Restrictive Covenants

11 Oct Restrictive Covenants

Developers and purchasers who wish to rely on the long term or permanent enforceability of restrictive covenants should be aware of section 28 of the Environmental Planning and Assessment Act 1979 (NSW) (“the Act”).

Section 28 enables environmental planning instruments to override restrictive covenants where development is to be carried out in accordance with Part 4 of the Act.  It relevantly provides:

For the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with a consent granted under this Act, an environmental planning instrument may provide that, to the extent necessary to serve that purpose, a regulatory instrument specified in that environmental planning instrument shall not apply to any such development or shall apply subject to the modifications specified in that environmental planning instrument.

Generally, restrictive covenants control the permissible use of land.  For example, a developer may impose a covenant requiring land in a subdivision to be used only for residential purposes, requiring any building to be of a specified quality or value, or placing limits on design (such as a prohibition against double garages).  With the introduction of section 28, however, planning authorities were given the power to override restrictive covenants.  In Ludwig v Coshott (1994) 83 LGERA 22, Bryson J of the NSW Supreme Court held that clause 32 of the Woollahra Local Environmental Plan (LEP) No. 27 had the effect of overriding a restrictive covenant for the purposes of enabling development to be carried out. In the above case the defendant’s land had the benefit of a restrictive covenant which burdened the plaintiff’s land.

The covenant was created by a Memorandum of Transfer between the distant predecessors in title to the plaintiff and the defendant.  The terms of the restriction were relevantly: “…that any main building erected on the land hereby transferred shall be a cottage with brick external walls which shall not be roughcasted but may be cement covered…”.

The development proposed was the construction of an unroofed terrace on the western side of the house, to which Woollahra Council had given development consent.  In earlier proceedings, it was common ground between the parties that the word “cottage” in its usage in New South Wales meant a small single storey house.  Waddell CJ upheld submissions to the effect that to make the alterations then proposed would result in a substantially larger building than the one which then existed, and the building which would thus be created would not be a cottage. Bryson J noted that LEP 27 made very elaborate provisions which prescribed the purposes for which development may be carried out with consent or without it, and for which development was prohibited.  Clause 32 of LEP 27 relevantly provided:

32. (1) For the purposes of enabling development to be carried out in accordance with a consent granted under the Act, any agreement, covenant or instrument imposing restrictions as to the erection or use of buildings for certain purposes or as to the use of land for certain purposes, to the extent necessary to serve that purpose, shall not apply to the development.

Bryson J held that a body of judicial opinion in the Land and Environment Court supported giving provisions of planning instruments made under section 28 (of which clause 32 was an example) “wide operation for the purpose of enabling development to be carried out in accordance with development consents.”  Bryson J’s reasoning was upheld on appeal in Coshott & Anor v Ludwig & Anor (1997) NSW ConvR 55-810.  Meagher JA, with whom Giles JA and Simos AJA agreed, held that the self-evident purpose of section 28 and clause 32 of LEP 27 was to nullify and remove all obstacles to the planning principles decided on by the Council or the Minister. Restrictions on the operation of section 28 First, section 28 affects a restrictive covenant only if, and to the extent that, the restrictive covenant expressly, or by necessary implication, conflicts with “an environmental planning instrument” (e.g. a LEP) or “consent.”  Secondly, under section 28(2), the restrictive covenant is affected only “to the extent necessary to serve that purpose”, being “the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with a consent granted under this Act”.

Therefore, section 28 will not affect a restrictive covenant in circumstances where the covenant does not conflict with an environmental planning instrument or development consent. Further, section 28 might not result in nullifying the covenant, but merely modifying its operation so that only part of the covenant (the inconsistent part) would be affected. As pointed out by Young J in Doyle v Phillips (1997) 8 BPR 15 and Owens v Longhurst (1998) 9 BPR 16, it is necessary to look at each individual instrument (e.g. restrictive covenant) and each individual consent.  For example, a LEP might mark a zone “special uses church” where any covenant that restricted the use of that building to a dwelling house would automatically be negatived because the plan only allows its use for church or associated purposes.

On the other hand, the plan could be zoned in such a way that no development could take place without the consent of council, but that a whole range of developments could take place with the council’s consent, some of which developments were in accordance with the restrictive covenant and some of which were not.  In such a case it would only be where the development consent operates that a conflict would occur which would nullify the restrictive covenant, so that the ‘nullifying effect’ would occur at the grant of the development approval.

There is further scope for restrictive covenants to operate in circumstances where the LEP provides that consent is not required for a particular development.

Due to the fact that details of a development are usually not covered by a LEP, there is scope for restrictive covenants to operate in relation to design of structures (for example, covenants forbidding double garages in front of houses) provided there is no conflict with development consent.  However, developers wishing to use restrictive covenants as a marketing tool and purchasers who wish to rely on their enforceability need to be aware of the potential application of section 28.

For further information, please contact Harris & Company on (02) 9261 8533.