Rua Whare Limited (in receivership and in liquidation)

[2025] NZHC 199

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-003298 [2025] NZHC 199

UNDER

Part 19 of the High Court Rules 2016 and

ss 316 and 317 of the Property Law Act 2007

IN THE MATTER OF

an application by Rua Whare Limited (in receivership and in liquidation) for an order modifying the land covenant in instrument 11054480.16

BETWEEN

RUA WHARE LIMITED

(IN RECEIVERSHIP AND IN LIQUIDATION)

Applicant

Hearing:	13 February 2025
Appearances:	D Broadmore and C Morrison for the Applicant
Judgment:	18 February 2025

JUDGMENT OF GARDINER J

This judgment was delivered by me on 18 February 2025 at 12 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

Buddle Findlay, Auckland

Re RUA WHARE LIMITED [2025] NZHC 199 [18 February 2025]

Introduction

[1]    Rua Whare Ltd (in receivership and liquidation) (Rua Whare) owns the land at 1-2 Matahae Drive, Flat Bush (Rua Whare Land). Rua Whare seeks to modify a covenant under which the land is subject pursuant to s 317(1) of the Property Law Act 2007 (the Act).

[2]    The purpose of this application is to remove the restriction in cl 5 of Sch B of the covenant which provides:

When erecting or altering a residential dwelling on the  Covenanting  Lot  the Grantor must comply with the Minimum Floor Area and shall at all times ensure that all building works are carried out within the title boundaries of the Covenanting Lot.

[3]    The  application  has  been  served  on  Auckland  Council  as  well  on  the 18 properties immediately opposite the Rua Whare Land.1 No notices of opposition have been filed and the Council have indicated they will abide  by the  decision of the Court.

Background

[4]    On 22 February 2021, residential development was approved to begin on the Rua Whare Land. By that time, a number of pre-sale agreements had been entered into for the 32 dwellings that were to be developed.

[5]    On 15 March 2021, Rua Whare entered into an agreement to purchase the Rua Whare Land and  the  sale  settled  on  23  March  2021.  Construction  of  the 32 residential dwellings began shortly after the granting of the building consent on 16 August 2021.

[6]    On 17 April 2023, Neale Jackson and Brendon Gibson were appointed as receivers of Rua Whare. On 23 May 2023, Rua Whare was placed into liquidation. On 6 June 0223, Rua Whare’s liquidators consented to the receivers acting as agents for Rua Whare.

1      Re Rua Whare Ltd (in rec and in liq) HC Auckland CIV-2024-404-3298, 20 December 2024 (Minute of Lang J).

[7]    At the date of receivership, Rua Whare owed approximately $40,647,000 to creditors. Following the appointment of receivers, Rua Whare continued to develop the  32  residential  dwellings  (but  the   pre-sale   agreements   were   cancelled). The development is now nearing completion. The receivers expect new titles will be shortly issued for the 32 dwellings and they will then take steps to sell the dwellings and apply the net proceeds towards the secured debt.

[8]    The Rua Whare Land is subject to a covenant which requires that all dwellings on the burdened land must comply with the minimum floor area. Minimum floor area is defined in the covenant as “a minimum floor area of 130m2 in respect of the residential dwelling (including any garage) erected thereon”. In October 2024, the receivers became aware that 24 of the 32 dwellings were not compliant as each had a floor area of less than 130 m2. Upon review of Rua Whare documents, the receiver Neale Jackson concluded that Rua Whare was aware of minimum floor area under the covenant but proceeded with construction on the understanding that, on one interpretation of the covenant, there was no breach.

[9]    The receivers anticipate that there will be no willing purchasers for the dwellings while they remain non-compliant, due to a provision in the covenant which requires the payment of $500 per each day that the breach continues. The receivers have considered whether the 24 dwellings could be modified to increase their floor area, or whether consent to modify the covenant could be obtained from all the owners of the benefited land (434 lots surrounding the affected land, owned by around     420 different parties). The receivers do not consider these options feasible.

[10]   Accordingly, the receivers now seek for removal of the minimum restriction and for the covenant to be modified as follows:

When erecting or altering a residential dwelling on the  Covenanting  Lot  the Grantor shall at all times ensure that all building works are carried out within the title boundaries of the Covenanting Lot.

Legal principles

[11]Section 317(1) of the Act provides:

317     Court may modify or extinguish easement or covenant

(1)On an application (made or 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—

…

(d)the proposed modification or extinguishment will not substantially injure any person entitled; …

[12]   A “person entitled” in relation to a covenant is defined in s 4 of the Act as “a person who benefits from and is entitled to enforce the covenant”.

[13]   Section 316 of the Act also requires that any application pursuant to s 317 is served on the territorial authority and any other person as directed by the court.

[14]   The Supreme Court in Synlait Milk Ltd v New Zealand Industrial Park Ltd confirmed the two-stage approach to the exercise of the court’s discretion: the court must first determine whether one or more of the grounds in s 317(1) are made out and, if so, whether the discretion to extinguish or modify should be exercised.2

[15]   “Injury” under s 317(1)(d) may be economic (for example, a reduction in the value of the benefited land), physical, or intangible (such as impairment of a view, intrusion upon privacy, unsightliness or an alteration to the character or ambience of the neighbourhood).3 “Substantial injury” is one that is real, considerable, and significant, as against insignificant, unreal or trifling.4

Discussion

[16]   At the outset, I note that the s 316 requirement has been satisfied here, per directions made by Lang J that the applicants serve the Auckland Council and neighbouring properties. As previously stated, no opposition has been filed. In the circumstances, I am prepared to deal with the merits of the application on the papers.

2      Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [67].

3 At [105].

4      At 104].

[17]   I am satisfied that the covenant should be modified as sought as the amendment will not cause substantial injury to any person entitled. The applicants have provided expert evidence from Gary Cheyne, who confirms that:

(a)The proposed modification of the covenant simply brings smaller house sizes one street closer to the east, away from the adjacent benefited land.

(b)Any impact of allowing housing development as consented with floor areas less than 130m2 would not extend beyond properties immediately opposite.

(c)His analysis of sales data shows that there is no discernible reduction in sale price for a home with an area greater than 130m2 located adjacent to or opposite a home with an area less than 130m2.

[18]   I note that the owners of properties immediately adjacent to the affected properties have all been served with the application and none opposite it. It would not seem to be in their interests for the dwellings to go unsold because of the covenant issue.

[19]   I also accept counsel’s submission that it would not be appropriate to refuse because of any conduct by Rua Whare which amounted to a breach of the covenant, where there is no substantial injury.5

Result

[20]Orders accordingly.

Justice Gardiner

5 At [173].