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Focus: Real Estate – August 2008

Planning law plays the wild card

In brief: A recent decision of the New South Wales Court of Appeal, Lennard v Jessica Estates Pty Limited , indicates that planning legislation could override private restrictive covenants to a greater extent than previously thought.1  Partner Nicholas Cowie (view CV), Senior Associate Emma Hodgson and Law Graduate Victoria Moore explain.

How does it affect you?

  • Buyers and developers of land benefited by private restrictive covenants, which generally aim to preserve amenity and value, cannot assume that they will be enforceable.
  • Owners and developers need to consider carefully the extent to which restrictive covenants may be inconsistent with planning schemes, as the planning scheme may ultimately permit land use and development that the restrictive covenant seeks to prohibit or control.

Summary

A private restrictive covenant is an agreement between two or more parties (usually registered on title) that attempts to restrict the use of land. They are commonly used in Australia to preserve local amenity and protect property values. Equity allows the benefit and burden of a restriction on use to pass with the land to subsequent owners, even though they may not be parties to the agreement that creates them.2

The decision of Lennard v Jessica Estates Pty Limited3  suggests that caution must be exercised when considering how effective private restrictive covenants are in the context of the planning scheme applying to the same land.

In this case, the New South Wales Court of Appeal (NSWCA) reversed the decision of the New South Wales Supreme Court (NSWSC) and held that a private restrictive covenant between a developer and registered proprietor was rendered ineffective by a clause in the Singleton Local Environment Plan (LEP), enacted under section 28 of the Environmental Planning and Assessment Act 1979 (NSW) (EPA ), which said that any agreement or instrument prohibiting a land use permitted under the LEP does not apply to the extent necessary to allow that use to occur.

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Factual background

In July 2006, Mr and Mrs Lennard purchased a lot (the lot) in the Hunter View Estate subdivision (the estate), developed by Jessica Estates Pty Ltd (the developer). Each lot in the estate was subject to a restriction on the use of the land registered under section 88B of the Conveyancing Act 1919 (NSW).

The relevant restrictions, of which the Lennards were fully aware, were that the registered proprietor of a lot must not, without the prior written consent of the developer:

  • 'construct more than one dwelling on the Lot...'
  • 'construct any building...known as a semi-detached duplex on the Lot...'
  • 'subdivide the Lot...' (the restrictive covenants).

After unsuccessfully seeking the developer's consent to build a duplex on 18 September 2006, the Lennards sought legal advice and were advised that, despite the restrictive covenants, they were entitled to build a duplex.

In giving his advice, the Lennards' lawyer interpreted clause 6 of the LEP (enacted under s28 of the EPA) to override the operation of instruments, including restrictive covenants, which prohibit any development that is permitted under the LEP. Clause 6 of the LEP provides that:

If any agreement, covenant or similar instrument 'prohibits' a 'land use' 'allowed' by this plan, then it shall not apply to that land use (to the extent necessary to allow that land use).

Despite the developer's continuing refusal to grant consent, the Lennards sought and obtained development consent from Singleton Council to subdivide the lot and to build a duplex. Building began on 5 July 2007. The developer initiated proceedings to prevent construction and use without its consent on 12 September 2007.

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The Supreme Court decision

The issue to be determined by the NSWSC was whether s28 of the EPA and clause 6 of the LEP prevailed over the restrictive covenants, rendering them ineffective. Adopting a narrow interpretation of what amounted to a 'land use' under clause 6 of the LEP, Justice Austin held that the restrictive covenants prevailed on the basis that they did not relate to a 'land use' but rather to a 'development' and use of buildings.

Justice Austin held that the Lennards were in breach of the restrictive covenants and, while the normal remedy for a threatened or actual breach of a restrictive covenant is an injunction, he exercised his discretion and ordered the completed duplex be modified to a single dwelling. Not surprisingly, the Lennards appealed this decision.

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The Court of Appeal decision

Justice Tobias reconsidered the three main questions initially raised in the NSWSC decision, to determine whether the operation of the restrictive covenants was avoided because clause 6 of the LEP prevailed:

  • first, do the restrictive covenants 'prohibit' subdivision of the land and construction of a duplex;
  • secondly, do the restrictive covenants prohibit a 'land use'; and
  • finally, is the land use 'allowed' by the LEP.

In relation to the first question, Justice Tobias agreed with the trial judge that a broad interpretation of 'prohibition' should be adopted. Accordingly, the requirement that the Lennards obtain the developer's prior written consent, while a qualified rather than absolute prohibition, was still a prohibition for the purposes of clause 6(1) of the LEP.

The critical issue was whether the subdivision of land and construction of a duplex amounted to a 'land use'. The developer argued that these activities did not amount to a 'land use' for the purposes of clause 6(1) of the LEP (rather they were development and/or building use). Justice Tobias acknowledged that a number of past decisions did not support the argument that a subdivision is a 'land use'.4  However, he held that it was not desirable to adopt a narrow construction of 'land use' and that the carrying out of work on land (including a subdivision and construction of a duplex) was a 'land use' for the purpose of the LEP.

The final issue, whether the activities were 'allowed' by the LEP, was not in dispute. Clearly they were.

As all three questions were answered in the affirmative, Justice Tobias found that the local planning laws overrode the operation of the restrictive covenants and allowed the appeal. The NSWCA ordered that the Lennards were not required to modify the duplex to create a single dwelling and that the developer pay the Lennards' costs.

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Conclusion

Interpreting planning laws and private property interests (which often operate over the same subject matter) has long involved a delicate balance between the public interest (represented by planning legislation) and private proprietary interests (which are often protected by restrictive covenants).

While the NSWSC decision indicated that a strict approach to interpreting local planning laws is to be favoured,5 the NSWCA decision firmly suggests otherwise.6 The NSWCA decision indicates that where the subject matter of a particular restrictive covenant is also contemplated in local planning and environmental plans, both sources must be read together to determine whether and to what extent the restrictive covenant is invalidated by the planning regime.

In light of this decision, parties seeking to enforce or rely on restrictive covenants to protect their rights over real property must be aware that planning schemes, in certain circumstances, could defeat private covenants and adversely affect future amenity and value.

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Footnotes
  1. A number of recent cases, including Hillpalm v Heaven's Door (2004) 211 ALR 588 and Kogarah Municipal Council v Paradise Developments [2005] NSWCA 230, suggest that private covenants agreed between parties should prevail over planning laws.
  2. Tulk v Moxhay (1848) 41 ER 1143.
  3. [2008] NSWCA 121.
  4. For example,Young v Gosford City Council [2001] NSWLEC 191.
  5. See also Hillpalm v Heaven's Door (2004) 211 ALR 588; Kogarah Municipal Council v Paradise Developments [2005] NSWCA 230.
  6. See also F&D Bonaccorso v City of Canada Bay City Council [2007] NSWLEC 159.

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