Modifying or extinguishing restrictive covenants
A restrictive covenant is a contract between two parties that is restrictive in nature; a promise not to do something. The unique feature of restrictive covenants is that once they are noted on your title, they run with the land and bind subsequent owners. Some of the issues that can arise are around their interpretation, modification or removal and remedies (if available).
There are two primary ways to modify or extinguish a restrictive covenant (or easement); either by agreement or by statute. As we all know, sometimes the ‘by agreement’ route can be as troublesome as trying to herd cats. If you are unable to obtain a collective agreement to the modification or extinguishment, then sections 316 and 317 of Property Law Act 2007 may be your next port of call.
An application to the court can be made under section 317. There are six grounds under which an application can be made for an order to modify or extinguish the easement or covenant.
The first ground relates to whether there has been a change which means that the covenant should be modified or extinguished. This could come in the form of a change of use in the land, the character of the neighborhood or any other circumstance the court considers relevant.
The second ground relates to the change in nature or extent of the impediment that the ground creates i.e. a covenant that restricts building to a type of building that the land was zoned for at the time the covenant was created. Should the zoning subsequently change, the courts may be agreeable to making an order that a change in nature has occurred and the covenant may be modified or extinguished.
The third ground is by agreement or waiver from all the parties that have the benefit of the covenant.
The fourth ground relates to the fact that the change to the covenant will not substantially injure the person entitled to it. The recent case of Synlait Milk Limited v New Zealand Industrial Park Limited 2020 set down a two-stage approach for this ground, which noted that on top of the ‘no substantial injury’ requirement to the owner of the benefitted land, a further stage was included which looked at the justification to changes in the neighbourhood. In this instance, the land had been rezoned and there were other industrial plants in the area.
Section 317(2) allows for compensation to be paid, as determined by the courts. This refers to what reasonable compensation person A would need to pay to person B to have/agree to have the covenant extinguished/modified.
Section 115 of the Land Transfer Act 2017 refers to redundant easements. This is another route that can be utilised to extinguish an easement, in the circumstance where all or part of the land that has the benefit of the easement no longer adjoins the land that has the burden, either by a result of a subdivision or any other reason. The result of which provides that the easement no longer has any practical benefit.
Careful consideration should be given to any challenge, because not only is the result of the court process uncertain, it can be long and costly.