Land Covenants – Property

Why do Houses in Subdivisions Have the Same Look?

When passing through a new subdivision, it is easy to spot how many of the houses look similar. This is likely to be as a result of covenants.

 

What are Covenants?

Covenants essentially are a list of rules of what cannot be done on a property.  They are recorded as a legal interest over a property’s record of title and will “run with the land”.  In other words, once registered, they bind the owner and any successor in perpetuity.  As the land changes hands, the covenants will remain in effect unless they are drafted with an expiry date.

Covenants can be registered in one of two ways.  Firstly, they can be registered so they correspond between two adjoining properties.  It is then up to the relevant owners to enforce these on each other.  Developers typically register these covenants in new subdivisions over all their parcels of land before parting ownership.  The covenants then prevent unwanted activities from spoiling the overall character of the neighbourhood.  Common rules include architectural design requirements for new houses and also the prohibition of certain things being kept on the land such as specific breeds of dogs or trailers and caravans in public view.

Alternatively, the new Land Transfer Act allows covenants to be registered in gross.  Effectively the property owner and its successors promise to a certain person, or class of person, that they will comply with the covenants and no corresponding property is required.  It is then up to that person(s) to enforce the covenants in gross.  Covenants in gross can be used to keep control of a property’s use, well after the original owner has moved on.  A typical example could be a restraint of trade covenant registered by a fast-food giant.  Their covenant in gross may prevent any other restaurant setting up business in direct conflict to theirs on land they previously owned, without obtaining prior permission.

Enforcement of covenants can involve court action and severe financial penalties for those in breach.  Covenants typically include a liquidated damages clause which states a daily rate of compensation for any extended period of breach.

 

How Do Covenants Affect the Purchase of a Property? 

Covenants can be both a benefit and a burden depending on your interests.  A purchaser should consider covenants from two perspectives:

  • how will they restrict me from doing what I want with the property, and
  • what will they prevent my neighbours from doing on their properties?

Careful consideration should be given during the design stage to avoid a breach.  Using a builder recommended by the developer is a good idea.  They will likely have building plans that comply with the covenants and the building code which can then be included in a fixed-price building contract.  This is particularly helpful for those purchasers seeking a Homestart Grant.

Whilst covenants can be testing they can also prevent your neighbours from doing unwanted things.  When purchasing a lifestyle block they can be very important to have in place so that noxious activities, such as pig farms and scrap metal yards, are not your next door neighbour.  Having covenants restricting these activities can be very welcome.  Another common restriction sought is a covenant preventing trees being planted that block a neighbouring property’s view and/or sunlight.  Sometimes it’s a matter of looking for what is not covered by a covenant rather than what is.

 

How Do Covenants Affect the Subdivision of Land?

If you already own land and plan to subdivide, covenants can be a practical tool to control your new neighbour, particularly when you intend to retain a parcel.  Careful consideration should be given when drafting covenants as sloppy wording can invite unintended consequences.

Placing restrictions on new properties can provide some obvious benefits.  However, balancing the benefits provided by covenants with the freedom purchasers want in a property is no easy task.

Landlords should also turn their minds to covenants. It is important when leasing a property, subject to a covenant, to include a term requiring that the tenant comply with its terms at all times.  An obvious conflict can arise if the permitted use under the lease is in direct conflict with the covenant.

 

Covenants are becoming progressively more common so it is crucial that you are aware of them, or lack of them.  Getting rid of a covenant can be a very difficult process so it is important to carry out due diligence first.

If you would like specialist advice regarding covenants, or any other property matter, please get in touch with one of the members of our Property Law team.