Covenants
Types of covenants
Positive covenants
Restrictive covenants
Covenants in Gross
Interpretation of Covenants
Step 1: Overall question- What is the substance of the obligation
Step 2: what is the ordinary meaning of words used? Is there ambiguity in the meaning?
A covenant for use of land as a ‘private residence only’ precluded use as a boarding house on the ordinary meaning, as a place where a great number of people (100) are brought together can’t be a private residence: German v Chapman
Step 3: What is the context in which the covenant operate?
Step 4: Covenants limit Owners' ambguity
*What is the intent of the covenant- does the use of the property really go against the intent? *
Application: Need to take the covenant in the environment in which it was intended to apply commercial project of a residential subdivision – to market and sell properties
Obiter comments in Green Growth No. 2 favour the approach in Westfield Management Ltd (HCA)
The extrinsic evidence on interpretation of a covenant is limited to what someone with access to documents on the register, and can as a third-party, read from the land and its context
Registered documents should be construed without regard to extrinsic evidence not apparent on the face of the register
But will not exclude reference to facts a reasonable future reader of the document could be expected to be aware of and would recognise as relevant and which they have access to
As covenants restrict an owner’s rights, any ambiguity regarding the burden of a promise should be resolved in favour of a burdened landowner (because taking away rights): German v Chapman
Enforcement:
Enforcement of benefit (if owner of benefited land changed)
Enforcement of burden (if owner of burdened land has changed) - Successive Burdened owner- passing a burden
Equity:
Common Law:
**The benefit of negative (restrictive) covenants may be enforced in equity. YOU CANNOT ENFORCE A POSITIVE COVENANT IN EQUITY.
The benefit of the covenant will run with the dominant land and be enforceable by successors in title if: **
Benefit of positive covenants cannot be enforced in equity
The benefit of positive and negative covenants may be enforced at common law; the benefit of the covenant will run with the dominant land PLA 2007 s301(1) and be enforceable by successors in title if:
Equity
*Common Law- statute*
The burden of negative covenants may be enforced in equity
Negative and posiitve covenants and covenants in gross may be noted on title, so passing the burden and allowing enforcement at statute against successors in title s 303 PLA 2007 if:
OPTION 1: Privity of contract
OPTION 1: Privity of estate
Privity of contract will be present where the parties were those who originally signed the agreement which contains the covenant (original covenantor and covenantee)
Privity of estate will be present with respect to parties who are in a lessor/ lessee relationship
Modification and Extinguishment of covenants
Remedies
s317 Can apply to modify or extinguish a covenant
If Privity is established
If No privity
common law and equity then can rely on common law and equity: damages, injunction
If no privity, only equitable remedies:
● Injunction with terms of what covenant requires
A covenant in gross
Other ways to modify/ extinguish
Unity of ownershipBy agreement (also s 317 avenue here)
Section 318D PLA: The court may modify or extinguish covenants in gross. Consider the factors in s 317(1) [but cite them as s 318D] and whether, if after reasonable enquiries have been made, the covenantee cannot be found.
Step 1: S 317 PLA 2007: On application, the Court may modify or extinguish a covenant if satisfied that:
(a) It ought to be modified or extinguished because of a change since its creation in one or all of:
(i) the nature or extent of the use being made of the benefited land, the burdened land, or both
(ii) character of the neighbourhood
(iii) any other circumstance the court considers relevant; or
(b) Continuation in force of the covenant would impede the reasonable use of the servient tenement in a different way/to a different extent than could have been reasonably foreseen by the original parties; or
(c) Every person entitled who is of full age and capacity–
(i) Has agreed that the easement or covenant should be modified or extinguished (wholly or in part); or
(ii) May reasonably be considered, by his or her or its acts or omissions, to have abandoned, or waived the right to, the easement or covenant, wholly or in part; or
(d) The proposed modification or extinguishment will not substantially injure any person entitled; or
(e) In the case of a covenant, the covenant is contrary to public policy or to any enactment or rule of law; or
(f) In the case of a covenant, for any other reason it is just and equitable to modify or extinguish the covenant, wholly or partly.
(2) An order under this section modifying or extinguishing the easement or covenant may require any person who made an application for the order to pay any person reasonable compensation as determined by the court
Note: This is discretionary: relief does not follow automatically.
Note: The breadth of the discretion has not been resolved - the Court of Appeal in Stonehill appeared to shift the balance in a little in the direction of the protection of contractual property rights (reluctance to disturb covenants reflecting property rights arising from contract). We don’t yet know how the SC will rule. Cases will likely turn on their particular facts.
Note: the court is hesitant to modify or extinguish covenants
● The court will not exercise its jurisdiction to relieve owners of the burden of obligations that have simply become inconvenient or costly: Worldwide Leisure
○ Otherwise would have interfered with property rights and contractual autonomy. Must show more than burden of covenant.
A covenant limiting owners of burdened land from erecting a building exceeding 1 storey with a maximum height of 25 feet gives ‘dual protection’ – both elements are important - no modification (argued that the purpose of the covenant was view protection, should be able to build 2 storeys under 25 feet): Jansen v Mansor (prior to 2017)
Note: A broadening jurisdiction? Public policy s 317(1)(e)
Stonehill v Jackson (AU) emphasises public policy basis for intervention: the court found it could modify a covenant preventing the building of more than one house on land (allowed two, not five) because there had been a fundamental change in society and the nature of demand for housing since the covenant was agreed in 1929.
○ Balances property rights of benefitting owners and public policy arguments supporting modification/extinguishment
The breadth of the court’s s 317 discretion is yet to be determined: New Zealand Industrial Park v Stonehill is currently before the Supreme Court:
○ CA declined to modify covenants protecting the ability to operate a quarry on benefitting land for 200 years.
○ “While there has been a progressive broadening of the statutory power granted to the courts, s 317 of the Act still cannot be used to free a servient tenement owner from an easement or covenant simply to improve the enjoyment of his or her property for his or her private purposes. The courts are reluctant to allow contractual property rights to be swept aside in the absence of strong reasons”
Prevents certain uses of land.
KEY: Burdened owner can comply by doing nothing.
● Not to keep sheep on land
● Not to build more than one dwelling ● Not to build above a certain height ● Use business only for retail
Require the covenantor to do something.
KEY: Burdened owner will have to take some positive action to comply.
● Maintaining a fence
● Not allowing servient land to become infested by rabbits
● Contribute to the cost of drainage maintenance
● Maintain retail business open 9-5 7 days a week
A covenant that benefits another person, but is not attached to other land: s 307A PLA 2007
• These are noted on title, can thus bind subsequent purchasers of burdened land.
• E.g. May be used as a restraint of trade – prevent the purchaser from operating a service station on the property for 10 years by putting a covenant on title before sale.
• No benefitting land, but the individual benefits from the promise.
1. The covenant touches and concerns the benefitted land
The covenant must affect the nature, qualify, mode of user or value of the land P&A Swift Investments - .e., the covenant must be genuinely related to the land ● It cannot be personal
2. The covenantee has a legal estate in the land
Covenants intending to expire after a party sells their property needs to be specifically drafted to only bind parties to agreement.
1. The covenant touches and concerns the benefitted land
2. The benefit has passed to the successor by:
A. Annexation: now deemed to transfer unless contrary intention expressed: PLA s 301
○ Annexation: simply looking to see whether benefit attached to property rather than individuals in agreement.
B. Assignment: where the covenant has been transferred to someone else ○ Rare, for noting only
C. Building or development scheme: Where number of parties have common intention Subdividing and creating a community on land. Everyone who purchases a lot needs to sign a scheme of mutual covenants.
○ Rare, for noting only
1. The covenant relates to the burdened land
2. The covenant touches and concerns the benefitted land
● The covenant must affect the nature, qualify, mode of user or value of the land P&A Swift Investments
● It cannot be personal
3. There is no privity of estate
- Notice has been given: s 307 PLA 2007
● Note of covenant on register/title is deemed notice to all the world
○ The covenant is then an interest in land, and the RO holds their estate subject to that interest: s 52(1)(b) LTA 2017
● It is inequitable to ignore a covenant which you have notice of: Tulk v Moxhay
Section 303 PLA applies to:
• Negative covenants (from 01/01/1953)
• Positive covenants (from 01/01/1987)
• Covenants in gross (from 12/11/2018)
You can contract out of this if you express a contrary intention
● Must appear in written agreement in which covenant is expressed or implied.
YOU CANNOT ENFORCE A POSITIVE COVENANT IN EQUITY: Haywood v Brunswick Permanent Benefit Building Society
- The covenant touches and concerns the benefitted land
- Notice has been given s 307 PLA 2007
● If noted on title at time covenantor buys land, notice will be deemed. If not can prove in other ways.
Enforcement: Covenenats in Gross
A covenant in gross is enforceable by the covenantee and persons claiming through her; and binds in equity the covenantor and successors in title: s 307B Covenants in gross may be noted on title: s 307F
A covenant in gross requires the person making a promise to do/refrain from doing something in relation to their land: s 307A unless a contrary intention is expressed.
• Key idea: Burdened land with no benefitting land, but a benefitting person.
Still requires relationship to land (‘touches and concerns’ test) – it can’t be any random/personal obligation.
Negative covenants are not registrable
deemed intention