Covenants and Section 28 of the EPA Act by TurksLegal

Covenants and Section 28 of the EPA Act A PAPER BY PAUL ANDERSON OCTOBER 2008

Covenants and Section 28 of the EPA Act

Summary The Court of Appeal recently reversed the decision in Jessica Estates Pty Limited v Lennard dealing with the impact on a restrictive covenant of a relevant clause of a LEP made pursuant to Section 28 of the EPA Act.

Who Does This Impact? Developers and purchasers of real estate.

What Action Should Be Taken? Developers should be aware that a covenant placed on the title to land restricting its use can be unexpectedly avoided by a contrary development consent granted by council.

Contents:

TURKSLEGAL

Facts

Legislative Background

Decision at First Interest

Court of Appeal

Conclusion

PAPER

Covenants and Section 28 of the EPA Act by Paul Anderson

The Court of Appeal has recently allowed an appeal in the case of Jessica Estates Pty Limited v Lennard. The case deals with the construction of clause 6 in the Singleton Local Environmental Plan (‘LEP’) which was enacted pursuant to Section 28 of the Environmental Planning and Assessment Act 1979 (‘EPA Act’).

Facts Jessica Estates Pty Limited (‘Jessica’) developed the Hunterview Estate and sold a lot in the subdivision to Mr and Mrs Lennard. The lot was subject to a restrictive covenant that the registered proprietor must not, without the consent of Jessica, construct more than one dwelling on the lot, construct a semi detached duplex or subdivide the lot. The Lennards were aware of the restriction when they purchased the lot. After completion of the purchase, they wrote to Jessica seeking its consent to the construction of a duplex and a strata subdivision of the lot, both of which proposals were contrary to the covenant. Jessica refused consent. Notwithstanding such refusal and after taking legal advice, the Lennards decided to proceed with the construction of the duplex. A development application for a duplex and the strata subdivision of the lot was lodged with Singleton Council and subsequently granted. Although the application was advertised, the advertisement did not come to Jessica’s notice. As soon as it was aware of the situation, Jessica instituted proceedings in the Supreme Court for an injunction but by the time the matter was heard, construction of the duplex had been completed.

Legislative Background The Lennards relied upon clause 6 of the LEP which was in the following terms: ‘If any agreement, covenant or similar instrument prohibits a land use allowed by this plan, then it shall not apply to that land use (to the extent necessary to allow that land use).’

Clause 6 was made pursuant to Section 28 of the EPA Act which is in the following terms: ‘For the purpose of enabling development to be carried out in accordance with an environmental planning instrument or in accordance with consent granted under this Act, an environmental planning instrument may provide that, to the extent necessary to serve that purpose, a regulatory instrument specified in that environmental planning instrument will not apply to any such development or shall apply subject to the modifications specified in that environmental planning instrument.’

‘Regulatory instrument’ is deﬁned as including a covenant. In short, the Lennards’ argument was that the council’s development consent overrode the restrictive covenant by reason of the operation of clause 6 of the LEP and Section 28 of the EPA.

TURKSLEGAL

PAPER

Covenants and Section 28 of the EPA Act by Paul Anderson

It should be noted that clause 6 was somewhat unusual in that it refers to a covenant etc which ‘prohibits a land use’. It is more usual in LEPs enacted pursuant to Section 28 of the EPA Act to refer to an instrument that ‘imposes restrictions on development or the erection or use of buildings’.

Decision at First Instance The Supreme Court at first instance before a single judge held that the restrictive covenant was not void due to the operation of clause 6 of the LEP. The restrictions in relation to the construction of a duplex and strata subdivision did not qualify as a land use but rather as a ‘development’. As the restrictive covenant was effective and valid, the Lennards breached the covenant by erecting the duplex. It was too late to issue an injunction to stop the construction as the building had been completed. The Court decided that damages were not a sufficient remedy and ordered that the semi detached duplex be modified so that it contained only one dwelling. The likely cost of the modification was $40,000. The Lennards were also ordered to pay the legal costs of the proceedings. The Court characterised their conduct as ‘highly imprudent’ and ‘clearly, associated with risk’. The Lennards appealed.

Court of Appeal The Court of Appeal held that: •

The restriction in relation to the construction of a duplex did qualify as a ‘land use’ in accordance with clause 6 of the LEP and not as a ‘development’; and

•

Clause 6 did in fact render void the restrictive covenant.

In its initial decision, the Supreme Court had interpreted the expression ‘land use’ very strictly, limiting its application to a use of land as distinct from the erection of a building, the carrying out of work or the subdivision of land. The Court of Appeal held that the expression ‘land use’ should be given a wider interpretation. In particular, the phrase should extend not only to the use of land for a particular purpose but also to the erection of a building to enable that use to be carried out. The appeal was allowed and Jessica was ordered to pay the legal costs.

TURKSLEGAL

PAPER

Covenants and Section 28 of the EPA Act by Paul Anderson

Conclusion The granting of the appeal no doubt resulted in a loud sigh of relief from the Lennards and their legal advisers. It was certainly a brave step to continue with the construction without the legal issue being resolved and knowing that Jessica was prepared to back its opinion by taking legal action. Developers need to be aware of the existence in various LEPs of clauses similar to clause 6 which can unexpectedly result in restrictive covenants of importance to the developer being avoided or modified. However, it should also be borne in mind that council must first be prepared to grant a development consent despite the existence of a restrictive covenant. Historically, clause 6 and its equivalents have in other LEPs usually been used to avoid older covenants which are seen as being out of step with modern town planning principles or where the character of the neighbourhood has significantly changed. In many instances, planning considerations will be in alignment with the covenant and council will not grant development consent. From the point of view of a purchaser/ developer of real estate, it will always be a brave step to unconditionally exchange a contract to buy a property subject to a restrictive covenant in the hope that the council will issue a development consent effectively avoiding the covenant by reason of the existence of a clause 6 or its equivalent.

For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.anderson@turkslegal.com.au

www.turkslegal.com.au This Pap er is cur rent at i t s d ate o f p u b l i c at i o n . Wh i l e eve r y c a re h a s b e e n t a k e n i n t h e p re p a rat i o n o f t h i s Pa p e r i t d o es not constitute legal advice and should n o t b e re l i e d u p o n fo r t h i s p u r p o s e. Sp e c i f i c l e g a l a dv i ce s h o u l d b e s o u g ht o n p a r t i c u l a r m atters. Tur ksLegal do es not accept resp on s i b i l i t y fo r a ny e r ro r s i n o r o m i s s i o n s f ro m t h i s Pa p e r. Th i s Pa p e r i s co py r i g ht a n d n o p a r t m ay b e repro duced in any for m without th e p e r m i s s i o n o f Tu r k s Le g a l . Fo r a ny e n q u i r i e s, p l e a s e co nt a c t t h e a u t h o r o f t h i s Pa p e r. © Tu r k s Le g a l 2 0 0 8