Dealing with deregistered companies referred to in restrictive covenants

Restrictive covenants in Victoria often give development discretion to companies that have long been deregistered. A good example is the series of covenants affecting the area around Altona that may provide:

… nor will I or my heirs executors administrators or transferees use any material other than brick and/or stone for the main walls of any such shop or dwelling house without the consent in writing of the said Altona Beach Estates Limited

Altona Beach Estates Limited, the original developer of the land, has long ceased to exist.

A question is then raised: how will the Australian Securities & Investments Commission (ASIC) exercise its discretion if it is called upon to act in the capacity of the deregistered company pursuant to section 601AE(2) of the Corporations Act 2001?

Helpfully, ASIC has produced a practice note of sorts to explain its policy in relation to such requests.

This policy states that ASIC may consider applications for consent under an encumbrance (e.g. plans of subdivision where there is no specific prohibition to subdivision in the encumbrance; construction of a fence within the restrictions/conditions of the encumbrance) and may consider applications to discharge expired encumbrances. However, ASIC will not otherwise vary the restrictions/conditions of an encumbrance or discharge a current encumbrance.

It is not then, as some might have you believe, a fait accomplis that the discretion will be exercised in the applicant’s favour.

The policy can be found here: http://asic.gov.au/for-business/closing-your-company/effects-of-deregistration/property-of-deregistered-companies/there-is-an-encumbrance-also-known-as-a-covenant-or-restrictive-covenant-over-my-property-in-favour-of-a-deregistered-company/

Objecting to an application to modify or discharge a restrictive covenant

If you own land with the benefit of a restrictive covenant, you may receive a letter by mail or see a sign on land giving notice of an application to modify or discharge it pursuant to s84 of the Property Law Act 1958.

If you wish to contest this application you may wish to:

  • write an objection; and/or
  • appear in court to support that objection.

The first step is to ascertain whether you have the benefit of the covenant. Because covenants are essentially contracts that run with the land, the law generally says that if you are not party to a contract you have no standing to enforce it.

If you have received written notice of the application, the chances are that your land has been identified as having the benefit of the covenant. If you have simply seen the sign on the land and live nearby, someone may have formed the view that your land either does not have the benefit of the covenant or that the modification or removal will not affect you. Or it may mean that the address for correspondence on your land title is out of date. This is surprisingly common.

If you are unsure whether your land has the benefit of a covenant, the cheapest and quickest option is to contact an experienced title searcher such as Dinah Newell from Feigl & Newell on (03) 9629-3011 or info@feiglnewell.com.au This is a specialised task and it is risky to leave it to someone who hasn’t done it before.

Once you have established a benefit, the question might then be what to write in your objection. Two decisions of the Victorian Supreme Court provide some guidance. The first is Prowse v Johnston in which Justice Cavanough listed the concerns of residents that he accepted were reasons a single dwelling covenant was not obsolete:

108 The objections of the defendants are set out in the various affidavits sworn by them. They are summarised in their written outline of submissions as follows:

(a) Loss of character of the residential estate being an estate with large single dwelling family homes and substantial gardens;

(b) Loss of privacy and overlooking into neighbouring private outdoor living areas and gardens;

(c) Bulk and dominance of proposed building particularly when viewed from adjoining residences and property;

(d) Loss of large, spacious Edwardian family home on the burdened land and surrounding mature trees and established garden;

(e) Loss of family neighbourhood with front and rear garden;

(f) Loss of spaciousness, beauty and privacy;

(g) Construction of a three-storey building with basement car parking over virtually the entire site in conflict with the prevalent single dwelling residential character of the area;

(h) Additional noise, traffic, parking and access issues associated with 18 units and 33 [actually 36] basement car spaces;

(i) This is the “thin end of the wedge” and the precedent effect of the removal of a covenant for the construction of a large unit development would be very significant;

(j) The character of the Coonil Estate has been maintained for over 90 years and should be preserved;

(k) Much of the Coonil Estate is a recognised heritage overlay area which should be preserved;

(l) The proposed development will be an isolated “eye sore” in stark contrast to the many period and heritage homes surrounding the burdened land; and

(m) The plaintiff’s land was purchased as part of the Coonil Estate, and has benefited from the reciprocal covenants given by others.

109 I accept that these are all admissible objections, though some are stronger than others. They are relevant to show that the covenant is not obsolete. They are also relevant for other purposes, to which I will come. The covenant is not obsolete. The purposes of the covenant are still being achieved throughout the Estate and on the burdened land, with a contribution in that respect from the covenant on the burdened land.

In the more recent decision of Oostemeyer v Powell Justice Riordan set out in paragraphs [36] to [45] the evidence he relied upon to reject an application to modify a covenant made pursuant to s84(1)(c) of the Property Law Act 1958 the so-called “substantial injury” test.

Once you have registered your opposition to the application to modify or remove the covenant you may be required to appear in the Supreme Court to support your objection. That is not to say the court will not consider your objection if you don’t appear. The Court generally reads every objection closely. However, in the standard form notice in the Court’s Guide for practitioners, the court makes it clear that “Written objections without an attendance may not be considered.”

Once at court, the Judge in charge of the list will set the matter down for a contested hearing.

It’s a matter of judgement at what point you wish to get a solicitor and/or barrister involved, if at all. Oostemeyer v Powell (above) demonstrates that unrepresented residents can succeed in fending off an attack on a covenant. However, it is relatively rare that objectors represent themselves in a contested hearing, partly because of the complexity of the proceedings and the time involved; and partly because objectors are typically reimbursed most of their costs, even if they are unsuccessful, in accordance with the principle in Re Withers.

Download a .pdf of this note.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation.

 

Supreme Court issues “Guide to Practitioners” appearing in covenant cases

The Supreme Court has prepared a Guide to Practitioners for lawyers preparing appearing in applications to modify or discharge a restrictive covenant pursuant to s84 of the Property Law Act 1958.

It provides a useful checklist for the preparation of evidence and includes three helpful precedents that reveal how the Court would like draft orders to be prepared.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

 

Brick no longer means ‘double-brick’ in building materials covenants

In Clare & Ors v Bedelis [2016] VSC 381 AsJ Derham found that a house built using a wooden sub-frame, did not breach a building materials covenant preventing the construction of a dwelling house “other than one having walls of brick or stone.”

In doing so, the Victorian Supreme Court effectively set aside the approach that has been in place since the 1956 decision of Sholl J in Jacobs v Greig VLR 597 that has often been said to require houses subject to such building materials covenants to be double brick construction:

113 In my unaccompanied view of the Land and neighbourhood, it became apparent that the bulk of the houses were constructed with an external appearance of brick.  Some had upper levels that included timber.  But the overall appearance of the neighbourhood was that the houses were substantial in size and built of brick, whether that was solid brick or brick veneer could not be seen.  Apart from the decision in Jacobs v Greig, there is no warrant in this case for the conclusion that the requirement, in effect, that the dwelling house on the Land be constructed with walls of brick or stone has the purpose of anything more than the aesthetic appearance of the house and the avoidance of low quality materials.  As I have said, I am not prepared to take judicial notice that strength, durability or any other matter forms a part of the purpose of the Covenant.  The evidence before Sholl J in Jacobs v Greig is not before me.  In any event, that decision was merely an interlocutory decision arrived at on the basis that there was a prima facie case that the construction of the covenant required solid or cavity brick and not brick veneer.  …

119 The evidence in this case clearly shows that the house has walls of brick, albeit brick veneer.  There is nothing in the covenant that requires the roof to be supported by the brick walls as distinct from the timber frame.  There is no evidence produced by the plaintiffs to establish that the meaning of the expression ‘walls of brick or stone’ in 1956 or indeed at any other time, does not embrace brick veneer walls.  I am therefore not satisfied that the house under construction is in breach of the covenant because it is constructed with walls of brick veneer.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

Court approves ambitious modification

The Supreme Court of Victoria has just approved one of the most ambitious modifications to date in a contested case, approving a four unit development on a parcel of land of 978sqm.

The decision of MacLurkin v Searle focused on the precedential effect of a modification application largely by reason of the fact that the closest beneficiaries did not object to it.

The Court held that the modification to the single dwelling and building materials covenant would not occasion substantial injury to beneficiaries in the terms meant by s84(1)(c) of the Property Law Act 1958 by reason of the subject land’s relative disconnection to the hinterland of the residential estate.

This is good news for applicants for modification, however, it seems the applicant will be limited to building a design generally in accordance with the plans tendered at the hearing:

82 It is true that in the First Easton Report the plans were just a sketch. But in the Second Easton Report the plans are much more detailed and, although plainly reduced from a larger size to an A4 size to fit the report, there did appear to be measurements and the like that would enable there to be some precision so that one could provide for the development to be substantially in accordance with those plans. The fact that they may not have been through the planning approvals process of the Responsible Authority may have the result that the plaintiff is not permitted to build substantially in accordance with those plans, but that is the plaintiff’s problem.

Once again, this highlights the importance of putting forward a design in a modification application that one can be confident will be approved by the Council or VCAT in the subsequent planning approval process.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

The importance of choosing the right planner in a covenant modification application

Once again, we’ve seen the importance of choosing an appropriately experienced town planner when applying to the Supreme Court for the modification of a restrictive covenant.

In Re: Morrison, the Plaintiff selected a town planner that hadn’t been involved in a contested covenant case before and the report in support of the application read like a report for a permit application under the Planning and Environment Act 1987.

In handing down his judgement, Associate Justice Derham dismissed this approach: “Looking at the expert reports, it is clear that Mr Chapman had a primary focus on planning considerations, considering his emphasis on restrictive covenants generally being an out-moded form of controlling development that had been largely rendered redundant by the introduction of planning schemes.”

In other words, the planner was downplaying or dismissing the need for restrictive covenants on the basis that any amenity impacts could be adequately protected by the planning scheme.

Unsurprisingly, this wasn’t accepted by the Court: “Ultimately, the planning process is a separate process with different objectives and considerations to be taken into account. As pointed out by the defendants, restrictive covenants are given explicit priority over the planning process in s 61(4) of the Planning and Environment Act 1987 (Vic). On the basis of these authorities, I do not consider that the amenity concerns of the defendants can be appropriately met through application of the planning scheme.”

Plaintiffs sometimes succeed in using town planners with little or no covenant experience in non-contested cases, but this strategy is soon exposed once put to their proof by a well-advised defendant. The better strategy for applicants is to chose the correct town planner from the start of the process and to craft the application with suitable precision.

Matthew Townsend
Owen Dixon Chambers
http://www.vicbar.com.au/profile?3183
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation

An overview of the process for modifying a restrictive covenant under the Property Law Act 1958 with some basic precedents

Originating motion in support of an application to modify or remove a restrictive covenant

If you are yet to decide which process to follow to modify or remove a restrictive covenant, you should read this article first. If you have already elected to pursue the Property Law Act 1958 or Supreme Court process, then the following discussion is an overview, along with some precedents you may wish to use. These are updated regularly.

To begin, when applying to remove or modify a covenant in the Supreme Court, an Originating Motion will need to be prepared, setting out the relief sought. Most applications will only need a simple Originating Motion such as this or this. More complex examples that incorporate applications for declarations can be found here and here.

In determining how to phrase the modification sought, you should seek the minimum change necessary to achieve your objectives. That is, if you are after a dual occupancy, seek to replace ‘one dwelling’ with ‘two dwellings’ or draft a variation to allow a particular form of development. Although a practice has been to vary covenants with the addition of the following words “… but this covenant will not prohibit the construction of any development generally in accordance with the development described in the plans prepared by ABC Architects dated 1 July 2016 numbered A00 to A30”, this technique known as the ‘proviso’ has recently fallen out of favour because it means attaching plans to an instrument of transfer that may sit in the Office of Titles for decades to come. For this reason, orders that incorporate a simple building envelope are preferred. The broader point, however, is that if you ask for removal of the covenant and you don’t actually need it, you may attract unwarranted opposition. Moreover the Court is increasingly unwilling to allow the complete removal of anything but entirely obsolete covenants.

No summons is required at this time given that the first hearing will ordinarily be ex parte.

While the schedules of parties may have been removed from the following examples, such a schedule is ordinarily not added until after the first return of the application, for the identity of the Defendants is not yet likely to be known.

Overarching Obligations Certification and Proper Basis Certification should also be provided.

The Court will also want an application form completed.

A helpful Guide for Practitioners has also been prepared by the Supreme Court. This provides a checklist for applications and some draft precedents. This version has been updated by the Court in December 2016, but to be prudent, download the latest version from the Supreme Court website.

Affidavit in support of and in opposition to an application to remove a single dwelling covenant

The Originating Motion should be accompanied by an affidavit in support by either a solicitor or the plaintiff. An additional example of a plaintiff’s affidavit can be found here. A comprehensive draft in Word by a solicitor can be found here. A potentially significant tactical question arises here, given that authors of affidavits ordinarily need to be made available for cross examination, and there may be reasons why you might not want to call your client to give evidence.

Substantively, the critical task is to provide the Court with reliable information about the covenant, its purpose, who enjoys the benefit and the burden of it and the essential circumstances of the application. Ensure you have an up-to-date certificate of title for the land and that the application is made on behalf of that party or those parties. If the name or names are not the same, provide an explanation with any authorities to act on affidavit. If the applicant is a conditional purchaser of land, exhibit the contract of sale.

If a particular form of development is sought to be achieved, this should be included in this affidavit or in the report of the planner, discussed below. If relying on a map showing the location of beneficiaries, ensure the map is legible and accurately reflects the location of beneficiaries.

The quickest and most cost-effective means of establishing who has the benefit and the burden of the relevant covenant is to call a professional title searching service such as Feigl and Newell on (03) 9629 3011. Dinah Newell should be able to provide you with a colour-coded cadastral plan such as this. However, you should double-check any advice you receive to identify transcription or other errors. Mistakes made at this point of the process can be expensive to fix later on.

Evidence in support and in opposition to the modification of a covenant

Once you have the above information, you can provide it to a town planner for the preparation of a planning report. Two further examples can be found here and here. This version was in support of an application to modify a covenant restricting the height of a dwelling and was praised by the Court for its clarity. A letter instructing a town planner in a s84 application can be found here. If you want the names of planners to prepare evidence in support of (or against) an application to modify or remove a covenant, find someone who has given evidence in a contested s84 application. You can look through Supreme Court cases in relation to restrictive covenants here. Unfortunately, all too often, planners approach the task as if it were a common or garden planning application in VCAT relying on principles of public policy rather than analysing impacts on proprietary rights. This evidence will almost certainly be useless.

A planning report is ordinarily sufficient substantive evidence in support of an application to modify or remove a covenant provided it covers the key issues raised in the application, for instance, addressing any injury that might be said to be substantial under s84(1)(c) of the Property Law Act 1958.

Resist the temptation to run a case under the three or four different limbs in s84(1). Ordinarily, s84(1)(c) provides the broadest scope for discretion and is the only ground required. Adopting a shot-gun approach to your application just generates unnecessary work for everyone and in many cases grounds relating to s84(1)(a) (obsolescence and reasonable user) are abandoned at trial when the applicant belatedly realises how difficult they are to establish.

A planning report should include photographs of the neighbourhood so the Court can gain a reasonably clear understanding of the context in which the application is being made.

A good planning report will also identify land within the parent title that has been varied since the time of the original subdivision, whether this is by order of the Court, planning permission or simply a breach that has gone unchallenged. Evidence demonstrating how that change has occurred, should be annexed to the planning report when available.

Applicants are sometimes keen to lodge the application without planning evidence to save costs or time, but this risks the application being dismissed for being improperly supported. Certainly, the planning evidence should be before the Court at or before the first return of the application.

In some cases, lay evidence may be sufficient, at least in opposition to a modification or removal application. For instance, in Gardencity v Grech, the defendants were successful despite the absence of any expert evidence, for the Court found the plaintiff had failed to prove the absence of substantial injury. Evidence from the defendants in that case can be found here, here and here. An example of an expert report in support of an application to oppose a modification can be found here.

For a separate discussion about what to include in an objection, look here.

The first return of the application

At the first hearing of an application, which is usually done ex parte, the Court is likely to make further orders, similar to the following for a sign to be placed on the land and for direct notice to be given to the closest beneficiaries. This raises a further tactical question for applicants for it may be prudent to suggest to the Court that all beneficiaries be notified directly rather risk attracting the attention of non-beneficiaries via a sign on the land.

On the other hand, the Court has been known to be content with simply a sign on the land and no direct notification if there are no nearby beneficiaries.

In recent times, the Court has directed applicants to notify the beneficiary at the address indicated on title and at the street address, if different.

As always, practitioners should attend the Court with draft orders, preferably forwarded to the Court a few days beforehand. A further example is here. The normal standards expected of practitioners in ex parte applications apply, and you should disclose to the Court any necessary countervailing facts even if they are not helpful to your case. For instance, if your client is running a simultaneous application to modify a covenant elsewhere (which isn’t a good idea), the Court will want to know about it.

The second return–if the application is opposed

Once advertising has been carried out, an affidavit should be prepared that describes the advertising process undertaken, the nature of responses received and whether any beneficiaries objected. This is a short example and a more comprehensive example. Leave sufficient time to complete this as it may be time consuming. In answering queries from third parties, including beneficiaries, avoid giving advice about who has the benefit of the covenant. Inquirers need to make their own investigations about their entitlement to participate in the proceedings and the answer is not always clear. Record details of all phone calls and emails as a summary should also be included in the affidavit of compliance.

The Court may then make orders providing for the further provision of evidence and the listing of the matter for hearing. Two examples can be found here and here. Once again, the schedules of parties may have been removed.

Given the multiplicity of parties and their often divergent views, cases such as this are ordinarily not set down for mediation, although negotiation often occurs at the first return of the application and further negotiations can always happen informally.

The second return–if the application is not opposed

If no person seeks to become a Defendant, draft orders should be provided to the Court along with an affidavit to that effect (see examples above). Try to get the papers to the court three or four days in advance of the directions hearing so that the judge has time to read them before the hearing. Two examples can be found here and here.

Significantly, you may find that despite the absence of any defendants, you may still need to make out your argument for modification on the basis of the evidence provided. For instance, in Re Jensen, and Re: Morihovitis the Court refused relief despite the absence of any objectors.

A written outline of argument setting out why the variation or removal of the covenant should be provided to the Court, preferably in advance of the hearing. Two examples can be found here and here.

Submissions in support and in opposition to application to modify a single dwelling covenant

If the matter runs to a contested hearing, you will need to prepare a more comprehensive outline of argument. Submissions in support of a modification application can be found here: from Wong v McConville (opening); Wong (closing) and Re: Milbex. Submissions in opposition to a modification application can be found here from Re Pivotel; Suhr v Michelmore; and Prowse v Johnstone; and Re: Morrison.

To improve your client’s costs position in the litigation, a Calderbank letter or offer of compromise may well be appropriate to disturb the defendants’ presumption that their costs will be reimbursed by the Plaintiff at the conclusion of the proceedings, irrespective of the outcome. A Calderbank letter needs to be drafted with precision and according to established principles if it is to be effective. Examples can be provided upon request.

Needless to say, all applications are different and great care should be taken to ensure that the relevant matters are placed before the Court.

Matthew Townsend
Owen Dixon Chambers
https://www.vicbar.com.au/profile/6975
townsend@vicbar.com.au (04) 1122 0277
Liability limited by a scheme approved under Professional Standards Legislation.

VCAT confirms 60(5) of the Planning and Environment Act 1987 is only useful for removing “deadwood” restrictive covenants

In the Red Dot decision of Giosis v Darebin CC [2013] VCAT 825, the Victorian Civil and Administrative Tribunal comprised of Senior Member H. McM Wright QC confirmed that 60(5) of the Planning and Environment Act 1987 (Act) is useful for little more than removing “deadwood” or non-contentious restrictive covenants.

The case concerned an applicant seeking to review the decision of the Darebin City Council to refuse a permit to vary a restrictive covenant burdening land at 26 Maclagan Crescent, Reservoir (refer detail from Land Victoria, plan below).

The part of the covenant sought to be varied vary provides as follows.

(c)           no shops, laundries, factories or works shall be erected on this Lot and not more than one dwelling house shall be erected on any one Lot and the cost of constructing each house shall not be less than Four Hundred Pounds (inclusive of all architect’s fees and the cost of erecting any outbuildings and fences). [emphasis added]

The variation sought to replace the words “one dwelling house” with the words “three dwellings” thereby enabling the application to be made to redevelop the land for three units or dwellings.

There were five objectors, three of which were beneficiaries, all of whom lived 100m away from the burdened land.

The Council had refused the application on the grounds that:

The proposed variation to the Covenant … to allow not more than three dwellings to be constructed on the lot will result in detriment to beneficiaries and is therefore contrary to Section 60(5) of the Planning and Environment Act 1987.

60(5) of the Act 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 benefitted by the restriction (other than a 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 a 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 Tribunal quoted from the second reading speech of the Planning and Environment (Amendment) Act 1993 (Vic) that inserted section 60(5) into the Act. This speech coined the term “deadwood” covenants or covenants without a continuing purpose:

The effect of the clause is that permits should be granted only for “dead wood” covenants if no owner benefitting from the covenant objects to its removal or variation. The alterative avenues to remove or vary a covenant remain in place, being applications to the Supreme Court under the Property Law Act 1958 and the preparation of a planning scheme amendment.

After quoting from Carabott and Ors v Hume City Council (1998) 22 AATR 261 that considered the effect of s60(5) of the Act in some detail, the Tribunal raised a particular flaw with the proposal before it—the absence of plans:

17           Unlike many applications for a variation of a restrictive covenant the present applicant has not concurrently sought approval for any particular form of development. This makes it difficult for the responsible authority to be satisfied as required by paragraph (a) because it must consider all possible forms of three unit multi-dwelling development and conclude that it is unlikely that any of them would cause detriment to a benefitting owner.

The Tribunal found in the absence of a firm development proposal there were an infinite number of three unit or three dwelling developments that could take place in consequence of the variation of the covenant and that it could not be “positively satisfied of a negative, namely, that there is unlikely to be detriment of any kind”:

21           … In my view it is simply not possible to say that none of those developments would be likely to have a detrimental impact of some kind on the benefitting properties, particularly the adjoining units at 28 Maclagan Crescent. The application for permit therefore falls at the first hurdle.

This case therefore underscores the limited utility of applying to VCAT to modify or remove a covenant in the face of heartfelt opposition on the part of one or more beneficiaries. The absence of plans simply made the task more difficult.

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