Avlis Limited
[2022] NZHC 1440
•17 June 2022
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-000184
[2022] NZHC 1440
UNDER Sections 316 and 317 of the Property Law Act 2007 IN THE MATTER
of an application for an order by Avlis
Limited that covenants be modified under s 317 of the Property Law Act 2007
BETWEEN
AVLIS LIMITED
Applicant
Hearing: On the papers Counsel:
P J Woods and M J McConway for the Applicant
Judgment:
17 June 2022
JUDGMENT OF NATION J
Introduction
[1] Avlis Limited (Avlis) wishes to progress a significant residential subdivision in Twizel. To do that, it needs to vest certain areas of land in the Mackenzie District Council (the Council) as a road. The land is currently subject to a covenant not to erect a motel on that land and another covenant not to grow trees or plants that would exceed two metres in height which might damage services over the land.
[2] For earlier stages of the development, Avlis had been able to transfer other lots subject to such covenants to the Council by a process called “dedication and transfer” so that roading and services could be put through. The Registrar General of Land has subsequently advised that creating roads by this procedure is no longer permitted under the Resource Management Act 1991 (RMA). Because of this, Avlis says it now
Avlis Ltd [2022] NZHC 1440 [17 June 2022]
needs to be able to “auto-extinguish” the covenants over the proposed roading area in the subdivision as soon as a piece of land becomes irreversibly earmarked to become a road. It will then be able to vest the roads in the Council and finish the development.
[3] Avlis applies under ss 316 and 317 of the Property Law Act 2007 (the Act) to modify the relevant covenants to achieve this.
[4] In an earlier judgment, I granted leave for the application to modify the covenants to be made by way of originating application.1 I also granted leave for Avlis to proceed without notice to landowners who had the benefit of the covenants. I considered it was unlikely that modification of the covenants as sought would detrimentally affect those landowners. I also considered that requiring the proceedings to be served on them would result in significant costs and delay. There was also a reasonable explanation for Avlis having now to proceed with urgency. I required service on the Council in accordance with s 316(3) of the Act.
[5] On 8 June 2022, the Council filed a memorandum confirming they had been served with the relevant documents. It also advised that it does not intend to participate in the proceedings, consents to the modifications of the covenants as sought by Avlis and will abide the Court’s decision. As a result, it is appropriate to now deal with the merits of the application.
Facts
[6]I will repeat the facts as they were outlined in the earlier judgment.
[7] Avlis’s development is called the Tussock Bend Subdivision. Some stages of the subdivision have already been subdivided and sold. The current head title, which is still to be subdivided and which is the subject of this application, is Lot 400 Deposited Plan 550232 contained in record of title 947911.
[8] Avlis’s land is subject to “the motel covenant”, being the land covenant in transfer 5420545.4, registered on 3 December 2002. The motel covenant is “not to
1 Re Avlis Ltd [2022] NZHC 1157.
erect or permit to be erected any motels on the servient lots”. The covenant was created by a number of parties. It affected 19 titles they owned, including the predecessor title to Avlis’s land.
[9] Avlis’s land is also subject to “the tree covenant” which was in transfer 5420545.5 and registered on 3 December 2002 in the same way as the motel covenant. It affected 18 titles owned by the then parties.
[10]The tree covenant provides:
1. The Transferors will not plant or grow any trees, plants or shrubs which shall exceed 2 metres in height on those parts of the land in Schedule A shown as “The Effective Area” which will or might in any way damage or effect whether now or in the future, services laid in the land whether such services are owned by the Transferee or the Mackenzie District Council or any other utility service provider (referred to as “the services”).
2. The Transferee and the Mackenzie District Council will be the sole judge as to whether any such planting may cause such damage as is referred to in Clause 1.
[11] The covenants were made before Avlis’s Tussock Bend development was contemplated and prior to various subdivisions that have created the head title for Avlis’s land. Many of the original titles against which the covenants were originally noted have been subdivided, sometimes more than once. There are now 148 titles affected by the tree covenant and 197 titles affected by the motel covenant.
[12] Avlis needs to be able to vest the relevant parts of the land in the Council as a road so titles can be issued for sections in stage six of its subdivision. It can then settle the sale of those sections and the purchasers can start building their houses. Avlis has 18 sales pending for stage six. It wishes to use the sale proceeds from those sales to repay debt and finance the construction work needed on the remaining stages of Tussock Bend. The sale contracts are conditional on new titles for the relevant property issuing by 22 December 2022.
Analysis
[13] The Court’s power to modify covenants derives from ss 316 and 317 of the Act.
[14] Avlis’s status as owner of the land burdened by the covenants entitles it under s 316(1) and (2) to apply for modification of those covenants under s 317. Under s 317, the court has a discretion to modify or extinguish (wholly or in part) the covenant:
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—
(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
(c)every person entitled who is of full age and capacity—
(i)has agreed that the easement or covenant should be modified or extinguished (wholly or in part); or
(ii)may reasonably be considered, by his or her or its acts or omissions, to have abandoned, or waived the right to, the easement or covenant, wholly or in part; or
(d)the proposed modification or extinguishment will not substantially injure any person entitled; or
(e)in the case of a covenant, the covenant is contrary to public policy or to any enactment or rule of law; or
(f)in the case of a covenant, for any other reason it is just and equitable to modify or extinguish the covenant, wholly or partly.
…
[15] A two-stage approach is generally used in analysing the extinguishment or modification of easements or covenants under this section. First, the court must determine whether one or more of the grounds in s 317(1) is made out. If the court finds that at least one of these grounds has been established, it must then determine whether its discretion to extinguish or modify should be exercised.2
[16] Avlis submits that the modification to the covenants sought should be granted because:
(a) the nature of the use of Avlis’s land has changed, in that it is now being developed for residential purposes as the Tussock Bend Subdivision;
(b) the covenants do not apply to activities that can be done on roads and now unreasonably impede Avlis’s use of its land;
(c) no benefitting titles will be injured by the granting of the orders; and
(d) but for the orders, Avlis will suffer substantial hardship, delays and expense.
[17] I am satisfied that the changes in the nature of the benefited and burdened land that have occurred since the creation of the covenants have made the disadvantages flowing from them disproportionate. When the covenants were created, the land was bare rural land and only 19 titles were affected. The land has now been subdivided into 197 titles and extensive residential subdivision has occurred. In this context, the adverse impact of the covenants on Avlis makes it appropriate that they be modified.
[18] In assessing, under s 317(1)(a)(iii), whether modification is required because of a change since the creation of the covenants, the court may also have regard to any other circumstance it considers relevant. Under this heading, I note that, as in Nova Scotia River Estates Ltd v Whangarei District Council, the limitations in the covenant are incompatible with the use to which the applicant is to put the land.3 There will be
2 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [67].
3 Nova Scotia River Estates Ltd v Whangarei District Council [2017] NZHC 196.
no consequential or adverse effect on the privately-owned land, and the rights granted by the covenants will otherwise continue to apply over land which is not to be vested as road.
[19] This case is akin to Re Templeton Pegasus Ltd, where the applicant applied to extinguish certain covenants over land it was in the process of subdividing into residential lots.4 The covenants imposed restrictions on building construction, lot development, landscaping, building and lot maintenance, fencing, land use and services to protect the properties’ market and aesthetic value. The application related to three very small lots within the proposed subdivision which were to vest in the council as road and would house utilities, including water meters and power boxes, for which there was insufficient space on the existing and/or intended footpaths.
[20] I accept that the continuation of the covenants in their existing form would impede the reasonable use of the burdened land in a different way from that which could reasonably have been foreseen by the parties to the covenants when they were created.
Conclusion
[21] The application is granted. It is appropriate that the covenants be modified as sought by Avlis Limited pursuant to ss 316 and 317 of the Property Law Act 2007.
[22]I therefore make the following orders:
(a) In respect of Covenant 5420545.4, the following clause is inserted into the covenant, insofar as the covenant burdens Lot 400 DP 550232 (RT 947911):
4 Re Templeton Pegasus Ltd [2022] NZHC 161.
(i)the covenant in this instrument will immediately cease to apply to any land within Lot 400 DP 550232 (RT 947911) which is intended to vest in the Crown or any local authority or territorial authority as road, upon any survey plan relating to such vesting being approved as to survey and being accepted for deposit by Land Information New Zealand.
(b) In respect of Covenant 5420545.5, the following clause is inserted into the covenant, insofar as the covenant burdens Lot 400 DP 550232 (RT 947911):
(i)the covenant in this instrument will immediately cease to apply to any land within Lot 400 DP 550232 (RT 947911), apart from area “A” on DP 550232, which is intended to vest in the Crown or any local authority or territorial authority as road, upon any survey plan relating to such vesting being approved as to survey and being accepted for deposit by Land Information New Zealand.
[23]I make no order as to costs.
Solicitors:
Anthony Harper, Christchurch
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