose the application.

The decision of Re Morihovitis [2016] VSC 684 is somewhat different to the decision of Re Jensen [2012] VSC 638 where the Court refused a relatively modest unopposed application because it was proposed amongst a relatively intact network of single dwellings. Rather, the application in Re Morihovitis was found to be simply too great a departure from what the covenant originally contemplated:

 The absence of a single dwelling covenant on no. 11 immediately exposes the peculiar and testing feature of this application.  Subject to planning laws and considerations, there is nothing on title to prevent the plaintiff as owner of no. 11 from building an apartment block, or at the least, there is no restrictive covenant getting in the way of a planning application to do so.  But the presence of the restrictive covenant on no. 9 Highlands Road obliges the responsible authority under the Planning and Environment Act to refuse to grant a planning permit unless the covenant over that land is removed or varied.  Thus, by this application Mr Morihovitis seeks under s 84(1) of the Property Law Act to modify the single dwelling covenant on no. 9 by deleting and adding words as shown in this way −

… not at any time hereafter excavate carry away or remove or permit to be excavated carried away or removed any earth clay stone gravel or sand from the said land hereby transferred except for the purpose of excavating for the foundations construction of any building and basement to be erected thereon and that not more than one dwelling house and outhouses shall be erected on the said lot hereby transferred

The Court therefore found it would alter the character of the neighbourhood:

The judgment to be made about ‘substantial injury’ turns on the nature and degree of the injury to those benefits.  Here, in my judgment, the location of the proposed development is not so removed from the residential area of the neighbourhood that it can be regarded as being sufficiently far away from it to say that such changes will not be seen and felt.  It will be a conspicuous part of the neighbourhood.  It will be the only apartment block in the neighbourhood.  The scale of the project and its departure from the scale of any existing residential developments in the neighbourhood, means that if it does not of itself create the sort of notorious problems of higher density living as I have identified them, it will in my judgment be the beginnings of altering the character of the neighbourhood.

Although the Plaintiff endeavoured to make the most of the absence of objectors, the Court pushed back on any suggestion it would give the Plaintiff a free rein:

No objectors have attended Court.  However, it is established in the legal authorities on these applications that the absence of objectors does not necessarily satisfy the onus of proof, and it certainly does not amount to implied assent. But as is commonly submitted in these applications, the absence of objectors ought go some way to overcome a court’s caution.  In this case, it was submitted that the absence of objectors willing to advance their objection to a substantial development such as this was especially significant, meaning to say I think the Court should not be overly cautious or assailed by the scale of the development in the assessment of substantial injury.  The submission went a little further.  It was submitted that known cases where such applications were refused were, or tended to be, opposed applications on which the Court could act on grounds of resistance from a beneficiaries according to evidence adduced by them.  In this case, although it was said that the Court has to play devil’s advocate, it was submitted the Court should, in the absence of objectors or any other evidence, act on the plaintiff’s evidence.     

I do not accept the amplitude of that submission.

Ultimately, the Plaintiff was held to the contract he struck when he purchased his land, at least insofar as the present development was concerned:

To put it in plain terms, Mr Morihovitis has bought land knowing of a negative covenant on it which binds him as if he made it by private contract.  He cannot use the land in defiance of that contract.  By statute this Court might discharge that obligation or modify it if doing so will not cause substantial injury to those to whom the promise was made.  That cannot be done by saying or assuming that the planning authority will ensure that the apartment development is in accordance with planning laws and regulations.  The question for the Court is whether the landowner should be relieved of his promise and allowed to build an apartment block in the first place, before it is subjected to planning scrutiny.  For the reasons I have given, in my judgment the plaintiff has not shown that the proposed modification will not cause substantial injury to those to whom the covenant was given.

Case database relevant to restrictive covenant advice and litigation

The following cases are for use in litigation and advice work. Some of these are available on Austlii, others are not.

If you have any interesting or significant cases that I’ve missed, please email them to me at townsend@vicbar.com.au

A duplicate file may suggest different varying formats (for example .doc and .pdf).

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Matthew Townsend
Owen Dixon Chambers
https://www.vicbar.com.au/profile/6975
townsend@vicbar.com.au (04) 1122 0277
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