Buyer beware of the restrictions
Covenants need to be seen and understood, writes Diana Clement
Does that property you’re buying have a skeleton in the closet? You may find that, when you go to buy a property, that rather than having a clear title, you’re buying a title with restrictive covenants or encumbrances.
Covenants and encumbrances restrict what you can do on your own property in a variety of ways.
Sometimes buyers sign sale and purchase contracts before showing paperwork to the lawyer. They discover the restrictions when it’s too late.
Restrictive land covenants are quite common, especially in land first subdivided from the 1950s onwards.
They may restrict anything from the height of trees on the property to the colour your roof can be painted.
The most common use of restrictive covenants is by developers in new suburbs in order to uphold the standards of the subdivision, says property lawyer Tony Steindle, of Steindle Williams Legal.
“If it is a $600,000 parcel of land, they want to keep what’s built at a certain level,” says Steindle.
The lawyer, who drafts covenants for developer clients, says there has been a move to put a fixed time limit on covenants. If, for example, you stipulate that owners can build only with certain materials, this could be out of date in 30 or 40 years.
As well as covenants, there may be a Memorandum of Encumbrance on a title. Common examples include requiring owners to join a residents association and/or contribute for the upkeep of common property.
Steindle sees encumbrances used in country club- style developments that may have shared facilities, such as a pool.
Cross leases aren’t subject to covenants, Steindle says. But they can have many of the same restrictions written into the lease. In one case one of his clients took legal action against the neighbour who had added a deck without permission. The problem in that case was that the owner’s tenants were throwing beer bottles off the deck on to his client’s roof.
While this neighbour had a reason to complain about the breach of the lease, some neighbours will take action about a breached covenant to get back at those they have fallen out with.
Purchasers may see restrictive covenants and encumbrances as detrimental, Steindle says. But they also protect them from neighbours’ actions.
Sometimes covenants and encumbrances aren’t enforceable. One of the more eyebrow-raising restrictive covenants Steindle encountered was one that banned the sale of the property to Asian, Ma¯ori or certain other ethnicities. His client was Ma¯ori. A covenant such as that would no longer stand up in court because it would have breached the Human Rights Act or other modern acts of Parliament.
Land covenants can be removed if owners and their mortgagors agree, but you need to show circumstances have changed, not that you don’t like the covenant, says Steindle.
He dealt with one case where a homeowner wanted to sort out an issue where a second structure built on the property by a previous owner breached the covenant.
In that case there were more than 100 owners in the subdivision and it proved too difficult.
Steindle says the Unitary Plan means it’s likely more owners will want covenants overturned.
It was common from the 1950s to 1980s to include covenants in titles that restricted what are by today’s standards large sections from being subdivided.
Buyers do need to be careful to understand the covenants if, for example, they want to use the property for commercial purposes such as holiday accommodation or another business.