Manawa Developments Holdings Limited Partnership v Tauranga City Council

[2022] NZHC 2138

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE

CIV-2022-470-67

[2022] NZHC 2138

BETWEEN

MANAWA DEVELOPMENT HOLDINGS LIMITED PARTNERSHIP

Applicant

AND

TAURANGA CITY COUNCIL

Respondent

Hearing:	On the papers
Counsel:	R Kettlewell for Applicant H Leef for Respondent
Judgment:	26 August 2022

JUDGMENT OF MUIR J

This judgment was delivered by me on 26 August 2022 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

Solicitors:           Sharp Tudhope, Tauranga

Tauranga City Council

MANAWA DEVELOPMENT HOLDINGS LIMITED PARTNERSHIP v TAURANGA CITY COUNCIL [2022] NZHC 2138 [26 August 2022]

Introduction

[1]    Manawa Development Holdings LP (MDH) applies under ss 316 and 317 of the Property Law Act 2007 (PLA) to modify a covenant to allow it to complete a subdivision and development as originally intended.

[2]    On 13 July 2022, a without notice application seeking leave to commence proceedings by way of originating application was granted and the relevant directions for service were made.1

[3]    In support of the application, MDH has filed a memorandum and an affidavit from Ms Victoria Carroll. The factual background to this application is taken from those documents and summarised below. The respondent, Tauranga City Council (Council), abides by the decision of the Court. No other person potentially affected has taken any step.

Background

[4]    MDH is a limited partnership established by Ngā Pōtiki ā Tamapahore Trust (Trust) to subdivide and develop land in Papamoa returned to Ngā Pōtiki as part of a Treaty settlement. It is currently undertaking a subdivision named “Manawa – the Heart of Papamoa” (the Subdivision). The intention behind the Subdivision is to develop quality affordable housing for iwi members, social rental housing, a kaumātua village and other beneficial amenities.

[5]    The Subdivision consists of five stages. Stage 1 commenced in 2017 and resulted in land being subdivided into 110 lots which were sold as residential sections, and land for roading which vested in the Council. Lot 101 was the balance eight- hectare lot which was retained for Stages 2–3 of the Subdivision.

[6]    As part of Stage 1, the land covenant contained in instrument 11037525.7 (the Covenant) was registered against the titles of the residential sections in Stage 1 to protect the aesthetic aspects of the Subdivision by imposing certain design standards

1      Manawa Development Holdings LP v Tauranga City Council CIV-2022-470-67, 13 July 2022 (Minute of Sussock AJ).

and controls on the land. Restrictions imposed by the covenant bar the construction of any building other than a new residential home, limit each section to a single dwelling house and forbid further subdivision.

[7]    The grantee and the grantor of the Covenant were the trustees of the Trust at the relevant time as the registered owners of the land. The servient tenement of the Covenant is described in Schedule A as:

Lots 1 – 118 (inclusive) and 1001 – 1007 (inclusive)

(CFRs 819830 – 819947 (inclusive))

[8]    Around October 2019, Lot 101 was further subdivided resulting in 59 lots which were developed and sold as residential sections, a reserve, and land for roading which vested in the Council, as well as balance lots. The balance of that stage of the Subdivision resulted in the creation of additional balance lots and subsequently the issue of a title for Lot 201 in May 2020 which was to be used for Stages 3–5.

[9]    Work has commenced on Stages 3–5, however, it was not until recently that MDH became aware that the Covenant captures Lot 101 by virtue of it being labelled as a servient tenement in Schedule A: “Lots 1 – 118 (inclusive)”. This means that Lot 201, which was formerly part of Lot 101, is subject to the restrictions of the Covenant. It follows that MDH is impeded from proceeding with development as planned due to the Covenant limiting construction on Lot 201 to a single residential dwelling. Furthermore, MDH is unable to vest land in the Council for roading unless the consent of all dominant landowners to the vesting of land for road is obtained under s 238 of the Resource Management Act 1991.

[10]   MDH’s position is that the inclusion of Lot 101 as both a dominant and servient tenement in the Covenant was the result of a drafting error. Accordingly, it seeks a modification that would excise Lot 101 from the description of the servient tenement in Schedule A of the Covenant.

Legal principles

[11]   To succeed in its application for modification of the Covenant, MDH must satisfy one of the grounds set out in s 317(1) of the PLA:

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.

(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.

Submissions

[12]   Mr Kettelwell, for MDH, advances four primary submissions in support of the application. First, he submits that the ground in s 317(1)(b) is made out on the basis that the Covenant, in its current form, would impede the reasonable use of the land as contemplated by the original party to the Covenant. In support of this submission, Mr Kettelwell relies on the affidavit of Ms Carrol, a director of Ngā Pōtiki Trust Limited. She deposes that it was the original intention of the trustees that Stages 3–5 of the Subdivision would include a commercial centre, kaumātua village and additional roading. This is further evidenced by the first Master Plan dated 25 August 2016 and the original consented subdivision scheme plan dated 19 December 2016.

[13]   Second, Mr Kettelwell submits that the inclusion of Lot 101 in the Covenant is the result of a drafting error for the following reasons:

(a)the Covenant restricts each section to a single dwelling house, that restriction could not have sensibly been intended to apply to Lot 101 which was an eight-hectare lot at the time the Covenant was registered;

(b)while Lot 101 is included as a servient tenement by the Lot description, it is not included in description by title reference number;

(c)the drafter of the Covenant explicitly referenced Lot 101 as a dominant tenement by lot number and title reference number;

(d)the stated purpose of the Covenant is to impose protections in relation to the nature and type of construction to be permitted in the Subdivision for the benefit of all residential lots “including without limitation lot 101”, the emphasis on Lot 101 enjoying the benefit of the Covenant implies that Lot 101 was only ever intended to be a dominant tenement; and

(e)annexed to Ms Carroll’s affidavit is an email from the original drafter explaining her view that Lot 101 was not intended to be servient to the Covenant.

[14]   Third, Mr Kettelwell submits that the proposed modification will not substantially injure any person entitled, this is because it will simply allow the level of development that was intended and widely advertised. In turn, that development will create beneficial amenities for the residential sections such as a small grocery store and a daycare centre. In response to any concerns regarding traffic, Mr Kettelwell says the Subdivision is already a reasonably high use area and a land use consent permitting these activities has already been granted.

[15]   Mr Kettelwell notes that the proposed modification will affect the titles of the residential sections in Stages 2 and 2B of the subdivision because the land used to create those sections previously formed part of Lot 101. It follows that the owners of Stage 1 residential sections will be unable to enforce the obligations in the Covenant on the owners of sections in Stages 2 and 2B. Further, the owners of sections in Stages 2 and 2B will be unable to enforce the obligations in the Covenant against each other. However, Mr Kettelwell emphasises that there will be no injury to the owners of sections in Stages 1, 2 and 2B because the protections afforded by the Covenant are replicated in additional covenants registered against the titles of the sections in Stages 2 and 2B.

[16]   Finally, Mr Kettelwell submits that because the inclusion of Lot 101 as servient tenement was the result of a drafting error, the modification sought should be granted as it would be just and equitable to do so. In support of this submission, Mr Kettelwell relies on LMM Investments 2012 Ltd v Cumming2 and Nova Scotia River Estates v Whangarei District Council.3 In both cases covenants were registered against titles by mistake and the sought modifications were granted.

Discussion

[17]   I accept that the inclusion of Lot 101 as a servient tenement in the Covenant was the result of an unfortunate drafting error. As set out in the affidavit of Ms Carroll, the original grantee and grantor of the covenant did not intend for the Covenant to make Lot 101 servient — it was only intended to be dominant. The trustees’ plain

2      LMM Investments 2012 Ltd v Cumming [2021] NZHC 3238.

3      Nova Scotia River Estates Ltd v Whangarei District Council [2017] NZHC 196.

intention was that Lot 101 be retained for future stages of the Subdivision. The fact that Lot 101 is included in Schedule A’s servient tenement description by Lot number but not by title reference reinforces this point.

[18]   I am satisfied that the proposed modification will not result in any net detriment or real injury to the owners of the residential sections. That is because the protections afforded by the Covenant in relation to the aesthetics of the Subdivision will apply to the owners of the residential sections in Stages 2 and 2B pursuant to additional covenants recorded against their titles.

[19]   This application is of significant consequence to MDH. The final stages of its Subdivision hang in limbo and it risks failing its obligations under various sale and purchase agreements and loan agreements for funding. Of further consequence, MDH is currently unable to deliver on the various commercial amenities it widely advertised to those who purchased residential sections in the early stages of the Subdivision. I am satisfied that these are circumstances where it would be just and equitable to order a modification.

Result

[20]The application for modification is granted and I direct accordingly.

[21]   I grant leave to MDH to seek any further order necessary to give effect to this application.

Muir J