Tribunal refuses to remove covenant even where no beneficiary has objected

It is relatively unusual for large development applications to simultaneously seek both planning approval and the modification or removal of a restrictive covenant. This is particularly so for covenants created prior to 25 June 1991 where section 60(5) of the Planning and Environment Act 1987 (PEA) applies. This provision states a responsible authority must not grant a permit that allows the removal or variation of a restrictive covenant unless it is satisfied that:

(a) the owner of any land benefitted by the restriction … 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.

The orthodox approach is to deal with the modification or removal of a restrictive covenant first, typically by way of an application pursuant to section 84 of the Property Law Act 1958, with a planning application being dealt with subsequently as part of a separate process.

Pulitano Properties Pty Ltd v Yarra Ranges SC [2022] VCAT 32, serves as a reminder as to why an assessment against section 60(5) of the PEA is to be avoided, seemingly at all costs.

In this case, the Tribunal was asked to remove a series of covenants that provided an absolute discretion to a natural person, deemed to be deceased, to accept or refuse plans for development:

[the covenantor] shall not erect on the said lot … any building whether shop or dwelling house except in accordance with a plan thereof which shall first have been submitted to and approved by the said Elizabeth Annie Lipscomb…

Notwithstanding the absence of opposition from beneficiaries or indeed any opposition to the removal of the covenants by the municipal council that was otherwise contesting the development application, the Tribunal still found that the combined operation of section 60(5) and clause 52.02 of the relevant planning scheme meant that it should reject the application to remove the restrictive covenants:

365 The opening words of s. 60(5) of the Act contain a mandatory direction to a responsible authority (and the Tribunal) that a permit to remove or vary a restrictive covenant must not be granted unless the responsible authority (or the Tribunal) is satisfied of the matters that follow.

366 The Tribunal has previously recognised that there is a stringency in the requirements of s. 60(5) of the Act that sets “the bar that is extraordinarily high. The existence of any detriment of any kind (including any perceived detriment) is sufficient to defeat an application to vary a covenant.”

367 I do not accept that the fact that none of the beneficiaries to the restrictive covenants have objected to the proposed development, of itself, supports a finding that the beneficiaries would not suffer any detriment of any kind because of the development. There may be many reasons why a person (including a beneficiary to a restrictive covenant) may not make an objection to a planning permit, however it is for the Tribunal to be ultimately satisfied that beneficiaries will not suffer detriment of any kind.

368 In light of our findings on the merits of the proposal particularly in respect to the impact of the proposal on the surrounding traffic network and the unacceptable visual bulk of the proposed building, I am not satisfied that the beneficiaries of the restrictive covenant will not suffer detriment of any kind.

369 The other reasons given by the applicant for the exercise of discretion cannot overcome the statutory obligation imposed by s. 60(5) of the Act on the Tribunal to be satisfied that the beneficiaries of the restrictive covenant will not suffer any detriment of any kind.

370 In addition, the findings on the matters of concern to the resident respondents, Mr Williams, the League and the ETR Board, as ‘affected persons’ for the purposes of clause 52.02 of the planning scheme supports my finding that the restrictive covenants should not be removed.

In contrast, in an application pursuant to section 84 of the Property Law Act 1958 the Court would be unlikely to give much, if any, weight to injury occasioned on non-beneficiaries, and the absence of objectors might be expected to weigh heavily in favour of the Court’s discretion to remove or modify the restrictive covenants.

It’s not easy to remove an easement over the objections of the beneficiary

A recent case in the Victorian Civil and Administrative Tribunal (VCAT) demonstrates the difficulties involved in removing an easement over the objections of the party with the benefit of the easement.

The case was Wheelhouse v Maribyrnong CC [2021] VCAT 1171, in which the Victorian Civil and Administrative Tribunal rejected an application by Wheelhouse to remove a ~24m by .9m walkway down the side of Wheelhouse’s home to Georgiadis’ home to the rear.

Wheelhouse was upset that Georgiadis, his visitors and guests, could see into his house as they walked down the pathway, amongst other things.

He argued Georgiadis had alternative access down a laneway to the rear.

The Tribunal applied the principles in KJ Barge & Associates v City of Prahran (1992) 10 AATR 345 asking:

1. Does the current use of or the current state or condition of the dominant and servient lands (tenements) indicate a need or requirement for the continued existence of the easement?

2. Would the owners of the dominant land (Georgiadis) suffer any material detriment in their use and enjoyment of the land if the easement was removed or varied?

The Tribunal noted the convenience that the easement provides to Georgiadis, and that removal of the easement would add time and distance to the pedestrian route to nearby Footscray:

“It is not uncommon for residential properties to have more than one access point and the mere fact that there are two access points to a site does not of itself mean that both access points are not needed.

The parties have different views as to whether the easement is needed for the purposes of mail and parcel delivery, waste collection, pedestrian access and emergency access.

Ultimately, these differences are not material to my decision in this proceeding… the current use, state and condition of the dominant and servient land indicates the easement is needed…

I consider the loss of this convenient, direct pedestrian access to Cowper Street would result in a material detriment to the use and enjoyment of No. 2/113 Cowper Street. In my view, this means that the need served by the easement is a real and ongoing one. For this reason, I do not consider it appropriate to grant a planning permit which would remove the easement.”

This case is a reminder that easements are property rights that the Tribunal will not lightly remove over the objections of the party with the benefit of the easement. Where easements are to be removed, this is best achieved by negotiation and agreement.

It’s also a reminder why people should study a section 32 agreement carefully and take advice about the consequences of easements and restrictive covenants, before a purchase of land is made.

Tribunal blasts council for not processing covenant application correctly

In approving the modification of a restrictive covenant over the objections of beneficiaries, a senior division of the Tribunal has criticized the processing of the application by the Responsible Authority. Senior Member Martin stated in Berecz v Casey CC [2021] VCAT 1336:

19 After considering Council’s written submission and the oral submissions made to us by Council at the hearing (together with the relevant text in the Delegate Report), our impression is that at all of these stages, there has been a fundamental lack of proper understanding and application of the statutory provisions and caselaw for this type of ‘variation of restrictive covenant’ disputed permit application. As we said at the hearing, for VCAT planning merits hearings to be workable and for there to be public confidence in the Victorian planning system, it is essential that this type of permit application is competently processed by the relevant Council.

Council’s error was to assess the application to modify the covenant pursuant to section 60(5) of the Planning and Environment Act 1987, rather than the less restrictive criteria under section 60(2) of the Act given the restriction was created after 25 June 1991.

The decision also provides a useful summary of the relevant criteria for planning permit applications to modify post 1991 restrictive covenants.

The obsolescence power in section 84(1)(a) can be used to clean a certificate of title

The Supreme Court has approved the use of section 84(1)(a) of the Property Law Act 1958 as a means of cleansing a title of a reference to a restrictive covenant with no further work to do.

Practitioners have in the past found that Titles Office officials have refused to remove a reference to a restrictive covenant from a certificate of title, unless directly ordered to do so by the Court.

In turn, the Court has expressed reservations about being able to direct the removal of the covenant from a title solely pursuant to its declaratory power under section 84(2) of the Property Law Act 1958.

The end result is that an originating motion seeking a declaration that a restrictive covenant is ineffective, should also seek a consequential finding of obsolescence.

In Re Pomroy [2021] VSC 739, the court held:

“83. It follows that the third element required in order for the Covenant to run with the Subject Land and burden the plaintiff, being a successor in title, is not present.  This is because the Covenant has not been given for the benefit of land and does not touch or concern that land.

84. As the benefit of the Covenant is unenforceable by any persons other than the Covenantees, it can no longer be said to affect the Subject Land.”

The Court then agreed to its powers under section 84(1)(a) as a consequence of this finding:

The plaintiff submits that with respect to s 84(1)(a), if the Court is of the view that the Covenant is ineffective and therefore no longer has any work to do, it would be appropriate to issue an order for its removal from title to the Subject Land.

I agree with this submission and will therefore make such an order.

A copy of the submissions presented to the Court can be found here.

Supreme Court upholds Calderbank offer in restrictive covenant case

The benefits of an early offer of compromise in restrictive covenant proceedings were again shown in Manderson v Smith Anor (Costs) S ECI 2020 03378 when Efthim AsJ upheld an offer to walk away as being a genuine compromise in proceedings concerning a fence that was said to have constituted a breach of a restrictive covenant:

His Honour held that the earliest of three offers of compromise would be effective:

21 In my view, indemnity costs should be awarded to the defendants from the date of the first offer of compromise. The plaintiff commenced the proceedings knowing that he had a fence on his own property encroached the boundary line by a much greater distance than the defendants’ fence and knowing that all other residents had fences. He should also have known that the defendants’ fence was at best only six centimetres over the boundary line.
22 The first offer of compromise should have been accepted and, in my view, it was unreasonable that it was not. The defendants have come to the Court with clean hands, they obtained a permit from the local council to erect the fence. It is clear from the evidence of Ms Smith that the defendants were concerned about the native flora. They were put to a great deal of expense in defending this claim which they should never have had to do.

The decision summarises the criteria the court will consider when determining whether or not to order indemnity costs against an unsuccessful party:

(a) the stage of the proceeding at which the offer was received;
(b) the time allowed to the offeree to consider the offer;
(c) the extent of the compromise offered;
(d) the offeree’s prospects of success, assessed as at the date of the offer;
(e) the clarity with which the terms of the offer were expressed; and
(f) whether the offer foreshadowed an application for an indemnity costs in the event of the offeree’s rejecting it.

Supreme Court approves covenant variation previously refused by VCAT

In 2011, in Zwierlein v Baw Baw SC [2011] VCAT 74, the Victorian Civil and Administrative Tribunal refused an application for a three lot subdivision on land in Warragul after finding it was “unable to say that a beneficiary of the covenant will be unlikely to suffer loss of amenity or loss arising from change to the character to the neighbourhood or any other material detriment.”

However, some ten years later, in Zwierlein v Coelho [2021] VSC 451, the Supreme Court has allowed an application that was in certain respects similar to that refused by VCAT.

As Hetyey AsJ in the later decision explained:

“the decision of VCAT is of limited relevance to the present application because it pertained to a different statutory test set out in s 60(2) of the Planning and Environment Act 1987 (Vic). That provision essentially states that a permit for the variation or removal of a restriction in respect of land must not be granted unless the responsible authority is satisfied that a beneficiary of a covenant will be unlikely to suffer financial loss, loss of amenity, loss arising from change to the character of the neighbourhood, or any other material detriment as a consequence of the removal or variation of the relevant restriction. There are also differences between the nature of the proposal which was then before VCAT and the proposal the subject of the present application.

A careful reading of the two decisions provides further support for the view that section 84(1) of the Property Law Act 1958 is a kinder avenue for applicants, even for covenants created on or after 25 June 1991.

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.