Restrictive Covenants

Many purchasers find when they purchase land or an existing home that their solicitor emphasises the “Restrictions on Use” or the “Covenants” on the title to the property.

The covenants are usually created by a developer at the time the land is first developed and subdivided. There are a few of reasons for this. Firstly, many developers like to “control” how the land is used, even after it is sold, so that the remainder of the land in the subdivision retains its value. This is achieved by restricting what can be built, where it can be built and from what materials it may be built. The developer is able to effectively regulate the standard and quality of building in a subdivision, thus preserving the value of any remaining lots. Moreover, many purchasers like to see this sort of regulation as it enhances and protects the asset they are buying by ensuring that nothing undesirable is built in the neighbourhood. Finally, and most often, the local Council or local governing authority imposes such restrictions on developers to ensure that future building will be of a certain standard and style. Such standards and styles accord with Council’s Local Environmental Plans as a well as policies that the Council seeks to institute.

In NSW restrictive covenants are binding on the owner of the land. This means that if a covenant is breached the local Council, the original developer or even your neighbours could take action against you seeking to restrain the use which breaches a covenant, or claiming damages arising from the breach- such as devaluation of their land value or (in the case of Councils) an injunction preventing the breach or issuing an order for demolition to rectify a breach.

Therefore, very careful attention needs to be applied to the covenants first, when you are buying and second, when and if you are building. Also, even if you do not experience any difficulty following a breach of covenant while you are the owner, you will certainly experience difficulty when you go to sell. You may find it very difficult to sell as any purchasers who have a solicitor worth his/her salt will question a breach of covenant and possibly advise a purchaser not to proceed because the purchaser may be buying a problem!

Councils in NSW may be able to over-ride covenants so that the covenants become of “no effect” if they have appropriate provisions in their Local Environmental Plans (LEPs). This has been tested in the High Court (Coshott’s Case), where the Court found that both Bathurst Regional Council and Woollahra Council have the ability to nullify covenants because their LEPs contain a provision to the effect that no-one can create a restriction which fetters or restrains what council would otherwise approve as a lawful development. In such areas it is then possible to “cure” a breach of covenant by applying for a Council Building Certificate and when developing land a covenant can be ignored provided that Council approves the development. This has been the cause of a great deal of consternation with local developers who see their “protective restrictions” being pushed aside by the local council. Some other Council LEPs also have provisions which may enable the Council to grant Development Consent with conditions that modify or overrule private restrictive covenants. Whether or not this is possible in a particular local government area would require close examination of its LEP. However, in most cases the covenants are binding and a breach can lead to serious loss. Also, as noted, in many cases the restrictions have been created as a result of the council imposing conditions on the development consent in the first place. Obviously, a council can over-ride or release its own covenants, but it will certainly not issue a building certificate if there has been an unauthorised breach.

In New South Wales, covenants are created within a document called a section 88B instrument which is registered at the Office of Land and Property Information with the plan of subdivision. They may also be created in Transfer document on registration of the transfer of land to a new owner.

In the Australian Capital Territory, a developer can also place restrictive covenants upon land. One way a developer can do this is by imposing obligations on the purchaser at the time of transfer. For example, when land is initially sold off by the ACT Government it is common for a group of developers to buy large parcels of land in a suburb. The consortium developers then sell off the land to smaller individual developers. At this time, the consortium of developers will place covenants on the land to ensure that the individual developers adhere to a set of predetermined conditions. For example in the suburb of Amaroo one provision which may be commonly found is that no carport, garage or garden shed on the land is permitted to be constructed of galvanized iron.

The ACT government, on the other hand, does not place “restrictive covenants” upon the title of the land like the NSW local Councils. Instead, the ACT government will specify the terms and conditions upon which the Lessee is to hold the crown lease. These terms and conditions in the crown lease operate in a similar fashion to restrictive covenants in NSW. A leasehold landowner leases their land from the Territory and is bound by the terms of that lease.

For the ACT, the conditions which attach to a property are usually found within the Crown Lease for land or in the Units Plan for units. In the newer more recent crown leases, instead of these conditions being contained within the actual crown lease document, the crown lease refers to a particular registered document called a Memorandum of Provisions. The Memorandum of Provisions contains the specific terms and conditions which apply to the land and which place obligations upon the Lessee. An example of obligations as well as restrictive covenants imposed by the Territory upon a lessee will be things such as:

the lessee must commence and complete construction within a certain period of time and
the lessee must always keep the property in good repair and maintenance.

It is the role of a lawyer to find and interpret these provisions for their client. In a lot of cases the restrictions can be hard to understand or may be ambiguous or unclear. An experienced eye is essential when reading and interpreting them.

Lawyers and purchasers alike must always check the restrictive covenants and then check them against any building on the land. Ignoring them can be very perilous indeed.