Restrictive Covenants on Residential Title: What Builders Need to Know

What it is

A restrictive covenant is a written promise registered against a title that restricts what the owner of that land can do. Unlike an easement, a covenant does not give a positive right to enter or use the burdened land. It restricts behaviour. The covenant runs with the land. A builder who buys a lot in a new subdivision takes the lot subject to every covenant noted on the title, whether or not the builder reads them before signing the contract.

Covenants live in the second schedule of the title or in a separate registered instrument. They are most common on new estate subdivisions where the developer has imposed design controls and on inner-city consolidations where a vendor has imposed a single-dwelling restriction.

Common types in residential subdivisions

Single dwelling

A covenant that limits the lot to a single residential dwelling. Common on inner-suburban subdivisions where a vendor wants to preserve neighbourhood scale. The covenant typically prohibits dual occupancies, secondary dwellings and multi-unit development.

Building materials

A covenant that controls the materials used on the dwelling exterior. Common on master-planned estates. Examples: minimum brick or render percentage, no fibre cement on the street facade, roof tile colour from a specified range, no metal roofing other than a listed brand and finish. The covenant binds the original builder and every successor.

Minimum floor area

A covenant that sets a minimum gross floor area for the dwelling. Used to lock the dollar value of the build and prevent small or low-cost dwellings being constructed.

Setbacks and built form

A covenant that adds private setback rules on top of the planning controls. A council might allow a 4 m front setback. The covenant might require 6 m. The covenant prevails to the extent it is stricter.

Why covenants matter to a builder

A development application that complies with the planning instrument can still be unbuildable if a covenant is breached. Council does not enforce covenants. The party with the benefit of the covenant does. That is usually the original developer or the owners of nearby lots in the same subdivision.

The remedy for breach is an injunction to stop the work and an order requiring removal of the offending element. A finished dwelling can be ordered to be modified or, in extreme cases, demolished. Damages are also available. The cost of a court order to remove a non-compliant material from an entire street facade is sometimes higher than the original build cost.

Practical checks

Read every covenant before contracts are signed. Map the covenant requirements against the proposed design. Confirm any required developer design panel approval is sought and granted before lodgement of the development application. Hold the developer approval in writing on the project file.

Removing or varying a covenant

Release by the benefited owner

The cleanest path. Identify the party with the benefit, usually the developer or the owners of named lots. Negotiate a deed of release. Register the release on title under the Real Property Act in the relevant state. A release works where the benefit is held by one or a small number of parties willing to sign.

Section 89 Conveyancing Act 1919 (NSW)

In NSW the Supreme Court can modify or extinguish a restrictive covenant under section 89. The Court can act where the covenant is obsolete by reason of changes in the character of the land or neighbourhood, where the covenant impedes reasonable user without benefit to the dominant owners, where the benefited owners agree expressly or by implication or where the proposed modification will not substantially injure the persons entitled to the benefit. A section 89 application is a contested Supreme Court matter and the cost runs to tens of thousands of dollars.

Section 81A Conveyancing Act 1919 (NSW)

A short path for restrictive covenants relating to building materials that are more than 12 years old. The Registrar-General can extinguish the covenant on application without a court order in defined circumstances. Useful in older subdivisions with outdated material restrictions.

Property Law Act 1958 (Vic) section 84

The Victorian equivalent. The Supreme Court of Victoria can modify or wholly discharge a restriction under section 84 of the Property Law Act 1958 (Vic) on similar grounds to the NSW provision.

What to watch out for

Covenants often outlive the developer that imposed them. A 2002 covenant naming a discontinued tile product is unenforceable on its face but the title still records the obligation until modified. A development consent granted in breach of a covenant is not protected by section 4.55 modifications. The covenant is a private property right that is not extinguished by a public planning approval. Deal with covenants at the feasibility stage, not at the construction certificate stage.