Victoria

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.

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.

Restrictive Covenants FAQs (Frequently Asked Questions)

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What is a restrictive covenant?

A restrictive covenant is a contract that runs with the land, that is negative in nature. More particularly, a restrictive covenant is an agreement creating an obligation which is negative or restrictive, forbidding the commission of some act. In its most common form it is a contract between neighbouring land owners by which the covenantee determined to maintain the value of a parcel of land or to preserve its enjoyment, acquires a right to restrain the other party, namely the covenantor, from using the land in a certain way: Fitt v Luxury Developments Pty Ltd (2000) VSC 258. The land subject to a restrictive covenant is known as the burdened land and the land with the corresponding ability to enforce the covenant is known as the benefited land.

How do I know if land is burdened by a restrictive covenant

If a restrictive covenant burdens or runs with a parcel of land, it should be noted under the heading “Encumbrances, Caveats and Notices” on a certificate of title available from Landata. You can then search Landata again for the relevant covenant that is often contained within a Transfer of Land, or ask a title searching firm to do this for you. One such title searching firm is Feigl & Newell on (03) 9620 7022.

How do I know if land has the benefit of a restrictive covenant?

Typically, the extent of beneficiaries can be discerned from a careful reading of the words of the covenant itself, but this may require further title searches and a careful examination of the Parent Title. Some covenants purport to convey the benefit of a covenant to all land in a subdivision, which may not be legally effective, see Re Mack and the Conveyancing Act [1975] NSWLR 623. Before you become a party to proceedings concerning the modification or enforcement of a covenant, seek advice from a lawyer with experience in this area. Many people assume that because their land is located within an estate burdened by a network of similar covenants, they are necessarily a beneficiary to other comparable covenants, which may not be the case. See too, the section on Building Schemes, below.

How do I vary or modify a restrictive covenant?

There are several ways in which restrictive covenants can be varied or modified, but the two most common means are via a planning permit application to the local council or by application to the Supreme Court.

There is an initial appeal to applying for a permit to modify a covenant via the planning permit or Planning and Environment Act 1987 process, because it is seen to be cheaper and easier, but this appeal diminishes when one understands that all beneficiaries need to be notified (unless a pre-existing breach is being regularised) and for covenants created before 25 June 1991, only one genuine objection from a beneficiary is sufficient to bring the process to an abrupt halt.

For this reason, applications that might be seen as even slightly controversial, such as increasing the number of dwellings on a lot, routinely go straight to the Supreme Court. Most applications to the Supreme Court are successful as they proceed through the process without sustained objection, but the challenge here is to pitch your application at something a judge will be comfortable with, for the Courts have traditionally acted with caution when it comes to modifying restrictive covenants.

For more information about the various options for modifying or removing a restrictive covenant in Victoria see here.

How do I modify a covenant through the Supreme Court?

To modify a covenant through the Property Law Act 1958, or Supreme Court, process, an applicant will typically need a planning report prepared by a planner with experience in this area of law and an Originating Motion drafted by a solicitor. There are numerous other procedural requirements that invariably require the involvement of an experienced and competent lawyer.

Once the application is lodged with the Court, a hearing is convened at which directions for advertising is given by an Associate Judge. Typically the notification process will take eight to ten weeks before a further hearing is convened at which objections may be considered by the Court.

If no objectors appear to be heard, which is routinely the case, the Court will consider granting the relief sought, but a judge may still want to be convinced about the appropriateness of the application. If it is positively received, relief may be granted at that time. However, if the matter is contested, directions may be given for the exchange of evidence and submissions and the hearing may be listed some six months or so later for determination.

A detailed description of the process of modifying or removing a restrictive covenant in the Supreme Court is set out here along with a comprehensive collection of precedents.

How do I object to an application to vary a restrictive covenant?

An objection to vary a restrictive covenant does not need to take any particular form. However, it is useful to understand what the Court deems to be a relevant or persuasive reason to object against what is typically seen as being irrelevant or difficult to establish. A useful indication was given by Justice Cavanough in Prowse v Johnston who gave weight to objections that complained of loss of character, loss of privacy, the bulk of the proposed building, additional noise, traffic, parking and access issues and most importantly, that of precedent, that is, is this proposal the thin edge of the wedge?

An article setting out the process of objecting to a restrictive covenant in Victoria is set out here.

The Supreme Court published a guide for objectors in December 2017.

What is a building scheme?

Where a building scheme, or scheme of development is established, all purchasers and their assigns are bound by, and entitled to the benefit of, the restrictive covenant. However, notwithstanding the frequency with which they are discussed, in Victoria, they are not often established. The real difficulty in attempting to uphold a building scheme in this state is establishing that a purchaser of land was or should have been aware that a building scheme was in place prior to purchase and therefore ought to be bound by its terms. See Randell v Uhl [2019] VSC 668. An authority that helpfully sets the relevant principles is Vrakas v Mills [2006] VSC 463.

How to interpret a restrictive covenant

An article setting out some principles for the construction or interpretation of a restrictive covenant in Victoria is set out here.

Should I buy land subject to a restrictive covenant?

If the land is of no use to you unless the covenant is modified, it is probably unwise to buy it. The process of modifying a covenant is often too uncertain, too time consuming and too expensive to justify taking the risk. Covenants can cost as little as a few thousand dollars to modify if things go well. On the other hand, parties have spent close to half a million dollars to modify covenants without success. Equally, some modifications may be completed within weeks. Others may take years. Most applications to modify covenants receive little or no sustained opposition, others ignite well orchestrated and well resourced community campaigns. Any estimate as to prospects is just a well informed guess. If you’re not dissuaded, get a beneficiary report from Feigl and Newell and then find a lawyer with experience in the modification of restrictive covenants to give you an estimate of the likely opposition to change. You may be lucky and find there only a few beneficiaries who live some distance away.

How can I find a restrictive covenant lawyer?

The modification or removal of restrictive covenants is a specialised area of law and regularly done by only a handful of lawyers in Victoria. An article setting out a reliable means of finding a lawyer with experience in the jurisdiction is set out here.

Costs in an application to modify a restrictive covenant

An article summarising the principles in relation to orders of costs in s84/Supreme Court proceedings is set out here.

Representing yourself in an application to modify a restrictive covenant

Judges make every effort to accommodate self-represented litigants. The Supreme Court even has a self-represented litigant coordinator who may be able to provide you with some guidance.

Traditionally, the practice has been to set the matter down for a contested hearing in the normal manner, with the exchange of evidence and submissions. This can involve much time and a large amount of preparation. But more recently, the Supreme Court has facilitated self-represented litigants in covenant cases, by giving people an opportunity to present a short submission at the second return of the application, that is, immediately after advertising. In this way, litigants in person can put a short summary of their views to the judge, without becoming a party to the proceedings; without the need to prepare evidence or cross examine witnesses; and without the potential costs consequences of running a contested case to its conclusion. It must be remembered though, that this will occur in the course of a busy Court list and the judge’s capacity or preparedness to entertain detailed submissions will be limited. The Plaintiff also may elect to not press its case at this second return, and may ask the Court to set the case down on a future occasion, at which time the application can be heard and determined in a more considered manner.

Further, although there are cases in which the court has refused applications to modify covenants, even where there are no parties in opposition such as in Re: Jensen and in Re: Morihovitis, in practice, it is probably fair to say that a defendant has far lower prospects of success if they are not represented, and the plaintiff’s case is not thoroughly tested.

As mentioned above, the matters you wish to put before the Court are set out here.

Mediation and applications to modify restrictive covenants

An article explaining the role and utility of mediating covenant disputes in the Supreme Court is set out here.

How do I deal with a restrictive covenant that gives a discretion to a deregistered company?

An article setting out the process for dealing with a restrictive covenant that confers a discretion on a deregistered company is set out here.

For a more detailed analysis, see here:

2023-05-26-restrictive-covenants-in-victoria-theory-and-practice-1Download

Feel free to contact me by email for further information.

Matthew Townsend
townsend@vicbar.com.au

Dealing with deregistered companies referred to in restrictive covenants

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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/

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

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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

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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

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

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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

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

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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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It is permissible to look outside the Register of Titles to properly understand the effect of a restrictive covenant

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In a decision handed down in May 2013, the Supreme Court of Victoria confirmed that it is permissible to refer to materials outside the Register of Titles to properly understand the effect of a restrictive covenant.

In Suhr v Michelmore [2013] VSC 284 the Plaintiffs contended that the following covenant was void for uncertainty:

[W]ill not at any time hereafter erect any building of a greater height than twelve feet above the present level of the land hereby transferred and any such [building] shall not be erected within five feet of the southern boundary of the lastmentioned land. [Emphasis added]

All parties agreed that the words “the present level of the land” was a reference to the level of the land in 1937. However, the plaintiffs contended that this level could not be determined on the face of the covenant and could not permissibly be determined by reference to extrinsic evidence.

Pagone J rejected this argument, noting that the covenant clearly directed a reader to something outside the register:

11           The cases decided since Westfield Management Ltd v Perpetual Trustee Company Ltd[1] do not compel the conclusion propounded by the plaintiffs, namely, that the covenant must be void for uncertainty because the determination of the “present level” of the land as at 1937 would require reference to something outside of the Register. Plainly it would be void for uncertainty if its terms were “so vague that it [was] really impossible of apprehension or construction” such as might occur by the omission of any criteria by which the words in the restrictive covenant are to be ascertained. In Miller v Evans[2] Hall J took what might be called a narrow view of the impact of Westfield as limiting the construction of the restrictive covenant to what appears on the “face of the document” and not “to go beyond the text”. A statement to much the same effect may be seen in Ryan v Sutherland.[3] Neither case concerned a restrictive covenant where its terms, as revealed on the face of the Register, directed a searcher unambiguously to something outside the Register.

The Court also noted an important difference between easements and restrictive covenants namely that the former require registration for validity whereas the latter are required to be notified but the recording does not establish or effect validity:

14           A restriction in a covenant to be valid must of course, be capable of operation. However, that does not mean that all of the terms of a covenant must appear on the Register. It is important to bear in mind that the function of registration on title of a restrictive covenant is to give notice rather than to create validity.

In the circumstances, the covenant was capable of being properly construed and that it was therefore permissible for the covenant to refer a reader to extrinsic materials, in particular the condition of the land itself:

17           The covenant in this case, without regard to extrinsic evidence, itself unambiguously directs attention to the land for its operation. The covenant, as was in my view correctly conceded, was valid when first made in 1937, and is not shown by the plaintiffs to have become invalid because of any material change to the land since then. A visual inspection of the land revealed by the numerous present and historical photographs tendered in evidence showed that there had been no construction on the land since 1937 beyond such work as was required to surface or resurface the land for use as a tennis court. Such variation to the level of the land as may have occurred by its surfacing or resurfacing is in my view de minimis. In my view the covenant is not void for uncertainty and does not offend the principles in Westfield.

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

[1] (2007) 233 CLR 528

[2] [2010] WASC 127

[3] [2011] NSWSC 1397, [10] (Black J)