March 2003

Land Covenants

The devil can be in the detail

A land covenant is a provision registered on the Certificate of Title to a piece of land which limits or restricts the owner and future owners in respect of the use of that piece of land.

A farmer cutting up his land for subdivision might restrict certain activities from being carried out on the land being sold. A classic example in the past has been the restriction on pig farming. Prospective buyers might not be too interested in purchasing their green acre or two with the little creatures wallowing in it right next door.

A Growth Industry

The use of land covenant provisions have grown apace. Covenants have popped up in many types of property development – not only rural blocks. Developers might want to ensure that any building you put up in a new residential subdivision is not roofed in second-hand corrugated iron (or worse). You may think this is quite sensible, but it is never quite that simple.

Amendments in 2002 to the Land Transfer Act mean that lawyers will be able to place covenants on Titles more efficiently. So it is time, perhaps, for a reality check by those developing or buying property, about whether covenants are in the interests of everyone likely to use the land in the future.

Some thoughts and points to remember:

  • The land covenant provisions on the land you are about to buy will remain on the land forever (unless all of the people who have the benefit of those land covenants – this may be 30 of your neighbours – agree to them coming off your Title). Is the sort of restriction you are happy with now going to be appropriate when you sell in 10 years’ time? For example, a restriction stopping further subdivision of your land might be entirely inappropriate then. Prudent developers are putting some thought into “sunset’ provisions. These might say that the restrictions (or some of them) are to come off the land at some future time.
  • An early get together – in the planning process – of the subdivider, the surveyor, the lawyer, the real estate agent and any other professionals involved in a property development should be able to identify possible problems with covenants. Poorly drafted or ill-considered covenants can be just as much a problem for a developer wanting to sell as for a buyer.
  • Owners should be aware that some covenants contain what are called liquidated damages provisions. These provisions might say that if you do build your house with (for example) an inappropriate exterior then you are immediately obliged to pay $50,000 to your neighbours.
  • Persons looking at developing land having old covenants attached may have an uphill battle with subdividing without the consent of neighbours. This is because those neighbours may – for technical reasons – have an interest in the land.
  • Well thought out and drafted covenants may well enhance the value of your property. Badly drawn covenants may have the opposite effect.

Assessing Their Effects

If there is a land covenant registered over the land you are considering purchasing it is essential that you fully understand the nature and effect of the restrictions contained in the covenant. It may even have a significant effect on the market value of the land.

Although there are often good reasons for a land covenant, do not assume that is always the case. It is important that you contact us at the earliest stage to properly check the covenants and appropriately advise you.