Aztec Projects Limited v Matthews
[2024] NZHC 1293
•23 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-002945
[2024] NZHC 1293
UNDER Property Law Act 2007 IN THE MATTER OF
An application pursuant to ss 316 and 317 of the Act for an order modifying covenant 607.2326.11
BETWEEN
AZTEK PROJECTS LIMITED
Applicant
AND
RHONDA ANNE MATTHEWS, MICHAEL GREGORY ARTHUR JOYCE and BBMR FAMILY TRUSTEES LIMITED
First Respondents
KEVIN TE PAI GURNEY and CHRISTINE MARY GURNEY
Second Respondents
GRAHAME WILLIAM POWELL
Third RespondentANNETTE JOY CARR and JOHN HILTON CARR
Fourth RespondentsDEVAN COLIN FLEWELLYN and GAYLENE GRACE FLEWELLYN
Fifth Respondents
PATRICK RAYMOND COLE and LOUISE DEBORAH COLE
Sixth Respondents
CARMEL LILLIAN DRAPER, MARK ANDREW GRIFFITHS and CORNWALL TRUSTEES 53 LIMITED
Seventh Respondents
MATA HOLDINGS LIMITED
Eighth Respondent
AZTEK PROJECTS LTD v MATTHEWS & ORS [2024] NZHC 1293 [23 May 2024]
VICTOR JOWSEY, SHEILAH ESME TOMS and STEPHANIE FAY PAXTON- PENMAN
Ninth Respondents
AILSA CLAIRE
Tenth Respondent
JEFFREY LEWIS SMITH and PATRICIA SUSAN SMITH
Eleventh Respondents
Hearing: 9 May 2024 Appearances:
A Casey and M Matti for Applicant No appearance for Respondents
Judgment:
23 May 2024
JUDGMENT OF ANDREW
This judgment was delivered by Justice Andrew on 23 May 2024 at 4.00 pm
pursuant to r 11.5 of the High Court Rules 2016 Registrar / Deputy Registrar
Date ………………………….
Introduction
[1] The applicant, Aztek Projects Ltd (Aztek), is a land development company. It makes application pursuant to ss 316 and 317 of the Property Law Act 2007 to modify a covenant over land at 59 Wilson Road, Warkworth.
[2] The covenant1 was first registered in 2004. It restricts developments on the titles it is registered against, by allowing construction of only one residential dwelling on each burdened title.
[3] Aztek purchased one of the burdened titles in 2017 (the Head Title). Although the covenant was on the title, Aztek’s directors were unaware of the single-dwelling restriction imposed by it. Aztek then proceeded to subdivide the Head Title into two new titles (being 63 Wilson Road and 59 Wilson Road) and built a residential dwelling on each.
[4] As soon as it became aware of the restriction, Aztek suspended its development plans and contacted the owners of the other affected titles with a view to having the covenant modified by consent. Those attempts were unsuccessful.
[5] The respondents are the registered proprietors of all of the properties which have the benefit (and burden) of the covenant, other than 59 Wilson Road. Only one of the respondents, Mata Holdings Ltd, the eighth respondent, has filed and served a notice of opposition. A number of the other respondents sent informal oppositions to the Court. They were directed to file and serve formal oppositions (including any supporting evidence) by 14 March 2024; no such formal oppositions have been filed or served.
[6] Auckland Council has filed a memorandum advising that it does not oppose the application.
[7]Attached marked ‘A’ is an appendix setting out the position of the respondents.
1 Instrument 607236.11.
Factual background
[8] The covenant was created in 2004 as part of a subdivision and was registered against all 11 titles which formed part of that subdivision.
[9] The covenant places restrictions on development on the burdened titles, including clause 1 of its third schedule which provides:
The Covenantor shall:
1.Not erect on the Lot any building other than a single private dwelling house designed for occupation as a single family home whether or not in conjunction with a Minor Residential Unit as that term is defined by the District Plan of the Relevant Authority together with a garage and/or other domestic outbuildings customarily associated with a private dwelling house.
[10] In the event of a breach of the covenant, clause 15 provides that the owner of any of the other burdened titles may make a written demand to the party in breach requiring payment of liquidated damages of $100 per day for every day that the breach continues, and to take steps to remedy the breach.
[11] The burdened titles include the Head Title which was then known as 63 Wilson Road, and which was held in record of title identifier 138906.
[12] In 2017, Aztek purchased the Head Title with the intention of subdividing and developing it. At the time of purchase, the Head Title was bare land.
[13] In April 2019, Aztek subdivided the Head Title into two lots (First Subdivision):
(a)the property known as 59 Wilson Road, held in record of title identifier 861475; and
(b)the property known as 63 Wilson Road, held in record of title identifier 861476.
[14]The covenant was brought down and registered against the two new titles.
[15] Aztek constructed a new residential dwelling on 63 Wilson Road (First Dwelling) and in May 2022, that property was sold to the first respondents.
[16] In 2022, Aztek also constructed a residential dwelling on 59 Wilson Road (Second Dwelling). At the same time, it carried out works in preparation for a further subdivision of 59 Wilson Road into two titles and for the construction of a third dwelling on the new title (Second Subdivision). Those works included water and wastewater assets capable of servicing both the second dwelling and the proposed third dwelling. These assets have since been vested with Auckland Council.
[17] In late 2022, Aztek changed solicitors. At that time, it was in the process of preparing the Second Subdivision. Aztek’s new solicitors identified the covenant and the restrictions it placed on development. Aztek then immediately suspended its plans for the Second Subdivision.
[18] Aztek says that its original solicitors, acting in respect of the purchase of the Head Title (in respect of the First Subdivision), did not advise Aztek that there was any restriction on its ability to subdivide the Head Title or build more than one dwelling.
The application for modification
[19] Aztek requests that the covenant be modified so as to regularise the First Subdivision and permit the Second Subdivision. Essentially the modification will allow three dwellings on the Head Title instead of one.
[20] It is only the second and third dwelling (yet to be built) that will exceed what is currently permitted by the covenant. The first dwelling, which was also built by Aztek, was the first dwelling on the Head Title.
[21] Attached as Appendix ‘B’ is a copy of a surveyor’s scheme plan showing the three dwellings.
Relevant legal principles
[22] The Court has powers under ss 316 and 317 of the Property Law Act 2007 to modify or extinguish a covenant if satisfied that one or more of the grounds set out in s 317(1) is met. Aztek relies on the grounds in s 317(1)(a), (b) and (d):
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
…
(d) the proposed modification or extinguishment will not substantially injure any person entitled; or
…
[23] Section 317 applications require a two-stage approach.2 First, the Court must determine whether one or more of the grounds in s 317(1) is made out. If so, the Court must decide whether to exercise its discretion to extinguish or modify the covenant. This requires consideration of all relevant factors, including the Court’s power to award compensation. The applicant bears the onus of proof.3 In Synlait Milk Ltd, the Supreme Court cautioned against the discretion being applied so restrictively that s
2 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at
[67] and [90].
3 New Zealand Industrial Park Ltd v Stonehill Trustee Ltd [2019] NZCA 147.
317 ceases to have its intended remedial effect.4 The Court held that the section evidences a clear statutory indication that Parliament intended the courts to have the ability, in an appropriate case, to modify even if it has the effect of causing some detriment to other parties.5 The Supreme Court further held that the requirements of s 317 should not be overlaid with additional, non-statutory criteria that have the effect of altering a clear intention that covenants should be amenable to modification.6
[24] Although the Court has a discretion to refuse to grant an application, a finding that one or more of the grounds has been established is likely, of itself and without more, to provide a good reason for making an order.7
Analysis and decision
[25]Aztek relies on three of the grounds under s 317:
(a)a change in the character of the neighbourhood (s 317(1)(a)(ii));
(b)impediment to reasonable use (s 317(1)(b)); and
(c)no substantial injury to other persons (s 317(1)(d)).
[26]I address each in turn.
Issue (a) – Change in character of the neighbourhood
[27] When considering changes to the neighbourhood, the focus is not on the fact of the change but rather on its impact on the benefit or burden flowing from the covenant.8 The assessment is not limited to the properties subject to the covenant; properties which have never been subject to it might also be part of the neighbourhood.9
4 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2.
5 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [77] and [84].
6 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [85].
7 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [168].
8 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [168].
9 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [145].
[28] Ms O’Connor, the expert planning witness for Aztek, says in her affidavit that there have been dramatic and extensive changes to the Warkworth area, and the subject neighbourhood, since the creation of the covenant. Her expert view is that the alteration of the covenant to permit two additional dwellings will have very little impact on the character of the neighbourhood. She summarises her evidence as follows:
(a)there have been rapid planning changes in the area since 2004, when the covenant was registered, and the area is now markedly different in character with the extent of development having significantly increased;
(b)although 59 Wilson Road is zoned Rural-Countryside Living Zone, it:
(i)is located just outside the rural urban boundary and is surrounded by residential housing;
(ii)exhibits urban rather than rural characteristics, such as being connected to reticulated water services;
(iii)is likely the area could be subject to a zone change at the next Auckland Unitary Plan Review in circa 2026 given the characteristics of 59 Wilson Road, the surrounding land and the fact Warkworth is an identified growth area; and
(iv)the recent opening of the Puhoi to Warkworth motorway is expected to further increase the demand for residential development, and recent legislative changes indicate that more intensive development is likely than from when the Auckland Unitary Plan was prepared.
[29] In my view, this case is very similar to the recent decision of this Court in Sidwell Developments Ltd Partnership v Top Dream Developments Ltd.10 In that case, Brewer J observed that the surrounding neighbourhood had changed significantly from the rural farming area that existed at the time the covenant was created. The continuation of the covenant would not hold back the ongoing development of the wider area and was impeding the reasonable use (i.e. development) of the burdened land. The Court held that the covenant should be modified.
[30] I find that the evidence clearly establishes that since the creation of the covenant there has been a change in the character of the neighbourhood. The s
10 Sidwell Developments Ltd Partnership v Top Dream Developments Ltd [2024] NZHC 899.
317(1)(a)(ii) ground is made out. This is graphically demonstrated in the most recently available geo-maps aerial images attached to Ms O’Connor’s affidavit.
Issue (b) – Impediment to reasonable use
[31] The focus of the enquiry under s 317(1)(b) is the extent of or change to the impediment to reasonable use of the land. However, where what constitutes “reasonable use” has changed since the creation of the covenant, that is relevant to the nature and extent of the impediment. A change in zoning to the burdened land or the neighbourhood generally may be relevant.11
[32] Ms O’Connor explains in her evidence that at the time the covenant was created in 2004, there was limited future urban growth indicated for Warkworth. By contrast, approximately 1,000 hectares was zoned future urban when the Auckland Unitary Plan was notified in 2013. Residential development has expanded so that it is now adjacent to the subject property. It is likely that future zoning changes will result in further expansion.
[33] I agree with the submission of Aztek that given the zoning in place, and the modest demand for development in and around Warkworth at the time the covenant was created, it seems unlikely that the scale of growth actually experienced was then anticipated.
[34] I find that the continuation of the covenant in its existing form would impede the reasonable use of the burdened land. While it may have been reasonable to restrict further development of the site at the time when residential growth in the area was not anticipated, continuing that restriction in the face of rapid zoning changes in growth is an unreasonable impediment.
Issue (c) – No substantial injury
[35] Under s 317(1)(d), the Court may modify the covenant if satisfied that the proposed modification will not substantially injure any “person entitled”. A “person entitled” is any owner or occupier of the land who was entitled to enforce the
11 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [161]–[162].
covenant.12 For the purposes of this application, the respondents are the persons entitled.
[36] It is clear that substantial injury in s 317 contemplates that a benefited owner may be injured in some way by the removal of a covenant, so long as that injury is not substantial.13
[37] For the injury to be “substantial” it must be “real, considerable, significant, as against insignificant, unreal or trifling”. It must “have present substance, rather than merely being theoretical or fanciful”.14
[38] The injury may be of an economic kind, physical kind or intangible kind, such as the impairment of a view or intrusion upon privacy.15
[39] Assessment of substantial injury requires the Court to compare the position of the owner of the benefited land with a covenant in place with the position if the covenant is modified or extinguished.16
[40] I accept that some of the respondents may regard the removal of the covenant as likely to cause them injury. However, the test is one of substantial injury. In this case, the evidence establishes that there will not be substantial injury to any of the respondents. Aztek’s expert registered valuer, Mr Aaron MacQuibban-Sattler, is of the view there will be no economic injury, that is, there will be no reduction in the values of the respondents’ properties as a result of the proposed modification.
[41] Ms O’Connor is of the view that there will be no, or no appreciable, increase in traffic along the driveway. I note that Aztek’s proposal is for only two additional dwellings to what is currently permitted by the covenant, one of which is located at the end of the driveway closest to the road. The other is accessed directly from Wilson Road and will not require access via the driveway at all.
12 Property Law Act 2007, s 4.
13 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [104].
14 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [104].
15 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [105].
16 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 2, at [106].
[42] I further note that both Ms O’Connor and Mr MacQuibban-Sattler give evidence as to the impact of the proposed modification on the views from the respondents’ properties. They both conclude that any impact would be minor and can be mitigated by planting (to which Aztek is committed) and by the locations of the dwellings within the landscape.
[43] Some of the informal oppositions filed by some of the respondents raise concerns that allowing Aztek to develop 59 Wilson Road will result in the area becoming more intensively subdivided than originally intended. This, it is claimed, will result in the loss of its rural character.
[44] However, the proposed covenant modification will add only two additional dwellings to the original 11 permitted by the covenant (i.e. one on each of the properties subject to the covenant).
[45] Aztek’s original Head Title comprised of just over two hectares. By contrast, each of the other ten properties originally subject to the covenant comprised of just over one hectare. The two properties which resulted from the First Subdivision of the Head Title (i.e. 59 and 63 Wilson Road) are 1.0658 hectares and 0.9482 hectares respectively. That is, they are consistent with the sizes of the others lots in the subdivision.
[46] It is only the proposed further subdivision of 59 Wilson Road that will result in the two lots that are smaller than originally provided when the covenant was created. Both those lots are close to the road and, as concluded in the expert evidence, will have little impact on the other properties in the subdivision, either visually or in terms of increased traffic.
[47] I note also that the proposed covenant modification will only legitimise the second dwelling and allow the proposed third dwelling. It will not permit any further development or subdivision of 59 Wilson Road or any other of the properties subject to the covenant. Any further intensification of the original subdivision will require another modification to the covenant.
[48] Some of the other respondents have raised concerns about the potential for neighbours to complain about noise, such that the respondents will no longer be able to keep animals on their property. This seems to me unlikely. In any event, such concerns do not in my view reach the threshold of “substantial injury”.
[49] I find that the proposed modification will not substantially injure any person entitled, including any of the respondents.
Issue (d) – Discretion
[50] As noted above, the Court has a discretion whether to extinguish or modify a covenant.
[51] I have found that all three grounds for the application have been made out. There is no good reason, on the evidence before me, to exercise my discretion to reject the application.
[52] The consequences of not modifying the covenant will be significant for the applicant, Aztek. If the second dwelling is not legitimised, there is clearly an ongoing risk that one or more of the entitled owners might seek to enforce the covenant, including liability to liquidated damages until the second dwelling is legitimised or removed.
[53] Furthermore, Aztek will be unable to fulfil its development plans for the third dwelling, for which it has already incurred costs. I accept that its actions were not carried out with the knowledge of the covenant. Rather, it relied on legal advice which did not identify the covenant as restricting or preventing its development plans.
[54] For all these reasons I find that I should exercise my discretion to modify the covenant.
Issue (e) – Compensation
[55] Section 317 of the 2007 Act gives the Court power to order compensation to be paid where a covenant is modified. In determining whether to award compensation,
the Court must first identify whether there is any actual detriment to the respondents if the modification is granted. It is only if that threshold is met that the Court should then go on to consider the quantum of any compensation.17
[56] There is no evidence before the Court that the modification will result in any reduction in value of the respondents’ land nor cause any other injury.
[57]I conclude that there is no basis for making an award of compensation.
Conclusion and result
[58] Aztek has established a proper basis for a modification of the covenant on three of the grounds in s 317(1). As a matter of discretion, I find that the covenant should be modified in the manner sought.
[59]The application is accordingly granted.
[60]I note that Aztek does not seek costs.
[61] Aztek has helpfully filed a draft order for sealing. Before approving the terms of the draft order, I would be grateful if counsel for Aztek could file a short memorandum briefly explaining why Aztek proposes the inclusion of the word “each” in clause 1A of the draft order (i.e. the last word in 1A ending … “private dwelling houses each”).
Andrew J
Sidwell Developments Ltd Partnership v Top Dream Developments Ltd, above n 10, at [44], citing
Cambray North Island Ltd v Minister for Land Information (2011) 12 NZCPR 721, at [28].
APPENDIX ‘A’
The position of the respondents
1.The respondents can conveniently be divided into two categories, the “immediate neighbours” and the “peripheral neighbours”.
2.The immediate neighbours are the five properties who are immediately adjacent to 59 Wilson Road. They are:
(a)63 Wilson Road, which was originally part of the Head Title and was formed as a result of Aztek’s First Subdivision, and whose registered proprietors are the first respondents (Matthews, Arthur and BBMR Family Trustees Ltd). They support Aztek’s application;
(b)69C Wilson Road, whose registered proprietors are the second respondents (the Gurneys). They sent an informal opposition to the Court on 8 February 2024, but have taken no further steps;
(c)115 Pulham Road, whose registered proprietor is Mr Graeme Powell. Mr Powell died shortly after this application was commenced and his executors, Megan Lipinski and Richard Stilwell have been substituted as the third respondents. They filed a memorandum dated 26 February 2024 advising that they abide the decision of the Court;
(d)97 Pulham Road, whose registered proprietors are the fourth respondents (the Carrs). The Carrs declined to consent to the modification but have taken no steps to oppose this application;
(e)95 Pulham Road, whose registered proprietors are the fifth respondents (the Flewellyns). The Flewellyns sent an informal opposition to the Court on 18 February 2024, but have taken no further steps.
3.The peripheral neighbours, being the remaining respondents, are not immediately adjacent to 59 Wilson Road. They include:
(a)93 Pulham Road, whose registered proprietors are the sixth respondents (the Coles). The Coles declined to consent to the modification but have taken no steps to oppose the application.
(b)69E Wilson Road, whose registered proprietors are the seventh respondents, (Draper, Griffiths and Cornwall Trustees 53 Ltd). Ms Draper and Mr Griffiths sent an informal opposition to the Court on 15 February 2024, but have taken no further steps.
(c)69D Wilson Road, whose registered proprietor is the eighth respondent (Mata Holdings Ltd). Mr Andrew Tucker, director of Mata Holdings Ltd, sent an informal opposition to the Court on 7 February 2024 and filed and served a Notice of Opposition on 11 March 2024. Aztek opposed Mr Tucker’s opposition on the basis that Mata Holdings was not represented by a solicitor. Mr Tucker confirmed by email dated 1 April 2024 to the Court that he did not intend to take any further steps in opposition. By minute dated 29 April 2024, Robinson J directed that Mata Holdings is not permitted to pursue its opposition further unless it has a solicitor on the record and is represented by counsel at the hearing;
(d)69B Wilson Road, whose registered proprietors are the ninth respondents (Jowsey, Toms and Paxton-Penman). Mr Jowsey sent an informal opposition to the Court on 6 February 2004, but has taken no further steps;
(e)69A Wilson Road, whose registered proprietor is the tenth respondent (Ailsa Claire). Ms Claire sent an informal opposition to the Court on 12 February 2024, but has taken no further steps;
(f)67 Wilson Road, whose registered proprietors are the eleventh respondents (the Smiths). They sent an informal opposition to the Court on 10 February 2024, but have taken no further steps.
APPENDIX ‘B’
Fig 4 Warkworth Surveyors Ltd Scheme Plan showing the Property, First Dwelling, Second Dwelling and site of Third Proposed Dwelling
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