27 July 2023
Buying or Selling a Property with a Land Covenant
Land Covenants are rules and restrictions, about how owners and occupiers can use their land. These are commonplace for many properties, and it is important to understand the effect they have.
1. What does a Land Covenant restrict
A Land Covenant can restrict almost anything relating to use of the land, but common restrictions include:
the type of dwelling or structure (including specifying the construction materials that you can and cannot use on your land);
the ability to build a granny flat, cottage and secondary dwelling;
place a relocatable dwelling on the land;
use of the land for any business purposes or other specific purposes;
having certain types of pets or animals on the land;
ability to further subdivide.
2. What if I own a property with a Land Covenant?
If you own a property with a Land Covenant, we recommend you ensure you are familiar with the restrictions, and carefully check the Land Covenant prior to undertaking any building or change of use of the property.
It is important to note that Councils do not check Land Covenants when Building Consent is applied for - it is the owner’s responsibility to ensure that any Land Covenants are complied with. For instance, the Council may grant Building Consent for a secondary dwelling however, if this is not permitted under your Land Covenant, you will be in breach of this.
If you are selling a property with a Land Covenant, it is important to carefully review the Land Covenant before listing the property for sale. If there are any breaches, this can have significant consequences and we recommend you discuss this with your Lawyer prior to listing the property for sale.
3. What if I am purchasing a property with a Land Covenant?
If you are purchasing a property that has a Land Covenant registered on the title, it is very important that you carefully review this, to check that your future plans will be permitted, and that the property has no existing breaches.
4. What if there is a breach of a Land Covenant?
Many Land Covenants include a section which outlines remedies for breaches. Sometimes, these are a set penalty fee (such as $200 per day) payable by the owner in breach and accruing daily for every day the breach remains. However, every Land Covenant is unique and it is important to be familiar with the penalties in your particular Land Covenant.
If you are selling or purchasing a property that has a breach of a Land Covenant, this may affect your ability to sell in the future. If the purchaser requires bank lending and the breach materially affects the value of the property, this will need to be disclosed to their bank and could affect their ability to obtain finance approval.
5. If there is already a breach of the Land Covenant, how do I remedy this?
By removing the object or stopping the activity causing the breach. However, in some instances this may not be possible or cost effective (for example, if the breach is a granny flat/cottage). In that instance, some options include:
You could seek to vary the Land Covenant (i.e. to remove or amend the clause(s) in breach) or discharge the Land Covenant entirely (i.e. remove it from the title). All affected parties must agree to a variation or discharge. Depending on the number of parties affected by the Land Covenant, this can be a difficult and costly process and is not always successful.
Another option is to have the affected parties sign a document to state they will not raise issues about the breach, however, this is not binding on future owners therefore is limited in its effectiveness.
6. Do Land Covenants expire?
If a Land Covenant does not specifically list an expiry date, then it continues in place forever.
Some Land Covenants list an expiry date, and they cease to be of any effect from that date onwards. However, some Land Covenants list that only specific clauses expire, which means the clauses not specifically listed continue forever.
Land Covenants are important binding documents, and it is vital that property owners are familiar with the restrictions, particularly if you are considering selling or purchasing. Our property team at Saunders Robinson Brown are experienced in dealing with a wide range of issues arising from Land Covenants and are able to advise you on the implications and options. Contact us today if you have any questions.
The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to their specific circumstances.