Andrew v Sidwell Developments Limited Partnership
[2025] NZCA 418
•21 August 2025 at 10.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA310/2024 |
| BETWEEN | SIMON LEO ANDREW, JODIE ANN MARGARET ANDREW AND NICHOLAS INDEPENDENT TRUSTEE CO LIMITED |
| AND | SIDWELL DEVELOPMENTS LIMITED PARTNERSHIP |
| Hearing: | 4 November 2024 |
Court: | Ellis, Peters and Muir JJ |
Counsel: | C T Walker KC, A J Thorn and A R Kenwright for Appellants |
Judgment: | 21 August 2025 at 10.30 am |
JUDGMENT OF THE COURT
A The appeal is allowed in part.
BThe matter of compensation is remitted back to the High Court for reconsideration.
CThe respondent must pay the appellants’ costs for a standard appeal on a band A basis with usual disbursements. We certify for two counsel.
____________________________________________________________________
REASONS
ELLIS AND PETERS JJ [1]
MUIR J [99]
ELLIS AND PETERS JJ
(Given by Peters J)
Table of contents
Para no
Introduction
Sidwell
Background
Location
Transfer of Lot 7
Covenant
Rodney District Plan
Plan Change 55
Lot 8
Registration of the covenant and sales of lots
Auckland Unitary Plan/Wainui Precinct
National Policy Statement and Plan Change 78
Sales of Lots 1, 2, 4, and 6
Application to the High Court
Property Law Act 2007
Synlait Milk Ltd v New Zealand Industrial Park Ltd
Judgment under appeal
Section 317(1)(a)(ii)
Submissions
Discussion
Section 317(1)(b)
Submissions
Discussion
Discretion
Compensation
Conclusion
Costs in the High Court
Result
Introduction
The appellants (the Andrews) are the owners of Lot 3, DP184199, being 15 Endsley Rise, Wainui (Lot 3).
The respondent (Sidwell) is the owner of Lot 6, DP184199, being 64 Sidwell Road, Wainui (Lot 6).
The Andrews appeal against a decision of Brewer J granting an application by Sidwell to modify a restrictive covenant dated 27 June 1996 (the covenant), and declining to order Sidwell to pay compensation to them.[1]
[1]Sidwell Developments Limited Partnership v Top Dream Developments Ltd [2024] NZHC 899 [High Court judgment]; and Property Law Act 2007, ss 316 and 317.
Lots 3 and 6 derive from a larger subdivision of land in 1973, discussed below, and both comprise approximately 4 ha. Until recently, the covenant has been registered against the title to each of Lots 1 to 6 of that subdivision, with each lot both benefited and burdened by the covenant.[2]
Sidwell
[2]When we refer below to “Lots 1 to 6” or “the six lots”, we mean these six lots.
Sidwell is a limited partnership. Its general partner is Sidwell GP Ltd. The directorships of the latter suggest it is a joint venture between McConnell Developments Ltd and parties associated with Top Dream Development Ltd (Top Dream), the owner of Lot 4 of the subdivision.
In October 2022, Sidwell obtained two resource consents relating to Lot 6. One was to subdivide the land into 74 residential lots and two vacant “superlots”.[3] The other was to construct 74 residential dwellings and four minor dwellings in several typologies and, amongst other things, undertake associated earthworks. For reasons which follow, we note here that the proposed subdivision was assessed as an application to undertake a discretionary activity, and the construction and associated earthworks as a non-complying activity.
[3]It is intended that the superlots will be developed for apartments.
In March 2023, Sidwell made an originating application to the High Court, seeking modification of the covenant so that it no longer “applies” to Lot 6.
The Andrews contend that Brewer J erred in granting Sidwell’s application. If they fail on that point, they contend the Judge erred in failing to grant compensation.
Background
Location
The lots derive from a seven-lot subdivision carried out in the early 1970s by Mr Desmond Lysnar. They are situated north of the Auckland CBD, to the west of the Northern motorway, and are at the northeastern boundary of what, since 2016, is referred to under the Auckland Unitary Plan (AUP) as the Wainui Precinct (precinct).[4] The precinct, and zoning of land within the precinct, is discussed below.
[4]Clause A1.6.5 of the AUP defines a precinct as an area in which detailed provisions may vary the outcomes sought by the provisions which would otherwise apply in the zone (or Auckland‑wide provisions). Such provisions may be more restrictive or more enabling than the provisions stipulated for the zone.
On the photographic evidence before us, the land to the north of the precinct is predominantly rural, or at least undeveloped. The zoning for this land also permits of residential development, but on a less intensive scale.
On or near the western boundary of each lot — and within the precinct — is what is known as the Waterloo Stream.
On the other side of the motorway, to the east, is Millwater. Millwater, completed in or about 2019, is itself a substantial residential/urban development carried out, at least in large part, by Fulton Hogan Land Development Ltd (Fulton Hogan), the owner of Lots 1 and 2.
Further to the west and south of the lots, and again within the precinct, are completed or nearly complete stages of Milldale. The evidence of Mr David McConnell, a director of Sidwell’s general partner, is that Milldale is a 300 ha “structure planned and master planned” project. It includes a town centre, reserves, schools, a retirement village, and local neighbourhood centres. It is intended to comprise 4,500 dwellings. Stages 1, 2, and 3 of the development to the south and west of the six lots are now complete, with stage 4 underway to the west. It is intended that all six lots will be included in a later stage of Milldale, including Lot 3 if the Andrews are willing to sell.
What follows is a series of images, showing the above.
First, deposited plan 64368 depicts Lots 1 to 7:
Secondly, Endsley Rise as it was in 1996 is shown in an aerial photograph from the Auckland Council’s database (the white arrow shows the general location of the lots, with Lot 3 in yellow):
[17] Thirdly, a 2017 aerial photograph of the precinct outlined in red, with the Milldale development shown to the right:
Fourthly, an aerial photograph of the precinct in 2023:
Transfer of Lot 7
In 1988, Mr Lysnar transferred Lot 7 to the Crown for an extension to the Northern motorway. Mr Lysnar retained ownership of the remaining six lots, each comprising approximately 4 ha.[5]
Covenant
[5]At approximately 4 ha each, the combined area of Lots 1 to 6 represents roughly eight per cent of the 300 ha of Milldale.
The covenant was created by Deed of Covenant dated 27 June 1996 (the Deed). By this time, the lots were in the ownership of trustees of a Lysnar family trust (the trustees), and they executed the Deed both as covenantors and covenantees, that is as owners of the burdened and benefited land respectively. The covenant was then registered against the title to each lot in mid-September 1996.
The material covenants for present purposes, binding (and benefiting) each lot, are as follows:
1. Not to use any Lot or part thereof ... for any purpose other than “Permitted Activities” or “Controlled Activities” within the relevant zone (in which the property is situated) contained within the District Plan of the Local Authority having jurisdiction thereover and not to use any Lot or part thereof for commercial poultry farming, fitch farming, commercial pig farming, boarding and/or breeding kennels, greyhound training grounds notwithstanding that such use might otherwise have been permitted as permitted activities or controlled activities in the relevant District Plan.
2. Not to erect or permit or cause to be erected on any Lot or part thereof ... any residential dwelling house unless the value thereof, as at the date of completion thereof, exclusive of any other improvements erected on the said land is not less than a base value of $140,000 exclusive of GST assessed as at the 1st April 1996 increased by the percentage increase as defined by the Consumer Price Index (Housing Group) issued prior to the date of completion of the construction of the said dwelling house ... and further that once building construction commences such construction shall be completed within 12 months of the date of commencement.
The points to note regarding cls 1 and 2 are these.
First, by cl 1, the owner of each lot undertakes not to use the lot or part thereof for any purpose “other than ‘Permitted Activities’ or ‘Controlled Activities’ within the relevant zone … contained within the District Plan of the Local Authority having jurisdiction thereover”. There is an issue between the parties as to whether the reference to the “District Plan” means that plan as it stood in 1996, or as varied from time to time. Before us, counsel for Sidwell submitted the former and the Andrews the latter. Given the view we take, this is not a difference we need to resolve for the purposes of the appeal. For the moment it suffices to say that under neither plan is any aspect of Sidwell’s proposed development a permitted or controlled activity, hence Sidwell’s application.
As to cl 2, on its face it requires any dwelling constructed on a lot to be of a particular value on completion, with any construction work to be completed within 12 months of the date of commencement. As of 2023, the adjusted value figure was $714,000. There is no evidence before us as to whether this provision is an impediment to Sidwell’s proposed development.
Rodney District Plan
At the time the covenant was registered, the lots were zoned “Rural 1 (Rural General)” under the (then operative) Rodney District Plan. The permitted and controlled activities under that plan included childcare facilities, farm dwellings, farming, farmstay or homestay accommodation, home occupations, single household units, forestry, sales of primary produce, and wineries.
Plan Change 55
In his evidence, Mr Blomfield, Sidwell’s planning witness, referred to the notification in 1995, — so a year before the covenant was entered into — of what was referred to as “Plan Change 55”. The proposed plan change is not in evidence before us, so we say no more about it.
Lot 8
The trustees also obtained resource consent to create a Lot 8, so as to provide access to Lots 4 to 6 (inclusive), from nearby Sidwell Road. Each of Lots 4 to 6 now has a one third interest in Lot 8.
Registration of the covenant and sales of lots
Following registration of the covenant, the trustees sold several of the lots to third parties, including to the Andrews, who purchased Lot 3 in 2007. Residential dwellings were constructed on most, if not all, of the lots sold, including by the Andrews.
In 2010, the Andrews commenced building a substantial home on their lot. They live in that house and wish to continue doing so. We say more below regarding the Andrews’ evidence as to their wishes.
Auckland Unitary Plan/Wainui Precinct
In 2011, Rodney District Council issued a new plan, which Mr Blomfield describes as largely a reproduction of the then existing plan and then, in 2013, Auckland Council notified the proposed AUP. As notified, the AUP proposed that all land in what is now the precinct, including the lots, be zoned “Future Urban”. The Future Urban Zone applies to:
… greenfield land that has been identified as suitable for urbanisation. The Future Urban Zone is a transitional zone. Land may be used for a range of general rural activities but cannot be used for urban activities until the site is re-zoned for urban purposes.
In 2014, Redvale Quarry Ltd (Redvale), a subsidiary of Fulton Hogan, applied to the Council to create what is now the precinct, and to apply “live zonings” to the land in the precinct in place of the proposed future urban zoning. Fulton Hogan was completing the development of Millwater (which in large part was its project) at the time and had acquired a substantial land holding in what would become the precinct, anticipating Milldale would be its next project in the area.
The application was successful, the precinct established, and land within the precinct, including Lots 1 to 6, given its current zoning. As mentioned above, the significance of designation as a precinct is that, in the event of a conflict between the precinct provisions and those for the zone (or any that are Auckland-wide), the precinct provisions prevail. The planning evidence for Sidwell was that the effect of the provisions applicable to the precinct is such that all subdivision, building, and development requires resource consent, at best as a restricted discretionary activity and, at worst, as a non-complying activity.
Mr Blomfield’s evidence is that the purpose of these restrictions in the precinct is to ensure that subdivision and development occurs in a “comprehensive and integrated manner” co-ordinated with the provision of appropriate infrastructure. Subject to the precinct provisions, the applicable zoning for the land in the precinct is shown below:
As can be seen from the image, some land on each of Lots 1 to 6 (which are located on the right-hand side of the image), adjacent to the Waterloo Stream, is zoned “Open Space – Conservation”, but most is zoned “Residential – Mixed Housing Suburban” (MHS). In addition, some of the land on Lots 5 and 6 is zoned “Residential – Mixed Housing Urban” (MHU), and some on Lot 6, and this is where one of the superlots will be situated, is zoned “Residential – Terraced Housing and Apartment Building” (THAB).
There are no controlled activities in any of these zones but there are permitted activities, subject of course to compliance with all standards and controls.[6] In the MHS and MHU zones, permitted activities include up to three dwellings per site; home occupations; supported residential care, boarding houses, visitor accommodation and care centres; and grazing of livestock.[7] There is no provision for dwellings of any number in the THAB zone. Mr Blomfield’s evidence is that the purpose of this restriction in the THAB zone is not to discourage residential development, but to ensure the effects on the neighbourhood character, residential amenity, and other matters are subject to an application to obtain resource consent.
National Policy Statement and Plan Change 78
[6]Brewer J was erroneously under the impression that there were no permitted activities in the zones, see: High Court judgment, above n 1, at [34].
[7]The permitted status of these activities is subject to compliance with the standards listed for the zone.
Mr Blomfield also refers to the National Policy Statement on Urban Development 2020 (NPS) and Plan Change 78 presently under consideration by Auckland Council. Mr Blomfield’s view is that neither the NPS nor Plan Change 78 bear on Sidwell’s proposal.
Sales of Lots 1, 2, 4, and 6
After the establishment of the precinct and the zonings, Fulton Hogan acquired Lots 1 and 2, Top Dream acquired Lot 4, and New Dreamland Development Ltd (New Dreamland) acquired Lot 6. Shortly after agreeing to purchase Lot 6, New Dreamland agreed to sell the lot to Sidwell, with that sale settling some time later in 2021. Lot 5 has been owned by Mr Degui Yin since 2012.[8] Any residential dwelling on Lots 1 and 2, 4 and 6 has since been demolished. Fulton Hogan has also obtained resource consent to develop Lots 1 and 2.
[8]Although Mr Yin appears to own his lot in his personal capacity, he is a director of a property development company or companies.
The owners of these other lots wish the covenant to be extinguished. Fulton Hogan has its own application to extinguish the covenant pending in the District Court. Mr Graeme Causer of Fulton Hogan and Mr Steven Chen of Top Dream each swore short affidavits in support of Sidwell’s application. Sidwell and the owners of these other lots, including Mr Yin, have agreed to revoke the covenant as between their lots, and have registered such a revocation, although there is an issue as to whether doing so is contrary to the terms of the covenant. Although the other owners have expressed a willingness to include Lot 3 in these arrangements, to date the Andrews have declined, as they wish the covenant to remain in place against all six lots.
Application to the High Court
As it happens, the Andrews were not served with Sidwell’s originating application, although their trustee company was. The High Court made the order sought in May 2023, and it was registered against all titles, including the title for Lot 3. Then, when the Andrews objected to the lack of service, the Court set aside its order (in July 2023); the Andrews filed a notice of opposition and affidavit evidence in support; and the hearing before Brewer J followed.
Property Law Act 2007
The relevant statutory provisions are ss 316 and 317 of the Property Law Act, the material parts of which are as follows:
316 Application for order under section 317
(1) A person bound by an easement, a positive covenant, or a restrictive covenant (including a covenant expressed or implied in an easement) may make an application to a court for an order under section 317 modifying or extinguishing that easement or covenant.
...
317Court may modify or extinguish easement or covenant
(1)On an application (made and served in accordance with section 316) for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—
(a)the easement or covenant ought to be modified or extinguished (wholly or in part) because of a change since its creation in all or any of the following:
(i)the nature or extent of the use being made of the benefited land, the burdened land, or both:
(ii)the character of the neighbourhood:
(iii)any other circumstance the court considers relevant; or
(b)the continuation in force of the easement or covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen by the original parties to the easement or covenant at the time of its creation; or
...
(2)An order under this section modifying or extinguishing the easement or covenant may require any person who made an application for the order to pay to any person specified in the order reasonable compensation as determined by the court.
It is important to note that only the burdened party may make an application under s 316 and thus Mr Walker KC submits the most the Court may do is to modify or extinguish a covenant insofar as it burdens the applicant’s land. We accept this submission.[9] This in turn means that Brewer J could not extinguish the burden of the covenant in respect of Lot 3, which it appears the Judge intended (no doubt to assist the Andrews) by formulating his order in the following terms:[10]
[67] The application is granted. The covenant against Lot 6 is extinguished in total. For the avoidance of doubt, that means the dominant and servient tenement aspects.
[9]See the discussion of this Court in Davey v Barker [2016] NZCA 313, [2016] 3 NZLR 776 at [56]–[68].
[10]High Court judgment, above n 1.
Mr Walker submits that the dominant aspects of the covenant as enjoyed by Lot 6 against Lot 3 may only be extinguished if Sidwell surrenders the benefit of the covenant, which it has not done, or the Andrews make their own application under s 316.[11]
[11]Any application by the Andrews under s 316 is likely to face considerable difficulty if made after the covenant is registered on the titles deriving from Sidwell’s subdivision.
We also accept Mr Walker’s submission that the Judge had power to modify or extinguish the covenant in part (see s 317(1)) but gave no reasons as to why he had extinguished it in full so that, for instance, cl 2 ceased to bind Sidwell. This is not to be critical of the Judge. This omission may well be a reflection of the submissions made to him.
Synlait Milk Ltd v New Zealand Industrial Park Ltd
The leading case on the manner in which s 317(1) is to be applied is the Supreme Court’s decision in Synlait Milk Ltd v New Zealand Industrial Park Ltd, in which the Court said:[12]
[67] The cases on s 317 generally adopt a two-stage approach. The court’s first task is to determine whether one (or more) of the grounds in s 317(1) is made out. If one (or more) of the grounds in s 317(1) is made out, the second task is to determine whether the discretion to extinguish or modify the covenant should be exercised. We adopt that approach. We acknowledge, however, that if the court finds one or more of the grounds in s 317(1)(a) is engaged, it will have found that (using the words of s 317(1)(a)) “the easement or covenant ought to be modified or extinguished (wholly or in part)”, which may bring into play at the first stage some of the considerations that are also relevant at the second stage.
...
[90] To conclude on this point, s 317 requires a two-stage approach. The court’s first task is to determine whether one or more of the grounds in s 317(1) is made out. If so, the second task is to determine whether the discretion to extinguish or modify the easement or covenant at issue should be exercised (and, if so, to determine whether compensation should be payable). The exercise of the discretion to modify or extinguish the easement or covenant requires consideration of all relevant factors (including the power to award compensation). We do not see any intent that any one factor should be disqualifying.
Judgment under appeal
[12]Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 (footnotes omitted).
Sidwell’s application was made on the basis that ss 317(1)(a)(ii) and/or (b) was satisfied. Brewer J accepted Sidwell’s case on both.[13] Mr Walker submits that the Judge erred on each.
Section 317(1)(a)(ii)
[13]High Court judgment, above n 1, at [28].
Section 317(1)(a)(ii) requires the Court to be satisfied that the covenant ought to be modified or extinguished because of a change since its creation (1996) in the character of the neighbourhood.
Accordingly, in determining whether this ground is made out, it is necessary to determine what constitutes the “neighbourhood”; whether there has been a change in the character of the neighbourhood since, in this case, 1996; and if so, whether the change is of such impact or consequence that the covenant ought to be modified or extinguished.
As to 317(1)(a)(ii), Brewer J said:
[31] In my view, the neighbourhood of Lot 6 ... consists of the wider area in which Lot 6 and the other Lots are situated. Clearly, the land, including Lot 6, is no longer a predominantly farming area. That is reflected by the change in zoning. The present character of the neighbourhood is very different from the bucolic character which existed in 1996 when the covenant was created.
Submissions
Before us, Mr Walker submitted the neighbourhood comprises the six lots, and land within a “reasonable radius” of them, including but not limited to those stages of Milldale that have been completed.
Mr Walker accepted that the character of the neighbourhood had changed since 1996, but contended that the degree of change should not be “overstated”. Mr Walker submits that, however the “reasonable radius” is drawn, it will include as much undeveloped land to the north of the lots as is presently developed to the west and south as stages of Milldale.
However, Mr Walker’s principal submission on s 317(1)(a)(ii) was that Brewer J erred by failing to identify why it was that the change that had occurred meant the covenant “ought” to be extinguished or modified.
Discussion
That the neighbourhood comprises the lots and the land within a reasonable radius of them is a definition that has been adopted in other cases and it is sufficient for present purposes.[14] We agree that the completed stages of Milldale to the south and west must be taken into account, as must be the undeveloped land to the north.
[14]New Zealand Industrial Park Ltd v Stonehill Trustee Ltd [2019] NZCA 147, (2019) 20 NZCPR 119 at [96]; and Reynolds v Parklands Properties Ltd [2021] NZCA 394, (2022) 22 NZCPR 516 at [69].
We also accept Mr Walker’s submission that the lots have a natural separation from the Millwater development to the east as a result of the motorway; and to the west due to the Waterloo Stream. Also, photographs exhibited by Mrs Andrew support her evidence that the topography of the lots, at least of Lot 3, is such that the existing stages of Milldale are not intrusive, as appears from this view from Lot 3 to the south:
We also agree that the Milldale development has brought about some change in the character of the neighbourhood. In 1996, the neighbourhood was rural. Mr Gary Cheyne, who gave valuation evidence for the Andrews, described the present character of the neighbourhood as “degraded rural” because of the current urban zoning, its proximity to the motorway and surrounding urban development.
In Synlait, the Supreme Court accepted that a change in zoning in and of itself might contribute to a change in the character of a neighbourhood, although said that such a change was unlikely to be determinative.[15] The Supreme Court also drew a distinction between zoning changes occurring organically, over time, and those deliberately brought about by an owner of burdened land. In the words of the Supreme Court, the relevant zoning changes in Synlait were “not something Synlait caused to occur and then sought to gain an advantage from”.[16]
[15]Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 12, at [151].
[16]At [152].
This statement has some relevance to the present case because the rezoning appears to have occurred as a result of Redvale’s (Fulton Hogan’s) concerted efforts to bring it about. Equally, however, land in a Future Urban Zone, which may well have applied otherwise, is always susceptible to rezoning for urban development. In short, the zoning that now prevails might have applied at some point, regardless of Redvale’s application.
The critical point, however, is whether the covenant “ought” to be modified or extinguished.
In Synlait, the Supreme Court said:[17]
[138] Section 317(1)(a) deals with changes that satisfy the court that the covenant “ought” to be modified or extinguished. The type of changes dealt with by this paragraph are divided into three categories and we will deal with them separately. As noted in Okey v Kingsbeer, the focus is not on the fact of change but on the impact of the change on the benefit or burden flowing from the covenant.
[17]Footnote omitted.
In Jansen v Mansor, this Court said:[18]
... the real question in para (a) is whether, by reason of any change of the kind mentioned, the covenant should be modified. The focus is not on the fact of change, but rather on its impact from the point of view of making it appropriate to modify the covenant. It is unhelpful to consider the existence of a change separately from the context as part of the composite test which the section provides.
[18]Jansen v Mansor (1995) 3 NZ ConvC 192,111 (CA) at 192,114.
By way of example, the purpose of the covenant in Synlait was to ensure that the use of the burdened land did not cause reverse sensitivity effects for an anticipated application by Winstone to establish a quarry on part of the benefited land. For that reason, the covenant confined the use of the burdened land to farming purposes and forestry.
As it happened, Winstone decided that it would not pursue the quarry and by the time of the hearing before the Supreme Court, and quite possibly earlier, there was no real prospect of such a quarry. In addition, the burdened and benefited land had been subdivided, with at least one new title including a portion of benefited and burdened land; farming and forestry had become non-complying activities under the local plan; and there had been considerable growth (many hundred percent) in nearby Pōkeno. In those circumstances, the Supreme Court held that the covenant ought to be modified because the covenant had no “substantial continuing purpose”.[19]
[19]Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 12, at [171(b)].
In Reynolds v Parklands Properties Ltd, a majority of this Court allowed an appeal against a decision of the High Court extinguishing service and right of way easements.[20] Parklands, the owner of the burdened land, wished to undertake a significant development, similar to that Sidwell proposes, and it wished the easements to be extinguished to facilitate access to its site. In that case, there had been a change in the character of the neighbourhood, but the majority allowed the Reynolds’ appeal on the ground the easements had a continuing purpose, as they conferred amenity on the benefited land. That said, all was not lost to Parklands in that case, as it had acquired other land which could be used to give access to its site. In addition, the easements in issue in Reynolds did not restrict the use to which the burdened land might be put.
[20]Reynolds v Parklands Properties Ltd, above n 14.
Mr Walker’s submission in this case is that such change as has occurred in the character of the neighbourhood does not defeat the purpose of the covenant. The covenant continues to reserve to the Andrews the rural amenity they sought in 2007 and which they continue to enjoy. Nor will retention of the covenant mean that Lot 6 must remain idle. It is open to Sidwell to pursue such activities as are permitted in the applicable zones.However, if the covenant, or even cl 1, is extinguished, the benefit it confers on the Andrews will be lost. Extinguishment will ultimately lead to increased noise, traffic, and a loss of privacy and amenity (although the Judge was not persuaded of the latter).
Mr Walker’s submission on this point is persuasive. In the words of the Supreme Court in Synlait, the covenant does have a “substantial continuing purpose” for the reasons he gave, and that counts against modification or extinguishment under s 317(1)(a)(ii). Equally, however, we cannot disregard the fact that the MHS, MHU and THAB zones are to enable intensive development of land, and that development is now well advanced. It is, however, unnecessary for us to reach a concluded view on the point because of the conclusion we have reached on s 317(1)(b).
Section 317(1)(b)
We repeat s 317(1)(b) for convenience:
317 Court may modify or extinguish easement or covenant
(1)On an application (made and served in accordance with section 316) for an order under this section, a court may, by order, modify or extinguish (wholly or in part) the easement or covenant to which the application relates (the easement or covenant) if satisfied that—
…
(b)the continuation in force of the easement or covenant in its existing form would impede the reasonable use of the burdened land in a different way, or to a different extent, from that which could reasonably have been foreseen by the original parties to the easement or covenant at the time of its creation; or
As to this provision, Brewer J said:[21]
[32] Further, the continuation in force of the covenant in its existing form would clearly impede the reasonable use of the burdened land to a different extent from that which could reasonably have been foreseen by the original parties to the covenant at the time of its creation in 1996. In 1996, the land was rural. The purpose of the covenant was not to keep the land rural but to ensure that the reasonable use of each Lot would not unduly impinge on the quiet enjoyment of the owners of the other Lots.
[33] As the Supreme Court observed in Synlait, “reasonable use” is not static and, where reasonable use changes, that becomes relevant to the assessment of the nature and extent of the impediment.
[34] The applicant’s resource consent to subdivide and develop Lot 6 demonstrates how the covenant impedes what is now the reasonable use of Lot 6. I note that the wording of the covenant is out of date. There are no longer “permitted” or “controlled” activities. Instead, the planning classification “restricted discretionary activity” requires a resource consent process to manage effects.
[35] The construction of the motorway was presaged at the time the covenant was created, but the intensive and rapid urbanisation which followed was not.
[21]High Court judgment, above n 1 (footnote omitted). With respect to Brewer J, it is not apparent to us how he deduced the purpose of the covenant.
As to Brewer J’s [34], although there are no controlled activities in the zones, there are permitted activities (subject as we have said to compliance with all controls and standards). Further, it is not apparent from the evidence before us that it was not foreseen there would be intensive and rapid urbanisation. These matters, however, do not detract from Brewer J’s analysis.
Submissions
Mr Walker submits that the Judge erred in finding that Sidwell had established s 317(1)(b) was fulfilled. He submits that, by the time the covenant was entered into, the Lysnar land had been subdivided twice. The first created Lots 1 to 7. The second created Lot 8. Given that each lot is approximately 4 ha, the parties must be taken to have contemplated that further subdivision, and the addition of one or more dwellings, might become a reasonable use of the burdened land in the sense of s 317(1)(b). However, the burden imposed by the covenant requires owners to refrain from further subdivision until the activity concerned becomes permitted or controlled. Thus the impediments imposed by the covenant as to the use of the burdened land are the same, and apply to the same extent, as always.
Discussion
Section 317(1)(b) was also in issue in Synlait and, as Brewer J said at [33] of his judgment, the Supreme Court held that the reasonable use of burdened land may change from time to time and, if a change occurs, that “becomes relevant to the assessment of the nature and extent of the impediment”.[22] The Supreme Court also held that a “change in zoning may be relevant in assessing the change in the nature or extent of the impediment”.[23]
[22]At [33], citing Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 12, at [161].
[23]Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 12, at [161].
In Synlait, the restrictions on the use of the burdened land were the same as those that had always applied. However, the reasonable use of the burdened land had changed. Changes in the zoning of that land and the neighbourhood generally had altered the nature and extent of the impediment.
We agree with Brewer J that this is what has occurred in this case. Most of the land subject to the burden of the covenant is now zoned MHS, which Mr Blomfield describes as providing for development of a suburban built character, generally of a two-storey scale. Mr Blomfield states that the MHU and THAB zones provide for even greater intensification. That the Council has granted resource consent for Sidwell’s project is also indicative of the Council’s intentions for the zones. Accordingly, we agree with Brewer J that the extent of the impediment has increased because of what is now the reasonable use of the land, namely residential development.
Discretion
Our agreement with Brewer J that s 317(1)(b) is satisfied brings us to the exercise of discretion. In the passage quoted above at [44], the Supreme Court said in Synlait that it would be unusual to find that a ground for modification or extinguishment was established but then to refuse relief, especially given the power to compensate.[24]
[24]At [67].
Despite this, Mr Walker submitted we should decline relief even if we agreed with Brewer J that a ground for modification or extinguishment was established. Mr Walker’s reasons were as follows.
First, in reliance on the covenant, the Andrews devoted considerable time, money, and effort to the design and construction of their home. Mrs Andrew’s estimate is that the current cost of construction, not only of their home but other amenities including a swimming pool and work sheds, would exceed $3 million. In addition, the Andrews have always intended to live on the site forever, and Mr Andrew operates his business from the property. The Andrews do not wish to be surrounded by residential development, and nor do they wish to sell and relocate.
Secondly, the Andrews remain willing to abide by the terms of the covenant.
Thirdly, Sidwell and the owners of Lots 1, 2 and 4 only acquired their lots recently, and they did so with the obvious intention of extinguishing the covenant, developing their land to the greatest possible extent, and doing so without compensating the Andrews.
Fourthly, issues of fairness are relevant to the exercise of discretion, as are matters of disentitling behaviour.[25] For instance, in her evidence, Mrs Andrew refers to documents she has obtained from Auckland Transport (AT) of meetings between representatives of Fulton Hogan, Sidwell and AT discussing access to the lots, including access through Lot 3. Neither Mrs Andrew nor Mr Andrew have been invited to these meetings. In addition, Mrs Andrew states, and this has not been denied, that she has been told that if she and Mr Andrew do not agree to sell, AT or the Council will take their land under the Public Works Act 1981. Mrs Andrew also gives evidence that Fulton Hogan and Sidwell are proceeding with extensive earthworks on their lots and that this is having a deleterious effect on the Waterloo Stream which in turn is affecting the stability of Lot 3.
[25]At [89].
It is thus perhaps not surprising that no agreement has been reached so as to accommodate the interests of all concerned.
However, we are required to balance the matters to which we have referred against the implications of the changes brought about by the AUP, the Council’s apparent approval of intensive residential development on these lots, and that the owners of all other lots wish the covenant to be removed. We have already made the point that the lots would always have been vulnerable to an urban zoning even if the Future Urban Zone had remained as originally proposed in the AUP.
Accordingly, in principle, we consider Brewer J’s decision to grant Sidwell’s application was correct. However, we are unable to agree with the Judge’s decision declining compensation to the Andrews.
Compensation
It is not mandatory to order compensation but this Court has held that it will usually be equitable to do so, with that compensation to be assessed on the basis of what a willing buyer/willing seller would arrive at after a “hypothetical friendly negotiation” and with all factors of benefit or detriment on either side being taken into account.[26] These principles have since been applied in cases under s 317, both in respect of easements and restrictive covenants.[27]
[26]Jacobsen Holdings Ltd v Drexel [1986] 1 NZLR 324 (CA) at 326–329 per Cooke P. See also Dooley v Sturgess [2016] NZHC 1905, (2016) 18 NZCPR 400.
[27]See for instance Macrae v Walshe [2013] NZCA 664, (2013) 15 NZCPR 254 at [54]; and Reynolds v Parklands Properties Ltd, above n 14, at [155].
The Andrews sought an amount sufficient to compensate them for any diminution in the value of Lot 3 if Sidwell’s development proceeded and a share of the benefit released to Sidwell from removing the covenant (and thus enabling the development to proceed). The Andrews adduced evidence from an expert valuer, Mr Cheyne, and Sidwell likewise from Mr Matthew Taylor. In addition, the Andrews adduced evidence from other professionals of their best assessment of the costs of development and the net proceeds which might result. However, as Sidwell proceeded by way of originating application, there was limited cross-examination, confined only to the valuers.
The Judge did not accept Mr Cheyne’s evidence that extinguishment of the covenant against Lot 6 and the development Sidwell proposes would diminish the value of Lot 3.[28] The Judge rejected this evidence because he said it assumed that Lot 3 would be sold as a block of land which would never be subdivided because the covenant would prevent it. Although the Judge dismissed this scenario as unrealistic, consistently with his submissions referred to in [42] above, Mr Walker submits that is the correct basis on which to proceed. Lot 3 will remain subject to the covenant unless and until the Andrews make their own application under s 316 or the other lots surrender their rights in respect of Lot 3.
[28]High Court judgment, above n 1, at [59].
The Judge also considered there would be no appreciable loss of amenity because Lot 3 and Lot 6 are separated by Lots 4 and 5. Urbanisation would just be “a single lot closer”, although the position might be different if and when it came to “nearer Lots”.[29] With respect to the Judge, as was submitted in the High Court, “a single lot closer” may be quite significant in terms of amenity.[30] Seventy-four residential dwellings and more than 100 units in apartment buildings of up to five storeys (as expected on the superlots), all one lot closer, can be expected to bring an increase in noise, and a considerable loss of amenity and privacy.
[29]At [61].
[30]At [18].
Moreover, the proximity of development was not Mr Cheyne’s only reason for determining there would be a diminution in value of Lot 3. Mr Cheyne also took into account the prospect for greater flood risk (we need not spell out the details) and the disruption that will be caused by the development. This Court gave construction effects considerable weight in declining to modify the restrictive covenant in Chand v Auckland Council, so we doubt they can be disregarded absent some compelling reason to do so.[31]
[31]Chand v Auckland Council [2021] NZCA 282, (2021) 22 NZCPR 326.
The Judge also considered that the Andrews should not receive any share of the benefit that would accrue to Sidwell as a result of extinguishing the covenant. There was no dispute Sidwell would benefit, although the valuers disagreed as to the extent. However, the Judge declined to award any share to the Andrews because of evidence that the changes in zoning — to which we have previously referred — had brought about an increase in the value of all lots.[32]
[32]High Court judgment, above n 1, at [63]. The Judge saw this as a distinguishing factor from Reynolds but it is not apparent to us that this is correct. All the land in Reynolds was subject to the same zoning at the time that the easement had been entered into, as when the dispute happened. Although there were modifications to planning rules, there was not a “significant shift” and therefore, there was not a change in circumstances: Reynolds v Parklands Properties Ltd, above n 14, at [90]–[91].
Brewer J found support for his refusal to order compensation in the fact that the owners of the other lots have agreed to extinguish the covenant as between their lots, and without requiring any payment. However, as Mr Walker submits, the effect of that agreement is that while the other owners will not claim compensation from one another, nor will they be required to pay it. As Mr Walker submitted, in essence those owners have agreed to net off the two sums. So for instance, Lot 5 will be unable to seek compensation from any development of Lots 1, 2, 4, and 6. Similarly those lots will not be able to seek compensation from Lot 5. As matters stand, however, that same “netting off” does not apply to Lot 3 because the Andrews are not parties to the agreement. It is a matter for the Andrews to decide whether they wish to join in that agreement and if so, when.
It follows that we do not see the position on compensation being as clearcut as did the Judge. Again, that may be a reflection of the submissions made in the High Court. However, in terms of the overarching principles articulated by this Court in Jacobsen, there can be little doubt that removal of the covenant is of material benefit to Sidwell, and as a willing buyer, Sidwell would be prepared to recognise that.
Equally, however, there are matters a willing seller would recognise. Whilst views might differ as to the relevance of — and weight to be given to — an increase in the value of the lots, the Andrews own only one of the lots benefited by the covenant. They cannot expect to benefit disproportionately simply because the owners of lots 1, 2, 4 and 5 have surrendered the share that might otherwise be paid to them. For instance, the $4 million plus that all judges in Reynolds would have awarded (had the High Court been upheld) would have been apportioned between two benefited owners. The affected owners in Lowe v Brankin advised the Court of their own volition that they would attend to apportionment, so that the Court was not required to do so.[33]
[33]Lowe v Brankin (2005) 6 NZCPR 607 (CA) at [32].
That the Andrews might later be entitled to receive compensation from the owners of other lots who wish to be relieved of the burden of the covenant also seems to us to be relevant, and of course there may well be others — on both sides. As this Court said in Jacobsen, all factors of benefit and detriment are to be taken into account.
Conclusion
As we indicated earlier in the judgment, and quite aside from the matter of compensation, there are two difficulties with Brewer J’s order. First, the order needed to be confined so that it extinguished the burden of the covenant, in whole or in part, against Lot 6 alone. Secondly, the Judge extinguished the covenant in its entirety as it affects Lot 6 but did not explain why cls 2 to 5 of the covenant had been extinguished.
It also follows that we consider an award of reasonable compensation is due to the Andrews.
The quantum of such compensation is not, however, a matter we are able to determine in this appeal. Compensation may be affected by whether any part of the covenant remains to burden Lot 6. So that prior issue must first be resolved. And once that has been done, it will be necessary to consider the expert evidence, including the valuers’ different opinions on the extent to which the benefit that would result to Sidwell from removal of the covenant against Lot 6 should be taken into account. One member of the Panel has firm views about this (expressed separately below), but the remaining two prefer not to comment any more specifically than we have done above.
It is unclear to us whether further submissions on that issue at first instance may be required and we are conscious of preserving the parties’ rights of appeal. Accordingly, we remit the question of quantum back to the High Court, as indeed this Court did in Jacobsen.
Costs in the High Court
In the High Court, Sidwell sought an award of increased costs. Brewer J rejected this application, holding that costs should lie where they fall. In the circumstances, any further order in respect of costs and disbursements in the High Court should be determined by that Court.
Result
The appeal is allowed in part.
We remit the matter back to the High Court to determine the quantum of compensation in light of this judgment. It will be for the High Court to make such directions as it sees fit to progress the matter.
The respondent must pay the appellants’ costs for a standard appeal on a band A basis with usual disbursements. We certify for two counsel.
MUIR J
I agree that the trial Judge was correct in finding that the jurisdiction under s 317(1)(b) of the Property Law Act was, in this case, animated.
I also agree that the appellants are entitled to reasonable compensation for loss of amenity. Their stated decision to retain Lot 3 as a “lifestyle” property in the face of rapidly encroaching residential development and in circumstances where they could themselves reap a substantial financial reward from the rezoning that has already occurred, may, to some, seem idiosyncratic. History would also suggest that, in the medium to long term, their position is unlikely to hold. However, it is their right to stay put for as long as they chose and to be compensated for any loss of amenity which results.
I accept that there will be some loss in this respect but make two points. First, the appellants’ valuer Mr Cheyne puts the value of the loss of amenity at $710,000. As Brewer J pointed out, however, this opinion is premised on the hypothetical assumption that Lot 3 could only be sold as a block of land which could never be sub‑divided because the covenant would always prevent it.[34] I agree with Brewer J that this is an unrealistic premise. The appellants could remove the burden of the covenant on Lot 3 at the stroke of the proverbial pen. The owners of the other five lots have already agreed to mutual release with no compensation. Inevitably, they would welcome the appellants to the table on the same terms. Even if the appellants are not minded to do so at this point, they or their successors may, at any time in the future, similarly seek to invoke the s 317 jurisdiction. It is almost inevitable that their application would be granted, albeit that, at that stage, they would likely face very significant costs of service on what could by then be the many hundreds of properties (and associated mortgagees) on whom the benefit of the covenant over Lot 3 had devolved. They may then also face similar claims to compensation to those now advanced against the respondent.
[34]High Court judgment, above n 1, at [59].
Secondly, compensation for loss of amenity must relate back to the nature of the burden from which the owner of Lot 6 is being relieved. The relevant burden is not to use any lot or part thereof for any purpose “other than ‘permitted activities’ or ‘controlled activities’ within the relevant zone … contained within the District Plan of the Local Authority having jurisdiction thereover”. As Peters J points out, in the MHS and MHU zones, permitted activities include up to three dwellings per site. It is not intensification per se from which the appellants are entitled to be protected, it is the use of the land for any purpose other than permitted or controlled activities. I agree that earthworks on the scale contemplated are not permitted or controlled activities but logically therefore it is the loss of amenity from the earthworks and not from the intensification itself which should feature in the compensation assessment.[35]
[35]There is a related issue which did not feature in argument, but which concerns me about this case. The prohibition is on using any lot for a purpose other than a permitted or controlled activity. The permitted/controlled activities recognised in the District Plan at the time could be broadly described as rural/lifestyle land uses, although the covenant specifically precluded commercial poultry, fitch or pig farming. There is, in my view, a question as to whether a temporary activity, such as the earthworks necessary to establish a residential sub-division with up to three permitted dwellings per site, constitutes a “use” for the purposes of the covenant. Because the matter was not addressed in argument, however, I do not take it further.
It is however in respect of the possibility of compensation reflecting a share in the increase in value of Lot 6 that I feel particularly exercised to express my own views.
I start by referencing what the appellants say they are, in this respect, entitled to by way of compensation. Drawing on the typical cases involving extinguishment of easements and landlocked land (which envisage between 20 and 36 per cent of the increase in value of the relieved property as appropriately paid to the formerly benefitted property to establish reasonable compensation under s 317(2)),[36] they say that they are entitled to a sum of between $3,780,000 and $5,580,000,[37] in addition to their compensation for loss of amenity, if the respondent is to be relieved of the burden of the covenant on its land.
[36]See for example Dooley v Sturgess Consulting Ltd [2016] NZHC 1905, (2016) 18 NZCPR 400; Chand v Auckland Council, above n 31; and Reynolds v Parklands Properties Ltd, above n 14.
[37]The former figure derives from calculations in the respondents’ valuers report. The latter is based on the appellant’s valuation evidence. In both cases, the appellants have adopted a 36 per cent share. The former figure is expressed on a basis inclusive of GST, the latter is exclusive.
Since they may well make the same claim in respect of each of the other four lots whose owners seek to sub-divide their properties into residential allotments,[38] and because each of the lots appear to be of (broadly) equivalent size with (broadly) equivalent development potential,[39] it is clear that the appellants’ total compensation expectations on account of the increase in value of the five lots is something in the order of $20–30 million. Of that they may (on their argument), be required to disgorge a share of their profit were they (or their successors) ultimately minded to seek removal of the burden of the covenant from Lot 3. But the net “profit” to them would, on their approach, still likely be in the range of $15–25 million. Plus of course they would have the benefit of any loss of amenity compensation and the benefit of the uplift in value of their own land attributable to the rezoning.
[38]Including one who has been a long-term owner.
[39]Noting however that although most of the land is in the residential mixed housing suburban zone, some of the land on Lots 5 and 6 provides for more intensive development under the residential mixed housing urban and residential terrace housing and apartment building zonings.
I make another preliminary point — much of the increase in the value of Lot 6 is already what I will refer to as “baked in” and is not premised on removal of the covenant as such. That is because the market recognises a combination of:
(a)the fact that decisions which, in an economic sense at least, are idiosyncratic, seldom hold for the long term; and
(b)as confirmed by this Court’s unanimous decision on the respondent’s application under s 317(1)(b), there is a high prospect that the High Court would modify or extinguish the covenant on payment of reasonable compensation (if any).
The proposition that this increase is “baked in” is fully supported by the market evidence. The respondent paid $12,000,000 for Lot 6 in 2021, a price which all valuers agree significantly exceeds the value of that property as a lifestyle block. That sum was paid by a sophisticated commercial party and with the property subject to the covenant. It is in that context, unrealistic of the appellants’ valuer to say that the value of Lot 6, with the covenant in place, is $5.45 million dollars only.
Inevitably this “baked in” component would need to be allowed for before assessing any increase in the value attributable to covenant removal. I note that the respondent’s valuer’s assessment is that the uplift in value from removal is in the range of $1.2–1.3 million only.
I come back then to the question of to what extent, in these atypical circumstances where the appellants have similarly benefitted from the uplift in value attributable to rezoning, they should be entitled to a share in any increase in value of Lot 6 attributable to removal of the covenant. Unapologetically, I consider this issue in the context of the other inevitable applications which have or will follow from the owners of Lots 1, 2, 4 and 5. Ultimately, the issue which the High Court on remission must confront is whether it is consistent with the “reasonable compensation” regime which s 317(2) mandates, to deliver a very significant windfall to an owner who chooses to be the “last person standing” but who, or whose successors will, at some stage likely reap the uplift in value which the market already recognises.[40]
[40]On account of the near inevitability that all six properties will at some stage be sub-divided.
Compensation under s 317(2) is, at its most fundamental, “designed to deal with any damage or loss caused by the permanent extinguishment or modification of a covenant”.[41] In the United Kingdom that principle receives statutory recognition, in s 84 of the Law of Property Act 1925 (UK), which specifically focuses on “loss or disadvantage” as a consequence of discharge or modification. In New Zealand the statutory framework provides for “reasonable compensation” which over time has led to development of the “willing seller, willing buyer” test. In addition to compensation for loss, this has opened the door to claims that any value uplift by an applicant should be shared. However, the primary purpose of compensation — a payment to renumerate for damage or loss — should not, in my view, be lost sight of.
[41]Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 12, at [171(d)].
In any event, the compensation award under s 317(2) must be reasonable. As Brewer J pointed out in the decision under appeal:[42]
[65] Section 317(2) prescribes that any compensation must be reasonable. The concept of reasonableness runs through the cases in this area, including Jacobsen Holdings Ltd v Drexel, which was foundational to the development of the “willing seller, willing buyer” concept in this area. In that case the Court said:
… the hypothesis is a willing seller and a willing buyer. Compulsion on either side is to be disregarded: the seller is not to be treated as one forced by circumstances to sell his potentiality for anything he can get, the buyer is not to be treated as one driven to buy. It is the price that willing parties would arrive at in friendly negotiation that has to be found, on such materials as are available.
…
But the hypothesis also includes a reasonable seller so that no case of “blackmail”, of a price forced to unreasonable heights by necessity, can arise.
[42]High Court judgment, above n 1, quoting Jacobsen Holdings Ltd v Drexel, above n 26 (footnotes omitted).
It is not, in my view, reasonable in a case such as this for a compensated party to expect 20 to 36 per cent of the uplift in value attributable to removal of the covenant from the respondent’s land, and from each of the other four properties whose owners can be expected to or have already made their own applications. That is because the appellants have it within their own power to realise exactly the same gains as any other lot in the sub-division (and have already benefitted from the “baked in” value increase I have previously identified).
As counsel for the respondents point out, this is the case of a rising tide having floated all boats. To suggest that the appellants’ boat should not only be floated, but powered into the sunset by awards of 20 to 36 per cent of the increase in value (however it is ultimately calculated) of Lots 1, 2, 4, 5 and 6, would not, in my view, represent a proper exercise of the Court’s power to award reasonable compensation. To the contrary, it would totally detach compensation from its underpinnings of loss, disadvantage or damage, disproportionately empower “the last person standing” and probably act to delay or impede the housing demands of an expanding city. In short, I consider the appellants’ compensation expectations unreasonable.[43]
[43]In saying that, I do not preclude some payment to them in response to an uplift in value from modification or removal of the covenant. I would however see quantum as significantly less than the 20 to 36 per cent indicated in what I refer to as the typical cases. I consider that conclusion fortified by the fact that the owners of the other lots have agreed that extinguishing the covenant is for the equal benefit of all, with no compensation flowing. I agree with Brewer J that this is relevant evidence in terms of a willing seller, willing buyer analysis. I disagree with Peters J in respect of what she refers to as the “netting off” position between Lots 1, 2, 4, 5 and 6 as not being available as regards Lot 3. It is within the power of the appellants or any person they now sold to, to join the agreement that subsists between the owners of the other lots. They choose not to at this stage for personal reasons. That is a factor which, as much as any other factor weighs in a willing seller and willing buyer analysis.
Solicitors:
Thorn Law Limited, Auckland for Appellants
Greenwood Roche, Auckland for Respondent
0
6
0