01.06.2009

Restrictive Covenants

What Victorian Developers Need to Know about Removing and Varying Them

by Clause:1 Planning

This is Part 3 of a four part article looking in detail at the options available for removing or varying a restrictive covenant in Victoria. Parts 1 and 2 were published in previous editions of BDAV News. Part 4 will published in the next edition:

Part 1: Introduction and Planning Permit Applications
Part 2: Planning Scheme Amendment Process.
Part 3: Supreme Court Applications
Part 4: Important Considerations and Criteria for Selecting the Best Option.

Part 3: Supreme Court Applications

In Part 3 of this restrictive covenant article we explore the longest established means of removing or varying a restrictive covenant. This process involves an application to the Victorian Supreme Court under which an owner of land burdened by the covenant must satisfy the Court that at least one of the tests prescribed within Section 84 of the Property Law Act (Vic) 1958 can be overcome.

The Tests

Morris J provides some substantial commen-tary on understanding the different tests prescribed by Section 84 in Stanhill Pty Ltd v Jackson [2005] VSC 169. His commentary refers to a case law within Australia and overseas and provides valuable reading for anyone considering removing or varying a restrictive covenant by way of an application to the Victorian Supreme Court.

Section 84 contains three paragraphs, 1.a), 1.b) and 1.c), that set out the relevant considerations. The section below identifies each of the tests contained within Section 84 of the Property Law Act and provides clarification of their meaning by reference to previous determinations and some practical examples.

Section 84 1.a): Obsolescence, Impediment & Real Benefit to Others

Section 84(1)(a) of the Act affectively prescribes two test which the Court may consider in deciding on an application to remove or vary a covenant.

Obsolescence

The first of these relates to obsolescence and reads as follows:

  • that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Court deems material the restriction ought to be deemed obsolete.

As stated by Morris J in Stanhill v Jackson, under this Section “the power to discharge or modify a restriction is only enlivened if, by reference to the original purpose of the covenant, the restriction is virtually valueless to the persons entitled to the benefit of it.”1 If the “restrictive covenant continues to have any value for the persons entitled to the benefit of it, then it can very rarely, if at all, be deemed obsolete.”2

In practical terms an applicant seeking to have a restrictive covenant varied or removed is essentially required under this test to prove that the covenant is obsolete. Previous cases relating to single dwelling covenants have considered the covenant to be obsolete in situations where the neighbourhood character of an area had changed so substantially from the time the covenant was first registered so as to render the restriction redundant and no longer effectual.

Unreasonable impediment to land usage with no practicable benefit to others

The second test held under Section 84(1)(a) of the Act reads as follows:

  • …the continued existence thereof would impede the reasonable user of the land without securing practical benefits to other persons or (as the case may be) would unless modified so impede such user.

In order to rely upon this Section of the Act, both elements must be established.

The first element of this test being: that the restriction unreasonably hinders the use or development of the land. It would for example be possible to argue that a single dwelling covenant on a lot located within a Principle Activity Centre constituted an unreasonable impediment to the land’s use and development having regards to the planning controls affecting the site and its context amongst neighbouring development and uses.

The second element of this test being: that no practical benefit is secured by other persons as a result of the restriction. In this sense a ‘practical benefit’ is considered a real benefit and must be relevant to the purpose or intent of the restriction. An applicant needs to convince the court that no practical benefit is maintained by the retention of the restriction.

Section 84 1.b): Mutual Consent

Under Section 84(1)(b), the court may allow the removal or variation of a covenant where the person(s) benefited by the restriction:

  • …have agreed either expressly or by implication by their acts or omissions to the same being discharged or modified…

The wording of this Section is essentially self explanatory and requires no further discussion. It is however worth noting that in instances where an applicant is able to secure the written consent of all beneficiaries to the removal/variation of a covenant, it would be more prudent to pursue the “planning permit application” method to remove or vary the covenant due to the substantially reduced costs and potential timeframe involved.

Section 84 1.c): No substantial injury

The provisions of Section 84(1)(c) states:

  • that the proposed discharge or modifi-cation will not substantially injure the persons entitled to the benefit of the restriction.

This Section evokes the need for the Court to undertake an assessment of the injury (or harm) suffered by a beneficiary to the covenant:

  • “Such injury can only be properly assessed by a comparison between the benefits intended to be conferred and actually conferred by the covenant initially on the persons entitled thereto and the resultant benefits if any remaining to such persons after the covenant has been modified. If from the evidence it appears that the difference between the two will not be substantial, then the applicant will have established a case for the exercise of the court’s discretion under paragraph (c).”3

Moriss J further clarifies this by stating it “is sufficient to show that the proposed discharge or modification will not cause harm to the persons entitled to the benefit of the restriction which could be regarded as being of real significance or importance. This will require a judgment call in the particular circumstances being considered”.4

The Process

The process of applying to the Supreme Court is best initiated by a legal practitioner. It is usual for expert evidence prepared by a town planning consultant to accompany the initiating documentation to the Supreme Court. Notification to all beneficiaries will usually be required and an opportunity afforded them to join proceedings and make submissions to the court. The process will usually take between 6-18 months and will regularly cost the applicant in excess of $15,000 for representation and associated application fees.

Furthermore, applicants may be liable for the costs of other parties involved in proceedings and the Court also has the power to award compensation to any person suffering loss as a result of an order to discharged or modify a covenant.

For more information or advice relating to a specific project contact our office on 03 9370 9599. In the next and final installment of this article we will look at some universally important considerations associated with removing or varying restrictive covenants and present some criteria for selecting the best of the three methods (planning permit application, planning scheme amendment or Supreme Court application) depending on the specific facts associated with your site.

References

1  Stanhill Pty Ltd v Jackson [2005] VSC 169
2  Re Robinson [1972] VR 278
3  Re Cook [1964] VR 808 at 810-11
4  Stanhill Pty Ltd v Jackson [2005] VSC 169

This feature is part of the regular contribution made by Clause:1 Planning to BDAV News. For more information, contact Ashley Thompson on (03) 9370 9599 or visit Clause 1.

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