What is a Restrictive Covenant?
Restrictive covenants are essentially a private written agreement between neighbouring landowners that limits the way land can be used and developed.
Elements of an Enforceable Restrictive Covenant
The essential requirements for an enforceable restrictive covenant are:
- it must be negative in nature;
- it must benefit the land owned by the benefiting party;
- it must be intended to run with the land, and
- it must be recorded on the register.
A restrictive covenant must restrict the use of the burdened land and it must be negative. It will be couched in terms such as “the registered proprietor will not allow any dwelling to be erected on the land unless is has a minimum floor area of 150 square metres”.
There must be a benefit to, or protection of, the benefiting land and not just the owner of the benefited land. A restriction that prohibits the construction of multiple dwellings on the burdened land, is generally seen to comply with this requirement.
The intention to run with the land is implied into may restrictive covenants pursuant to the Property Law Act 1958 (Vic) (“PL Act”). Wording should also be incorporated into the covenant which makes it clear that is intended to bind subsequent owners.
For a purchaser of land to be bound by a restrictive covenant which burdens the land, the purchaser must have knowledge of the covenant before purchasing the land. To prove such knowledge, it will be necessary for the restrictive covenant to be recorded on the register.
Creating a Restrictive Covenant
A restrictive covenant may be created in a stand-alone document e.g., the registration of a Memorandum of Common Provisions or as part of another transaction between the parties e.g., as part of a transfer.
Removal or Modification of a Restrictive Covenant
There are 4 main ways to remove or vary a restrictive covenant:
- by amending the planning scheme under Part 3 of the Planning and Environment Act 1987 (Vic) (“PE Act”);
- by applying to the Supreme Court for an order under section 84 of the PL Act;
- by applying for a planning permit under Part 4 of the PE Act, or
- by agreement with those who have the benefit of the covenant.
1. Planning Scheme
An application to amend the relevant planning scheme to remove the restrictive covenant can be lodged. Anyone can request a planning scheme amendment, but the amendment must be prepared by a planning authority (usually the council) with the approval of the Minister for Planning. If a planning scheme amendment is sort by someone other than the planning authority, the authority must be certain that the amendment has planning merit and is consistent with the future strategic direction for the municipality before commencing the amendment process.
The planning authority must give notice to all owners and occupiers of land benefited by the restrictive covenant and must consider all submissions. If the planning authority doesn’t agree to a change that has been requested, the submission will be referred to an independent planning panel.
Amendment to the planning scheme is a difficult and protracted process.
2. Supreme Court
Pursuant to section 84 of the PL Act the Supreme Court has the power, on application of any person interested in any land affected by any restriction arising under covenant or otherwise, by order, to discharge or modify any restriction, upon being satisfied:
- that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case, that the Supreme Court deems the restriction as obsolete or that the continued existence of the restriction would impede the reasonable use of the land without securing practical benefits to other persons;
- that the persons entitled to the benefit of the restriction have expressly or impliedly (by their acts or omission), consented to the discharge or modification of the restriction, or
- that the proposed discharge of the restriction will not substantially injure the persons entitled to the benefit of the restriction.
The Supreme Court retains a discretion whether to make or not make the order, so it is paramount that the applicant establish that the 3 limbs (as outlined above) exist and why the court should exercise its discretion in the favour of the applicant.
Obtaining an order from the Supreme Court will be a lengthy process and expensive. In addition, the payment of compensation may be ordered by the Supreme Court if the removal or modification of the restrictive covenant is granted, where loss is suffered by the benefiting party to the covenant.
3. Planning Permit
An application may be made for a planning permit which allows removal or variation of a restrictive covenant. For the responsible authority (usually council) to grant a permit, the authority must be satisfied that the owner of any land benefited by the restriction, other than an owner who, before or after the making of the application for the permit, but within 3 months of the application, has consented in writing to the grant of the permit will not 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.
As in any town planning case, an appeal lies to VCAT if the responsible authority refuses to grant a planning permit for the removal or variation of the restrictive covenant.
Costs for a planning permit small and a permit can be issued in a relatively quick timeframe. However, if the matter is taken to VCAT for resolution, the applicant’s costs will increase although these costs will generally be below court costs because there is no requirement for affidavits and fewer directions hearings. Each party to a matter heard at VCAT, will bear their own costs.
A covenant can be modified or removed if all the landowners that benefit from the covenant agree. If agreement is so reached, the beneficiaries should sign a Deed of Release or Variation of Covenant. This Deed is then registered under section 88 of the Transfer of Land Act 1958 (Vic).
Obtaining the agreement of all benefiting land owners can be difficult and time consuming. Further, it is important that all land that benefits from the covenant is correctly identified. Often there will have been changes in the titles of the benefiting land from the date of the covenant.
Enforcement of a Restrictive Covenant
A restrictive covenant is for the benefit of the owner of the land and may be enforced by that owner against the owner of the burdened land. Generally, an application is made to the Supreme Court for an injunction and/or damages. Action should be taken quickly if a restrictive covenant is breached, as the Court may consider that the benefiting party has acquiesced in the breach or provided implied consent to the breach.
The information on this website is of a general nature only. It is not, nor is it intended to be, legal advice. You should consult a lawyer for individual advice about your particular circumstances.
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