Expert views: Restrictive covenants

Ownership of land (including buildings) in Victoria is recorded on a Certificate of Title. Historically, that has been a paper (or parchment) document but most titles have now been converted to electronic Certificates of Title or will be converted in the near future.
Certificates of Title record ownership, but they also record encumbrances or restrictions on ownership. The most common encumbrance is a mortgage to a financial institution, but another reasonably common encumbrance is a Restrictive Covenant. Such a restriction has been created in the past and it is now recorded on the Certificate of Title to warn the owner and any prospective purchasers that the land is subject to a restriction.
What sort of Restriction?
Restrictive Covenants traditionally restrict the use of the land in one or more ways. A common restriction is known as a ‘Single Dwelling Covenant’ and such a restriction limits the number of dwellings that can be erected on the land to ONE. Such covenants are popular in housing estates where the developer wished to protect the value of the unsold lots by limiting the type of development that could take place on lots sold in the development. It was also thought that the existence of such a Restrictive Covenant would enhance the value of the lots by preventing “other development”.
Other common Restrictive Covenants restrict the type of activities that can be conducted on the land; such as a “no quarrying” covenant or limit the type of materials that can be used in construction; such as “brick or brick veneer”.
These restrictions became popular in the decades before town planning began to play such an important role in the overall development of our cities and there is often a tension between the restrictions created by these covenants and the desire for development to proceed in an orderly manner in accordance with widely-applying town planning principles.
The Benefit
Restrictive Covenants create powerful rights and the benefit of those rights may be enjoyed by many people. In a typical land subdivision, 100 lots might be created and each and every one of the lot owners from time to time may enjoy the right to restrict how lots affected by Restrictive Covenants can be developed. Sometimes the rights are restricted to immediate neighbours, but sometimes quite remote properties may also enjoy those rights.
Removing Restrictive Covenants
Because Restrictive Covenants often reflect outdated development aspirations, there is a common practice of seeking to remove or vary existing Restrictive Covenants to allow for modern forms of development. Nowhere is this more evident that in the attempt to remove or vary Single Dwelling Covenants. Those restrictions were often created at the height of the ‘Australian Dream’ of owning a quarter acre block with measurements of 50 ft x 150 ft (about 15m x 45m). Modern town planning principles favour more intensive development of land already serviced by infrastructure such as roads, services and public transport and it is common for the owner of a large block encumbered by a Single Dwelling Covenant to seek to vary that covenant such as to allow a dual-occupancy
re-development.
Just as this issue reflects something of a competition between old concepts and new, there are also two Acts of Parliament that impact on the outcome. The Property Law Act 1958 (Vic) (‘the PLA’) has a history from the middle of the 19th Century and reflects the old guard. The Planning and Environment Act 1987 (Vic) (‘the PEA’) reflects modern town planning principles and there is a tension between those two approaches. The PLA allows the Supreme Court to remove or vary a restrictive covenant, but on very strict terms. The PEA allows local Councils to remove or vary covenants if there is no objection and also allows VCAT to remove or vary covenants in very limited circumstances.
Conclusion
Being able to remove or vary restrictions on how a property can be re-developed can have a dramatic effect on the underlying value of that property. A lot that is large enough for a four-townhouse subdivision under town planning principles will be worth two or three times what that lot is worth if only a single-dwelling can be erected. A person owning a corner block in an established suburb can enjoy a windfall if the removal or variation of a Single Dwelling Covenant frees up the property for construction of a second home on the rear of the block. Altona and Hoppers Crossing in particular have pockets of Single Dwelling Covenants and despite the pressures of anti-development lobbies, owners should investigate the benefit that would flow from the removal or variation of a Single Dwelling Covenant affecting the land.