Blog

Building Covenants and How These May Affect You

03Jul
real-estate-development-property-lawyers

A building covenant is restrictive covenant and strictly defined a restrictive covenant is a provision in a deed limiting the use of the property and prohibiting certain uses. 1The term is also used to describe a promise contained in any contract or agreement relating to land. 2Please keep in mind that each case relating to a building covenant will need to be taken on a case by case basis and the analysis of the facts and circumstances will play an important part for you obtaining the correct advice and guidance from the appropriate law firm with a lawyer who specialises in real estate and development, and more particularly one who specialises in building covenants.

Scheme of Development

A building covenant may become an issue in circumstances where you purchase a property (house or vacant land) in, for example an ‘estate’ development and the other registered owners of the development purport that a form of scheme of development exists therefore binding you to the original covenant. For such a scheme to exist there must be specific requirements that are satisfied. In the event that the required matters are established then a buyer is entitled, in equity, to enforce a restrictive covenant entered into by their predecessor in title with the common seller (being a developer) irrespective of the dates of the respective purchases. If such circumstances were in existence then a specialised property lawyer would need to analyse whether a scheme of development is, in fact, in existence but the essential requirements appear to be that there must exist an intention between the developer and respective buyers that they are all subject to mutually enforceable covenants which create a “local law” for the relevant development estate.

Restrictive Covenants

A developer designing a new estate will commonly require buyers to enter into restrictive covenants; however, in practice such covenants are not generally enforced against any one other than an original covenantor. It has been the generally accepted view for many years that restrictive covenants are not registerable and there is a real doubt as to whether a scheme of development would be enforceable against a subsequent buyer.

There are a couple of pertinent questions for a subsequent registered owner to ask themself (i) has the building covenant been registered on the land (ii) was notice given of the building covenant prior to entering into the contract of sale for the land?

Fraud or Acceptance of Building Covenant

There are well established common law principles that that the burden of a covenant does not run with the land at law. However, equity may enforce the burden of a restrictive covenant against a successor in title to the original covenantor in certain circumstances including where a scheme of development is established and it is generally accepted that one has the right to enforce a restrictive covenant which gives rise to an equitable interest in the covenantor’s land.

In some circumstances, however, although a person may be a subsequent registered owner of the land to which the building covenant applied the person may have purchased the land at the current market value and in good faith without having any notice of the building covenant. Therefore it may be that the building covenant will not be enforceable against the subsequent registered owner and, arguably, this would be the case whether the subsequent registered owner had been given notice of the building covenant or not. There are exceptions to this opinion in the event that there has been fraud or the in personamexception.

If there has been no fraud and the subsequent registered owner has not freely entered into the Building Covenant, the subsequent registered owner therefore may not be bound by any action that they have taken in accepting the building covenant and, therefore, the in personam exception may not apply in certain circumstances.

Enforceability of Building Covenant

Based on the presumptions in this article, it is clear from the common law principles and relevant legislation that a subsequent registered owner of the land, to which the building covenant relates to the original covenantor, will not be bound by the building covenant. In the event that a subsequent registered owner had purchased the land with notice of the building covenant but did not expressly agree to it then the subsequent registered owner would also have strong grounds to claim that they are not bound by the building covenant.

This article or the information contained therein does not purport to provide a full explanation of the law, give advice or any guidance to anyone in connection with any building covenant or other issue and this article is not to be used by anyone to support their legal position or otherwise. This article is provided on the basis of the assumption of particular facts and circumstances. For clarification purposes and further to the above this article does not purport to be advice in relation to local planning and development advice nor is it advice or guidance on any local authority regulations or other building regulations or codes. This article is limited only to what is the generally accepted view in Queensland in regard to whether building covenant would be enforceable against a subsequent buyer. This firm cannot take responsibility for any action readers take based on this information. We would be happy to assist you with any property, real estate, development, building, construction and engineering related legal issues you may have, please get in touch via enquiries@usherlevi.com or telephone our Brisbane office on (07) 3087 3463 or Sunshine Coast office on (07) 5413 9270 and one of our experienced property lawyers or construction lawyers will respond to you.


1Black, Blacks Law Dictionary (6th ed, West Publishing Co., 1990), p 1315.
2Butt, Land Law (6th ed, Sydney, Butterworths, 2010), [17 02].

Leave a comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Contact Us

captcha

Legal News Updates
October 19, 2016
How commercial lawyers can contribute to a businessOwners and managers that have operated in the corporate industry for a number of years are no doubt aware the value that a commercial lawyer can bring to a growing company.  All too... Read More >
March 01, 2016
Directors Beware: Criminal Liability May Arise From Breaches By The CompanyThe decision in ACCC (Australian Competition and Consumer Commission) v Davies [2015] FCA 1017, shows that directors may open themselves to personal criminal liability for any breaches that may have... Read More >
February 01, 2016
A “note” to corporations: Be aware of the indemnities granted to officers In Note Printing Australia Ltd v Leckenby [2015] VSCA 105, the Victorian Court of Appeal upheld the decision made in Leckenby v Note Printing Australia Ltd [2014] VSC... Read More >
January 11, 2016
Digital Communication and the Formation of ContractsIn the digital world we now live in it is prudent to give due consideration to the numerous emails that are sent everyday; could you be unwittingly entering into a binding contract?Read More >... Read More >
January 06, 2016
FIDIC Contracts and Managing Interface Risk in Queensland International Federation of Consulting Engineers (FIDIC) contracts are sometimes used in Queensland when managing interface risk for high value construction projects. Although FIDIC contract templates are used globally, there are no guideline... Read More >