West Hoe Family Trustees Limited v Forsyth
[2022] NZHC 2708
•19 October 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2022-404-864
[2022] NZHC 2708
UNDER Sections 316 and 317 of the Property Law Act 2007 IN THE MATTER OF
an application for an order extinguishing a covenant
BETWEEN
WEST HOE FAMILY TRUSTEES LIMITED
Applicant
AND
GORDON ALAN FORSYTH and HELEN RUTH FORSYTH
First Respondent
MERVEBER LIMITED
Second RespondentContinued …
On the papers Counsel:
S Wroe for the applicant
Judgment:
19 October 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 19 October 2022 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
WEST HOE FAMILY TRUSTEES LIMITED v FORSYTH and FORSYTH and OTHERS [2022] NZHC 2708
[19 October 2022]
[1] The applicant owns a property at 52 Kahikatea Flat Road, Dairy Flat (the Property). The Property is subject to a restrictive covenant in favour of eight nearby properties (the benefited properties). The covenant was created in 1986. It prohibits use of the Property for any trading or commercial purpose except farming or horticulture. It allows only a single dwelling on the Property. It also places limits on the kinds of materials to be used in constructing the dwelling or any other building on the Property.
[2] The applicant applies under s 317 of the Property Law Act 2007 (the Act) for an order extinguishing the covenant. The applicant says that since the covenant’s creation there have been changes in the use of the Property, changes in the use of the benefited properties, and changes in the character of the neighbourhood. The applicant also says that extinguishment of the covenant will not substantially injure any of the owners of the benefited properties, and that it is just and equitable to extinguish the covenant.
[3] The respondents are the owners of the benefited properties. The application was served on them and on Auckland Council. None of them filed a notice of opposition. Accordingly, the application was set down for a formal proof hearing. After reading the material filed in advance of the scheduled hearing, including detailed and helpful submissions from Ms Wroe, counsel for the applicant, I decided that the application could be determined on the papers.
[4] For the reasons that follow, I am satisfied that the covenant should be extinguished.
Background
[5] In 1986, a Mr and Mrs Little owned a large block of land to the west of Dairy Flat village. The block was in three titles. The Littles subdivided one of the titles. The subdivision created the Property at 52 Kahikatea Flat Road. The Property was (and remains) about four hectares in area.
[6] The Littles sold the Property by a memorandum of transfer dated 23 January 1986. The second schedule of that memorandum of transfer contained a restrictive
covenant burdening the Property. The covenant was for the benefit of the balance of the land that was retained by the Littles (that is, the benefited properties).
[7] The covenant was noted on the record of title for the Property on 25 August 1986. It does not appear ever to have been noted on the records of title for the benefited properties.
[8] The covenant provides that the owner of the Property (referred to as Lot 2) shall not:
1.Use Lot 2 or permit or suffer it to be used for any trading or commercial purpose except farming or horticulture.
2.Erect or permit or suffer to be erected or placed on Lot 2 any dwelling house other than a new dwelling house to the value at the time of construction of not less than $50,000 plus an increase calculated from 1 March 1986 equivalent to the increase in the consumers price index (construction) produced quarterly by the Department of Statistics from 1 March 1986 to the date of construction of any such dwelling.
3.Use or permit of [sic] suffer to be used in any building on Lot 2 any second hand materials.
4.Use for the outer walls or sheathing of any dwelling erected on Lot 2 any corrugated iron, flat fibrolite or flat asbestoes [sic] cement
5.Erect or apply for Town Planning permission to erect on Lot 2 any building comprising more than one residental [sic] unit
6.Erect or permit or suffer to be erected or placed upon Lot 2 any caravan, hut or shed for use as a permanent dwelling or allow any caravan hut or shed to be so used.
[9] In due course, the Littles sold the benefited properties. At no point did they (or any of their successors in title) subject the benefited properties to any restrictive covenants similar to the covenant that burdens the Property.
[10] In 1986, when the covenant was created, the area surrounding the Property was rural and sparsely populated, though Dairy Flat village was nearby to the east. There have been considerable changes to the area since then.
[11] When the covenant was created, there were three benefited properties, none of which had buildings on them. Those properties have since been subdivided into eight properties. Most of them now contain dwellings (in some cases, more than one).
[12] Three of the benefited properties are on Kahikatea Flat Road, to the west of the Property. The other five benefiting properties are to the north west of the Property. They are all on Wilks Road West (which runs roughly parallel to Kahikatea Flat Road). Only one of the benefited properties adjoins the Property. This is the property at 62 Kahikatea Flat Road, which is to the immediate west of the Property.
[13] Since 1986, more businesses and industrial properties have grown around Dairy Flat village. These now extend to the eastern boundary of the Property and continue further west on the opposite (southern) side of Kahikatea Flat Road.
[14] The applicant purchased the Property in July 2021 for $2,320,000. At that time the Property was in a neglected state. The applicant has made considerable improvements to it since, particularly in landscaping, fencing and drainage.
[15] When purchasing the Property, the applicant’s long-term plan included considering a resource consent application to allow use of the Property as a truck yard. The applicant says that is no longer its preferred option. The applicant wishes to extinguish the covenant so that it can have options for the use of the Property such as building a better dwelling on the Property, building a minor dwelling, and space for a home occupation business that could be leased out.
[16] In September 2021, the applicant asked the first respondents (the Forysths), who are the immediate neighbours at 62 Kahikatea Flat Road, whether they would consent to removal of the covenant. The Forsyths said they would not.
[17] In March 2022, the applicant’s solicitors sent letters to the owners of the benefited properties. The letters said that there had been considerable changes in the neighbourhood since 1986 and that the applicant would be applying to the High Court for an order extinguishing the covenant. The letter asked the owners to consider consenting to removal of the covenant.
[18] The owners of four of the benefited properties (including the Forsyths) replied to the letter saying that they did not consent to removal of the covenant and that they would oppose any application for extinguishment. A common theme in their responses was that the covenant was put in place so that the Property would act as a barrier to prevent urban and industrial activities encroaching into the benefited properties, which were described as lifestyle blocks.
Extinguishing covenants under the Property Law Act 2007
[19] Section 316 of the Act allows a person bound by a restrictive covenant to apply for an order under s 317 modifying or extinguishing the covenant. Under s 317(1), a court may modify or extinguish a covenant if satisfied of one or more of several stated grounds. These include (in summary, and as relevant to this application):
(a)The covenant ought to be extinguished 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 properties, the burdened property, or both;
(ii)the character of the neighbourhood.
(b)The continuation of the covenant in its existing form would impede the reasonable use of the burdened property in a different way, or 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.
(c)The proposed extinguishment would not substantially injure any owner or occupier of the benefited properties.
(d)For any other reason it is just and equitable to extinguish the covenant.
[20] Section 317(2) provides that an order modifying or extinguishing a covenant may require the applicant to pay to any other person reasonable compensation as determined by the court.
[21] Section 317 requires a two-stage approach. The court must first consider whether one or more of the grounds in s 317 is made out. If so, the court must then consider whether to exercise its discretion to modify or extinguish the covenant. The exercise of that discretion requires consideration of all relevant factors, including the power to award compensation.1
[22] A statutory power to modify or extinguish a covenant was first enacted in s 127 of the Property Law Act 1952. That gave the court power to modify or extinguish a covenant in relatively limited circumstances. The court had no power to order the payment of compensation. This statutory power has been progressively broadened over the years, culminating in the current s 317 of the 2007 Act (itself broadened by amendment in 2018). The Supreme Court has said that this shows a parliamentary intention that the section should be applied less restrictively than it was in the past.2
The application
[23] The applicant filed this application in early June 2022. It says that five of the grounds in s 317 for extinguishing the covenant are made out.
[24] First, it says the covenant ought to be extinguished because since 1986 there has been a change in the nature or extent of the use being made of the benefited properties. Those properties have been subdivided and they now have multiple dwellings.
[25] Secondly, the applicant says the covenant ought to be extinguished because since 1986 there has been a change in the character of the neighbourhood. The neighbourhood is no longer sparsely populated. There has been an expansion of the commercial, industrial and residential use of the area of Dairy Flat. The zoning has changed. Kahikatea Flat Road now has a significant number of heavy goods vehicles travelling on it, in and out of properties adjacent to and opposite the Property.
1 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [90].
2 At [76]–[79].
[26] Thirdly, the applicant says that the continuation of the covenant in its existing form would impede the reasonable use of the Property in a different way, or to a different extent, from that which could reasonably have been foreseen in 1986. This is because the reasonable uses of the Property have changed since 1986, and the impediment of being prevented from using the Property for home occupations (and other activities permitted under planning law) is greater than would have been anticipated in 1986 (when there were few people in the area to benefit from commercial services).
[27] Fourthly, the applicant says that extinguishment of the covenant would not substantially injure any of the owners of the benefited properties.
[28] Finally, the applicant claims that it is just and equitable to extinguish the covenant.
[29] The application was supported by four affidavits. Mr Reece Jones, a director of the applicant, explained the purchase of the Property by the applicant, the improvements that have since been made to the Property, and efforts to obtain consent to extinguishment from the Forsyths. His affidavit exhibited several aerial photographs showing the extent of use and development of the Property, the benefited properties, and the surrounding area.
[30] There was an affidavit from a planner, Mr Nicholas Eagleson. He described the nature and extent of use being made of the Property and the benefited properties, and the character of the neighbourhood, in 1986 as compared to today. He explained the uses to which the Property could (as a matter of zoning) be put in 1986 and today. He also considered whether, from a planning perspective, extinguishment of the covenant might create a likelihood of substantial injury to any of the owners of the benefited properties.
[31] Mr Michael Sprague, a valuer, made an affidavit addressing the effect of extinguishment of the covenant on the value of the Property and the benefited properties.
[32] Ms Jessica Drey was the solicitor for the applicant when the applicant attempted to obtain consent from the owners of the benefited properties. She made an affidavit explaining these attempts and the responses that were received.
Response to the application
[33] As noted, none of the respondents or Auckland Council filed a notice of opposition to the application. Nor did any respondent ask that compensation be awarded for the extinguishment of the covenant.
[34] The Forsyths initially indicated, through counsel, that they would seek compensation. Subsequently, their counsel advised by memorandum that the Forsyths had decided not to pursue compensation, that they would not be filing any notice of opposition and that they did not wish to be heard on the application.
Issues
[35] A lack of opposition is not the same as consent to the order sought. I must still determine two issues:
(a)Is one or more of the grounds in s 317 made out?
(b)If so, should I exercise my discretion to extinguish the covenant?
Is one or more of the grounds in s 317 made out?
[36]I am satisfied that four of the grounds relied on by the applicant are made out.
Covenant ought to be extinguished because of a change in the nature or extent of the use being made of the benefited properties
[37] Under this ground, the Court must focus not on the change itself, but on the impact of the change on the benefit or burden flowing from the covenant.3
3 At [138].
[38] I am satisfied from the affidavit evidence that in the more than 30 years since the covenant was created, there has been a change in the nature or extent of the use being made of the benefited properties. In 1986, those properties were in three titles and had no buildings on them. They have since been subdivided into eight properties. Most of those properties now have dwellings. Some, including the Forsyths’ property, have more than one dwelling.
[39] This change has had an impact on the benefit that flows from the covenant, in relation to the parts of the covenant that limit the Property to a single dwelling. The single dwelling limit is of little or no benefit now that the benefited properties themselves have been subdivided and together have multiple dwellings.
Covenant ought to be extinguished because of a change in the character of the neighbourhood
[40] Under this ground, the Court again must focus on the impact of any change in the character of the neighbourhood on the benefit or burden flowing from the covenant. The “neighbourhood” includes, but extends beyond, the properties burdened by and benefiting from the covenant.4
[41] There have been significant changes in the character of the neighbourhood since 1986. First, there is the residential intensification of the benefited properties. Secondly, Mr Eagleson explains that the density of development and allotments in the surrounding area has increased markedly since 1986. He describes a considerable change in the character of the properties on the southern side of Kahikatea Flat Road, opposite the Property and some of the benefited properties. There is now a greater degree of commercial and light industrial use in that area.
[42] These changes have reduced the benefits flowing from the covenant. The single dwelling limit is of little or no benefit for the reason noted at [39] above. The restrictions aimed at the standard or look of construction of any buildings on the Property and limiting the use of huts or caravans provide little benefit, given the increased use of nearby properties for commercial and light industrial purposes.
4 Reynolds v Parklands Properties Ltd [2021] NZCA 394, (2021) 22 NZCPR 516 at [69].
Likewise, that change in the surrounding character has reduced the benefit of the prohibition on using the Property for any trading or commercial purpose (other than farming or horticulture).
Continuation of the covenant would impede the reasonable use of the Property in a different way, or to a different extent, from that which could reasonably have been foreseen in 1986
[43] This ground requires consideration of whether the nature or extent of the impediment has changed. Where there has been a change in the reasonable use of the burdened land (for example, as a result of a change in zoning), that will be relevant to assessing whether there has been a change in the nature or extent of the impediment.5
[44] I am satisfied that there have been changes in the reasonable use of the Property since 1986, and that these changes mean that the covenant now impedes the reasonable use of the Property to a greater extent than could reasonably have been foreseen in 1986.
[45] Mr Eagleson explains that, as a result of changes in planning laws and zoning since 1986, there has been a change in the activities permitted at the Property. For example, a home occupation business is now a permitted activity, whereas it was a conditional use (and subject to limitations) in 1986. A home occupation business could include professional services for the rural community, such as a veterinary clinic, an accounting practice or a drain laying business. Mr Eagleson says that these would be reasonable uses of the Property, given the character of the neighbourhood and the zoning. Similarly, construction of a minor dwelling on the Property is now more straightforward, from a planning perspective, than it was in 1986. As noted, some of the benefited properties have more than one dwelling.
[46] It follows that the reasonable uses of the Property are wider than they were in 1986 and, therefore, that the impediment on those reasonable uses is greater than in 1986. Further, I consider that this impediment is greater than could reasonably have
5 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [161].
been foreseen in 1986. The benefited properties were then rural undeveloped properties. The neighbourhood had a much more rural character.
No substantial injury to any owner of a benefited property
[47] Under this ground, I have to be satisfied that extinguishment of the covenant will not substantially injure any owner of a benefited property. An injury could be economic (for example, reduction in value), physical (for example, being subjected to noise) or intangible (such as impairment of a view, unsightliness or an alteration to the character of a neighbourhood).6 The court has to compare the position of the owners of the benefited properties with the covenant in place with their position if the covenant is extinguished.7
[48] Mr Sprague expresses the opinion that removal of the covenant will not have any substantial effect on the value of the benefited properties. The restrictions in the covenant may have at an earlier time preserved a rural ambience and peace, but that has long since been overtaken by the developments of other properties and the changes in the character of the neighbourhood (described elsewhere in this judgment). His evidence is unchallenged.
[49] If the covenant is removed, there may be trading or commercial activities on the Property. This may increase traffic and noise from the Property. I accept Ms Wroe’s submission that, given the existing industrial uses of nearby properties and the evidence of existing traffic on Kahikatea Flat Road, any such increase will be barely discernible. Further, such an increase might eventuate even with the covenant in place, given the intensive farming and horticultural uses that could be made of the Property. Therefore, extinguishment of the covenant would not cause substantial injury under this head.
[50] The covenant contains restrictions on the types of building materials that can be used on the Property and a restriction on the use of huts and caravans. Removal of these restrictions will not cause substantial injury. The neighbourhood does not
6 At [105].
7 At [106].
have an upmarket rural appearance. Similarly, I do not consider that removal of the restriction on trading and commercial activities will affect the ambience enjoyed by the benefited properties. As Mr Eagleson explained, the Property can already, even with the covenant in place, be used in ways that would impact ambience even more than most trading and commercial activities. The Property could presently be used for intensive poultry farming or could be largely covered in 15 m high greenhouses.
[51] For these reasons, I am satisfied that extinguishment of the covenant would not substantially injure any of the owners of the benefited properties.
Just and equitable to extinguish the covenant?
[52] Ms Wroe also submitted that it was, for other reasons (such as the lack of opposition), just and equitable to extinguish the covenant. Given my conclusions on the other four grounds on which the applicant relied, I do not consider it necessary to determine whether the just and equitable ground is also established.
Should I exercise my discretion to extinguish the covenant?
[53] I have found that four of the grounds in s 317 are made out. In such circumstances, I consider that there would have to be a substantial reason to decline to exercise the jurisdiction to extinguish the covenant.8 I see no such reason here. I accept Ms Wroe’s submission that the fact that the applicant purchased the Property recently with the covenant in place is not a reason to decline to extinguish the covenant. I will therefore exercise my discretion by extinguishing the covenant.
Costs
[54] In its application, the applicant sought costs. However, Ms Wroe’s submissions did not address costs, presumably in recognition of the rule that a respondent who unsuccessfully opposes a s 317 application will not be ordered to pay costs, so long as the respondent acted reasonably.9 Given that the respondents did not oppose the application, I will make no order as to costs.
8 At [174].
9 At [204].
Result
[55] I order that the covenant contained in the second schedule of memorandum of transfer B572483.2, noted on record of title NA64B/49, is extinguished.
Campbell J
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