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​Dealing with out-dated Restrictive Covenants?

Nov. 2021

A covenant can generally be defined as a promise to engage in or refrain from a specific action. Land covenants are legal obligations to do or not do something in relation to land. Once a covenant is registered on the title to a property it runs with the land and binds future owners of the property either for a fixed period or in perpetuity.

Examples of what a land covenant may contain include

  • Height restrictions for buildings and/or structures;
  • Restrictions on the type of materials that may be used for any buildings and specifications regarding their design;
  • Setting out whether animals/pets are permitted on the property;
  • A condition that plans must be approved by the developer prior to any construction on the property.

It is therefore very important to investigate the title of a property thoroughly prior to purchasing so that you are aware of any land covenants which may impact what you can do with the property. But what if there is a land covenant that is out-dated and/or can no longer be complied with?

With the consent of everybody affected, you can have the covenant extinguished. This isn't always practical – there may be too many affected owners (and their mortgagees). The Property Law Act 2007 section 317 provides a process for modifying or extinguishing land covenants by application to the Court, if you can establish one of the following grounds:

  • Change in circumstance e.g. the character of the neighbourhood
  • Whether the continuation of the covenant would impede use of the land in a different way/to a different extent than what was reasonably foreseen
  • The agreement or waiver of all entitled persons
  • Modification or extinguishment would not substantially injure (in the legal sense) any entitled persons
  • Whether the covenant is contrary to public policy, enactment, or rule of law
  • Any reason where it would be just and equitable to modify or extinguish the covenant, wholly or in part.

It can be seen that the Court has broad discretion on what factors to consider when making determinations, however, even when it appears that a land covenant is no longer viable the Court may still be reluctant to completely extinguish a covenant. It may, in some instances, be beneficial to take a more practical approach when dealing with an out-dated covenant than making a section 317 application. As highlighted in the December 2020 case of Synlait Milk Ltd v New Zealand Industrial Park Ltd where Synlait's application would have been successful, yet the parties settled outside of Court in order to protect their respective business interests.

Case Study: Seeking consent when the original developer company has been wound-up

Recently, we encountered a scenario where a property owner was required under a covenant to obtain the original developer's consent before the construction of a minor dwelling/addition to their property. The developer company involved had long since been removed from the companies register; so no longer existed. Obtaining consent had become a near impossibility.

Through no fault of their own, the client was now stuck with an out-dated covenant on their title and the potentially significant costs associated with making an application under the Property Law Act to have the covenant modified or extinguished. In this situation, if the client did go ahead and construct the minor dwelling, providing it complied with town planning rules, realistically the only party who'd object would be another owner in the subdivision (the council is generally not interested in private covenants between owners/developers unless the covenant is somehow linked to subdivision conditions, but that was not the case here). In each situation, you have to look at the particular wording of the covenants. Usually, the only viable option for another lot owner would be to seek an injunction, and, based on the particular wording of the covenant and the length of time since the covenants were created, we advised there was only a negligible risk of such an injunction being successful. If someone did apply for an injunction, a PLA application could be made then.

This emphasizes the significance of first drafting covenants to withstand changes over time, carrying out extensive due diligence prior to purchasing a property and that taking a practical approach may be appropriate in certain circumstances.

Nothing in this article should be construed as giving legal advice. It is a short summary and there will inevitably be other details and tailoring to individual circumstances.

Please contact us if you have any queries regarding land covenants whether they are on your existing property or on a property you are considering purchasing or developing.

Written by Mina Kiryakos (Property & Commercial Solicitor) with input from Blair Franklin (Property & Commercial Partner) and Brian Somervell (Property & Commercial Partner).