Supreme Court

Should you apply to modify a covenant via the planning permit process if s60(2) of the Planning and Environment Act 1987 applies?

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For covenants created on or after 25 June 1991, applicants are often tempted to pursue the modification of covenants through the Planning and Environment Act permit application process on the basis that it is purportedly cheaper than applying through the Supreme Court.

However, this can be a false economy when considering that each beneficiary needs to be notified via the Planning and Environment Act 1987 process and depending on the size of the subdivision that can be expensive. I have had clients complaining that the process of notice can cost $3,000 for small to medium subdivisions to $10,000 for larger subdivisions.

Moreover, the obligations for the production of evidence are no lower in the Tribunal and so the cost of engaging an expert may be greater given that the expert will invariably be required to appear to give evidence at VCAT, whereas a judicial registrar or Associate Judge will typically be content to consider the evidence on the papers.

And that hints at perhaps the critical distinction—that cases in VCAT are more often than not opposed by beneficiaries who bear few if any cost consequences from appearing to oppose an application to modify a restrictive covenant, whereas in the Supreme Court applications to modify restrictive covenants are more often than not, unopposed.

Moreover, Council as the responsible authority will invariably be a party to an application for planning permission, whereas they will only rarely be involved in a section 84 application, for instance, if Council owns nearby parkland that enjoys the benefit of the covenant sought to be modified. Taking that wildcard out the equation alone is of profound assistance to applicants.

The test in section 60(2) of the Planning and Environment Act can also be more narrowly applied than section 84 in the Property Law Act. By way of example, in Ambrosio v Hume CC [2019] VCAT 2049 the Tribunal rejected an application for an additional dwelling at 30 Eucalyptus Ct, Mickleham in the Mt Ridley Estate, whereas the Supreme Court has since approved seven somewhat similar applications in the same precinct.

Objectors may be entitled to costs even if they are not beneficiaries to a restrictive covenant

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In Re: IP Bradley Investments S ECI 2023 03410, Irving AsJ held that objectors may be entitled to the reasonable costs of ascertaining whether or not they enjoy the benefit of a restrictive covenant.

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This has implications for plaintiffs when suggesting the form and extent of notice in section 84 applications.

Traditionally, the view has been that only beneficiaries of restrictive covenants have sufficient skin in the game to attract the benefit of a costs order, but Irving AsJ held that objectors were entitled to the costs of seeking advice as to whether they were properly entitled to join as defendants.

34 I have decided to order that the plaintiff pay the costs of the objectors in an amount that will be discussed further below. My reasons are as follows.

35 First, the plaintiff asked the Court to make orders for notification of its application by public notice. That notice stated the plaintiff’s application, which was put in the alternative, seeking a declaration or modification of the restrictive covenant. In providing notice of that application the plaintiff invited people who saw the notice to consider whether they may be beneficiaries of the covenant the plaintiff sought, albeit in the alternative, to modify.

36 I accept that in requesting the orders for notification of the application the plaintiff was motivated by fairness and the interests of justice. The plaintiff is not to be criticised for seeking orders to provide public notice of its application. An award of costs is, however, compensatory and not punitive. There is some force in the objectors’ counsel’s submission that it was open to the plaintiff to seek to have its declaration application determined on an ex parte basis and that if it had done so, the issue of the objectors’ costs may, if the Court agreed it was appropriate to proceed on that basis, have been avoided.

37 Second, having seen the terms of the notice which set out the alternative applications made by the plaintiff, it was reasonable for the objectors to seek legal advice about whether their interests were affected by the application. Additionally, this was not a case in which the plaintiff had filed preliminary submissions which objectors could seek to inspect on the Court file. In those circumstances it was reasonable for the objectors to seek their own legal advice.

38 Third, the plaintiff’s suggestion that in order to be eligible for an award of costs the objectors had to possess a legal interest capable of being affected by the plaintiff’s application, is, in my view, too inflexible in light of the particular, and perhaps unusual, facts of this case. On the terms of the notice, it was clear that the plaintiff’s primary contention was that there were no beneficiaries. In my view, particularly given the plaintiff’s alternative application for modification of the covenant, the objectors were entitled to investigate and should have their reasonable costs of that investigation up until the point it was clear they held no interests capable of being affected by the plaintiff’s application.

39 Fourth, I accept that not every passer-by who observed the notice would be entitled to the legal costs of investigating their own title. In this case, the costs sought are of the investigation of the plaintiff’s application. That investigation involved a large number of objectors obtaining one counsel’s advice on the accuracy of the plaintiff’s analysis of the covenant, provided under cover of the plaintiff’s solicitor’s letter of 30 October 2023.

40 Fifth, putting to one side for the moment the issue of costs at the hearing on 7 March 2024, the objectors have acted reasonably and sought to minimise costs by retaining a common solicitor and barrister and by notifying the plaintiff’s solicitor and the Court at the earliest opportunity that they did not intend to join the proceeding as defendants to the plaintiff’s declaration application.

It follows that where a plaintiff is confident there are no beneficiaries, a ruling should be invited on the effectiveness of the covenant–before orders for notice are made.

Prescriptive easements are alive and well in Victoria

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In Valmorbida v Les Denny Pty Ltd [2023] VSC 680, Justice Gorton confirmed that prescriptive easements can still be established in Victoria.

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Prescriptive easements, or the doctrine of the lost modern grant, is a legal fiction established whereby after 20 years of continuous use of another’s property, the law will assume a right to use that property had a lawful beginning. As Justice Gorton explained: “… if a person had notice of the use, and did nothing to prevent it for 20 years, then, just as if there were a statutory limitation period, they could no longer be permitted to complain if the use were to become permanent. A ‘lapse of time accompanied by inaction, where action ought to be taken’, may confer a right not previously possessed.”

Justice Gorton found that the law in Victoria, at least for the time being, continues to recognise prescriptive easements:

“The Court of Appeal in Laming v Jennings raised the possibility that the accepted notion that an owner of a burdened tenement is bound by the acquiescence of this or their predecessors of title might have to be reconsidered. I consider that accepted notion to be in accordance with the principles that apply to the doctrine and that it should continue to apply for so long as the doctrine remains available. But, in any event, as a trial judge hearing this matter at first instance, it is a notion that I must accept. Equally, the Court of Appeal in Laming v Jennings suggested that there may need to be a new approach to this area of law in light of the diminishing acceptance of ‘the historical rationale of legal fictions’. In both these respects, weight would have to be given to the fact that the Victorian legislature, in contrast to Tasmania, has not decided legislatively (at least explicitly) to oust the principle of the lost modern grant with its attendant common law principles and so some caution might have to be exercised before the Courts decide to effect substantial changes. Again, however, as a trial judge hearing this matter at first instance, I must apply the law as it currently is.”

In a subsequent decision on the precise form of the easement created, Justice Gorton found that the precise route of the carriageway easement might change from time to time, provided that the plaintiff’s access and ability to park was maintained.

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Tribunal refuses to remove covenant even where no beneficiary has objected

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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.

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

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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.

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Supreme Court approves covenant variation previously refused by VCAT

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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

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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

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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.

How to avoid creating a precedent in a section 84 modification application

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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

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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.