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.

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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?

 

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.