Property problems: Covenant wording not easily open to change

By Daniel Kelleher, Raj Patel

Add a comment

Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "Prime Asset Question". This week's question is answered by senior associate Daniel Kelleher and associate Raj Patel who can be contacted at daniel.kelleher@simpsongrierson.com and raj.patel@simpsongrierson.com

The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.

Q. We are interested in purchasing an industrial block of land which has a land covenant registered over the certificate of title. The covenant provides that "no subdivision of the Servient Lot shall permit the creation of more than three separate allotments nor permit more than one building to be erected on each such allotment." We are interested in purchasing the property with a view to developing and selling off a small industrial park in the future. But what does this covenant mean?

A. In a general sense a covenant is a promise to engage or refrain from doing a specific action. More specifically a covenant, in contrast to a contract, is a one-way agreement under which the covenantor is the only party bound by the promise. The covenant registered over the title to the property you are interested in purchasing is subject to what is commonly referred to as a restrictive covenant.

A restrictive covenant imposes a legal obligation to do or not to do something. Such restrictions frequently "run with the land" and are enforceable against subsequent buyers of the property. Examples might be to maintain a property in a reasonable state of repair, to preserve a sight-line for a neighbouring property, not to run a business from a residence, or not to build on certain parts of the property.

The restrictive covenant registered over the title of the property you are interested in purchasing seems to prohibit any subdivision of the property which will create more than three separate allotments, with each allotment permitted to have up to one building. This restriction seems simple to interpret, however, a recent case has discussed wording similar to that contained in the restrictive covenant which you have enquired about.

In this recent case the developer argued that the words in the covenant should be interpreted in a manner consistent with the Resource Management Act 1991. In order to avoid being caught by the definitions of "subdivision of land" and "allotments", the developer sought to sell portions of the land which were subject to leases of less than 35 years. These would not be subdivisions under the act.

However, the court took a different view and decided that the covenant was registered to limit the number of dwellings and the number of individual allotments that could be created. The use of the leasehold concept would still breach the wording of the covenant and the Court ruled in favour of the land owner who had the benefit of the covenant. The Court of Appeal has reminded us that words can have various meanings which can change over time, but the underlying interpretation must be of the words used in the document.

In your situation, the solicitor responsible for drafting the restrictive covenant intended to preserve the amenities of the property and restrict the adverse effects of extensive development to the property. The purpose of the covenant is therefore to limit the number of buildings on the original Servient Lot to three. If a division of the property would allow more than three buildings to be built, the purpose of the covenant would be breached.

There is a right to apply to the courts for the modification or extinguishment of covenants and Section 317 of the Property Law Act 2007 may be useful in your situation. However, this would require separate advice from a solicitor familiar with this regime.

It is for this reason that, despite the non-exhaustive definitions in the act or any other enactment, a restrictive covenant is to be construed by looking to the purpose for which the covenant was drafted and applying it to the individual circumstances.

- NZ Herald

Have your say

We aim to have healthy debate. But we won't publish comments that abuse others. View commenting guidelines.

1200 characters left

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_n1 at 23 Aug 2014 02:29:37 Processing Time: 856ms