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Modifying And Discharging Restrictive Covenants An Update

Feature Articles

Cite as: December 2012 86 (12) LIJ, p.50

Trends in Victorian case law suggest the older of the two available methods offers fewer barriers to success in removing or varying covenants that restrict development.

By Philip Barton

A restrictive covenant is an agreement restricting the use or enjoyment of certain land for the benefit of other land. It is typically imposed in a transfer from a subdivider of a lot in a subdivision whereby, each on behalf of successors in title, the purchaser agrees with the vendor to refrain from certain actions on that lot, e.g. erecting more than one dwelling. Equity permits the vendor and its successors to enforce the covenant against the purchaser and its successors.

In 2006 I wrote an article for the LIJ on modifying and discharging covenants.1 In 2011, presumably because of some mysterious movement on the internet, members of the public started contacting me about the topic. This interest and further Supreme Court and VCAT cases warrant an updated article.

The two avenues

The older avenue for modification or removal,2 s84 of the Property Law Act 1958 (Vic) (PLA), broadly establishes, failing agreement (s84(1)(b)),3 three alternative grounds:

  • Ground 1: the covenant is obsolete by reason of changes in character of the property or neighbourhood or other material circumstances: s84(1)(a).
  • Ground 2: the restriction’s continued existence would impede reasonable land use without securing practical benefits to other persons: s84(1)(a).
  • Ground 3: discharge will not substantially injure the persons entitled to the benefit of the restriction (the beneficiaries): s84(1)(c).

The newer avenue, under the Planning and Environment Act 1987 (PEA), enables removal by planning permit and differentiates between covenants predating (old covenants), and not predating (new covenants), 25 June 1991.

New covenants may be removed if an owner of any land benefited by the restriction (i.e. a beneficiary) will, as a consequence of removal or variation, be unlikely to suffer:

(a) financial loss; or

(b) loss of amenity; or

(c) loss arising from change to the character of the neighbourhood; or

(d) any other material detriment (s60(2)).

For old covenants, ss60(4) and (5) require that any beneficiary will be unlikely to suffer any detriment of any kind (including any perceived detriment) as a consequence of removal (s60(5)(a)) and that any objection by a beneficiary be vexatious or not made in good faith (s60(5)(b)).

Three cases

Since the 2006 article there have been more than five Supreme Court and more than 15 VCAT decisions on this legislation. While mentioning others in passing, this article concentrates on the three cases containing the most sustained discussion: the Supreme Court cases of Vrakas v Registrar of Titles4 and Prowse v Johnstone5 and the VCAT case of Hill v Campaspe SC.6 Each was an unsuccessful application to overcome a single dwelling covenant.

Vrakas v Registrar of Titles

Vrakas contains the consummate concise summary of the law on s84: [23]–[46]. Kyrou J’s major points were:

  • For Ground 1, the “neighbourhood” was a question of fact (in that case determined by town planning evidence) [51]7 at the hearing date; and the covenant (or, strictly speaking, its restriction of user) was obsolete if it could no longer achieve or fulfil (even to a diminished extent) any of its original objects or purposes or had become futile or useless: [25]–[27].
  • Town planning principles and considerations were irrelevant to whether a ground was established ([41]) (but not to the Court’s exercise of discretion: [46]); and so, for example, the covenants in Vrakas were not rendered obsolete on town planning grounds: [54].
  • For Ground 2, the covenant must hinder, to a real, sensible degree, reasonable use, having regard to the land’s situation, the surrounding property and the covenant purpose and, accordingly, the restriction must impede all,8 not a particular, reasonable use; “practical benefits” were any real benefits to a beneficiary, and accordingly relevant may be the precedent value of a relaxation of the restriction in inducing similar applications, resulting in a detrimental change to a whole area: [28]–[33]. In Vrakas this ground was not established because the plaintiffs did not lead evidence of what use was impeded, merely asserting that the covenant decreased development options, and the covenants provided practical benefits by facilitating low-density living in the neighbourhood: [59]–[60].9
  • For Ground 3, the test for substantial injury was similar to that for “practical benefits”, requiring a comparison between the benefits initially intended to be, and actually, conferred by the covenant and any benefits remaining after discharge, which difference in benefits must not be substantial: [34]–[35], [39]. In Vrakas the plaintiffs failed because the discharge would directly affect the defendants’ land enjoyment by altering the dominant single dwelling character of their neighbourhood ([64]),10 and because of adverse precedent value: [65].11
  • Even if a ground was proved, relief could be refused on discretionary grounds ([45]–[46]), which would if necessary have occurred in Vrakas both because the defendants had purchased the property for its development potential, taking the risk of legal impediments, and because they had not produced specific development proposals to the Court: [68]–[71].
Prowse v Johnstone

The plaintiff desired to erect a three-storey building including 18 residential apartments. Cavanough J adopted Kyrou J’s statement of the law, but as to Ground 3 added the following ([104]–[106]):

  • Because the relevant injury was that to the benefit of the restriction, the Court would in comparing benefits consider whether the “worst” development under the existing covenant was a realistic probability (e.g. in Prowse there was no serious likelihood of similar development to that proposed if the covenant was modified): [120].
  • He assumed, without deciding, that planning provisions might be relevant to assessing substantial injury because they included protections for neighbouring properties.
  • Injury was determined subjectively, and so encompassed intangibles such as impairment of views, intrusion on privacy, unsightliness or alteration to the character or ambience of the neighbourhood; subjective tastes, preferences or beliefs may, within the limits of reasonableness, give rise to injury.

The plaintiff failed because:

  • at least one purpose of the restriction, namely to ensure one residence per block, was still achievable;
  • reasonable use, such as for a family home, was not precluded and the covenant continued to secure practical benefits; and
  • the physical presence and impact of the proposed development and precedent value of a decision in favour of the plaintiff would cause substantial injury: [107]–[111], [114]–[117].

Planning controls, Cavanough J said, would not prevent substantial injury because they were a legislative compromise between the interests of developers and residents and left considerable discretion to the planning authorities: [118].

The status of Stanhill v Jackson

The biggest attempted judicial shake-up of this area of the law occurred in 2005 in Stanhill v Jackson.12 In Vrakas Kyrou J stated:

“In Stanhill . . . Morris J . . . departed from what he described as the narrow traditional approach to s84(1) in favour of a more ‘robust’ interpretation . . . and indicated that, in his view, ‘some of the restrictions adopted in earlier cases are without justification’. In essence, his Honour held . . . that ‘obsolete’ should be given its ordinary meaning of ‘outmoded’ or ‘out of date’ (rather than meaning something that is futile or wholly unable to achieve its original purpose); . . . that ‘the reasonable user of the land’ means a user of the land acting reasonably . . . gleaned from current attitudes and circumstances (including town planning issues), ‘impede’ means to retard, obstruct or hinder (and does not mean ‘prevent’), and ‘practical benefits’ are actual benefits having substance rather than purely theoretical or trifling benefits; and, in relation to s84(1)(c), that it must only be shown that any harm caused to a person entitled to the benefit of a covenant would not be of real significance or importance”: [47].

How has Stanhill fared since? Although it has at times been mentioned favourably,13 and its interpretation of Ground 3 has twice been followed,14 in Prowse Cavanough J declined to follow Stanhill on the ground that longstanding principles of interpretation of s84(1) should be followed by single Supreme Court judges until a higher court ruled otherwise: [99].15 Accordingly the preponderance of authority continues to favour the traditional approach.16

Hill v Campaspe SC

Since my 2006 article the law under the PEA avenue has continued to be stated in familiar terms,17 save for Hill – which is particularly significant for revealing, or at least clarifying, the extent to which non beneficiaries can participate and general planning considerations be considered in a removal application. In Hill the applicants sought to vary an old single dwelling covenant to permit a second dwelling on land zoned Residential 1 and under a Land Subject to Inundation Overlay. A permit was not required if the dwelling floor level was a particular height above the 100-year flood level.

Gibson DP held that the potential categories of objectors or parties were owners or occupiers of benefiting land and also other “affected people”. The inclusion of other “affected people” was chiefly because the purpose of the standard planning scheme cl 52.02 was to “enable the removal and variation of . . . restrictions to enable a use or development that complies with the planning scheme after the interests of affected people are considered” and because its decision guidelines were that “in addition to the decision guidelines in clause 65, the responsible authority must consider the interests of affected people”: [56], [60].

Gibson DP further held that the legislative scheme for covenant removal was not limited to considering the effect on the property law rights of beneficiaries. Rather it required determination of whether s60(2) or s60(5) was satisfied and, if this hurdle was jumped, whether, as a matter of discretion and on the basis of the planning merits in relation to cl 52.02, a permit should be granted: [61]–[63], [65], [151]. Because a covenant was often instrumental in establishing the character and amenity of a particular area, the benefit of which was enjoyed by all owners and occupiers therein and not just covenant beneficiaries, under cl 52.02 “the interests of affected people” extended beyond consideration of property law rights to consideration of planning interests having regard to the covenant’s nature, the proposed variation and the governing planning framework: [66], [70].

Applying this law, Gibson DP held that:

  • Under s60(5)(a), in light of the covenant purpose, there would be: detriment to one benefiting owner (in this low-density residential environment) by having a dwelling nearby; detriment to the amenity of all benefiting owners by intrusion of this substantial building into the flood-prone river corridor; and perceived detriment suffered by a number of benefiting owners: [132]–[138].
  • Section 60(5)(b) was not satisfied, including because objections based on perceived effect on land value were permissible, due both to the protection of perceived detriment under s60(5)(a) and to the possible covenant purpose of protecting value: [143]–[144].
  • The applicants would in any event have failed on discretionary grounds. The fact that a dwelling was possible under the overlay schedule was not necessarily an acceptable outcome having regard to cls 65.01 and 52.02; to grant a permit would only compound the poor planning decision establishing the subdivision: [163]–[164].

Hill breaks new ground – because it empowers non-covenant beneficiaries who are “persons affected”, and because of its statement of the extent to which general planning considerations can be applied. It was previously expressly held, and in other cases possibly assumed, that those who were not covenant beneficiaries could not be parties to removal cases.18 The extent to which town planning considerations could be taken into account was also unclear, and it had been held that although s60(5) was satisfied VCAT retained a discretion concerning which “it is necessary to take proper and relevant matters into consideration. I do not think that this means applying the general provisions of the planning scheme”.19

Hill has subsequently been followed on both its holding as to parties20 and as to taking account of town planning considerations.21

Conclusion

For removal of old covenants the PLA avenue is generally easiest, chiefly because ss60(4) and (5) of the PEA are so stringent. For new covenants, unless the town planning merits clearly favour the applicant, the PLA avenue is also preferable since Hill has clarified that an applicant for covenant removal under the PEA must fight not only covenant beneficiaries under s60 but also other affected persons on town planning grounds.



PHILIP BARTON is a member of the Victorian Bar practising in commercial, property, and probate law.

1. “Modifying and discharging restrictive covenants in Victoria”, January/February 2006 LIJ, p50.

2. In this article, for convenience “discharge” includes “modify”, and “remove” includes “vary”, unless otherwise stated.

3. For example, Dissanayake v Hillman [2007] VSC 426 at [17]; cf Re Djurovic [2010] VSC 348 at [10], [12].

4. [2008] VSC 281.

5. [2012] VSC 4.

6. [2011] VCAT 949, (2011) 41 VPR 11.

7. Also Fraser v Di Paolo [2008] VSC 117 at [23].

8. Similarly Koller v Rice [2011] VSC 346 at [28].

9. Conversely, on this ground the Court modified a covenant to prevent demolition of a second storey in Dissanayake, note 3 above, at [16].

10. Contrary examples are Re Milbex Pty Ltd [2006] VSC 298, where the land was surrounded by fairly dense development, and Re Djurovic, note 3 above.

11. A contrary example is Koller, note 8 above, at [30].

12. (2005) 12 VR 224.

13. Re Milbex, note 10 above, at [13]; Vrakas, note 4 above, at [48].

14. Dissanayake, note 3 above, at [19]–[20] (in which the relevant order was, however, by consent) per Lasry J; and Koller v Rice, note 8 above, at [29] per Dixon J.

15. Followed in Grant v Preece [2012] VSC 55 (Daly AsJ).

16. Also applied in Bevilacqua v Merakovsky [2005] VSC 235 (Ashley J).

17. For example, as to: s60(2), Stockland Developments Pty Ltd v Greater Dandenong CC [2007] VCAT 969 at [19]; s60(5), Hawley v Yarra Ranges SC [2007] VCAT 2318 at [36]; s60(5)(a), Kellas v Kingston CC [2005] VCAT 2769 at [44]–[51], Hill, note 6 above, [111]; s60(5)(b), Kellas at [52]–[55], Hill, [112], Hamayan Learning Institute v Glen Eira CC [2011] VCAT 1665, (2011) 42 VPR 154, at [22]–[23].

18. Expressly: Kastoras v Manningham CC [2009] VCAT 2370 at [7]; Kellas, note 17 above, at [24]; List v Stonnington CC [2008] VCAT 773 at [14]–15]. Possibly assumed: Stockland Developments, note 17 above, at [1]. Even in a Supreme Court case the court can hear from non-beneficiaries – e.g. Re Milbex, note 10 above, at [8].

19. Kastoras, note 18 above, at [40]; Tsourounakis v Hepburn SC [2009] VCAT 554 at [9], [13], [14]; List, note 18 above, at [14].

20. Hamayan, note 17 above; Quality First Designs Pty Ltd v Frankston CC [2012] VCAT 647; Potter v Macedon Ranges SC [2012] VCAT 1093; Clause 1 Pty Ltd v Mornington Peninsula SC [2012] VCAT 1302; Davis v Campaspe SC [2012] VCAT 1497.

21. Quality First Designs, note 20 above.

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