Monday, 7 September 2020

How does the Supreme Court determine whether modification of a restrictive covenant would substantially injure those entitled to the benefit of the covenant?

1.     In Foudoulis v O’Donnell [2020] VSC 248, the Supreme Court (Mukhtar As J) considered the approach to be taken by the Court in assessing whether a proposal to modify a restrictive covenant would substantially injure the persons entitled to the benefit of the covenant.


2.     The plaintiff was the registered proprietor of a block of land in Wilson Boulevard, Reservoir, Victoria. The land in question (along with many others subdivided at the same time, in the early 1920’s) was burdened with a single dwelling covenant, meaning that each property in the neighbourhood could only have one dwelling on it. Eventually around 3000 lots had the benefit of that covenant.


3.     As property lawyers will understand, the burden and the benefit of the covenant runs with the land so that the covenant remains equally enforceable in property law by and against successors in title. The plaintiff was bound by the covenant.


4.     The plaintiff proposed to retain the existing dwelling on his property and to construct two new semi-detached, 2-storey dwellings behind the existing house in the current back yard, and 3 new garages.


5.     The proposal would not be the first instance in the area of multi dwellings on a single Lot. But it would be the first instance of its kind: two double storey dwellings constructed behind a single dwelling on an ‘ordinary’ house block.


6.     The proposed development would obviously contravene the covenant. To overcome the restriction, the plaintiff applied to the Supreme Court under s 84(1) of the Property Law Act to have the covenant modified so that it reads ‘not more than three dwelling houses shall be erected’.


7.     Associate Justice Mukhtar noted (at paragraph 12 of the judgment):

An application for covenant modification is a lawsuit. The onus of proof is on an applicant to make out on the evidence a statutory ground for modification of a covenant.


8.     The plaintiff’s case was that the proposed of the Covenant would not

substantially injure the persons entitled to its benefit, having regard to the

expert evidence of the benefits originally intended to be conferred and in fact conferred by the Covenant and the benefits that will remain if the Court grants this application.


9.     In effect, the plaintiff’s case was that modifying the covenant to allow three dwellings on the plaintiff’s land would not substantially injure the beneficiaries of the covenant because the modification would be just another example of multi dwellings on land or an alteration of housing density that has already occurred in the neighbourhood, and therefore there would be no harm in allowing the modification as sought here.


10.  The main objectors prepared an extensive, meticulous and dispassionate research paper all based on proper sources in support of their objection which responded directly to the facts and the opinion in the expert’s expert report. They methodically engaged with his report on the facts concerning the re-subdivisions and developments within the neighbourhood ― street by street and Lot by Lot ― to contend that on a refined analysis the changes that have occurred have not been of a degree to make for a conclusion that the predominant single dwelling character of the neighbourhood had been eroded.


11.  The central contention is that whatever the changes to date, the Court should uphold the utility and purpose of a single dwelling covenant and not let the changes in the neighbourhood go any further lest the predominantly single dwelling character of their neighbourhood does become spoiled or ruined by more of these applications, which they apprehend is bound to happen. This is known as the ‘thin end of the wedge’ or precedential effect of a modification, a phenomenon which legal authorities accept as being ‘substantial injury’ for the purposes of s 84(1)(c) especially in neighbourhoods with a cohesive network of single dwelling covenants.


12.  The plaintiff contended that there have been many instances (involving at least 40 lots) of resubdivisions of a single Lot into 2 or more Lots, and instances of multi-unit developments (some two storey) on single Lots in Wilson Boulevard. That meant, he contended, that the benefit of lower density living had been eroded to the degree that the presence of two dwellings at the back of the plaintiff’s land did not truly inflict substantial injury.


13.  At paragraph 45 of the judgment, Mukhtar AS J found:

I do not accept that the neighbourhood has experienced change since 1922 to an extent that has eroded the benefits of a single dwelling covenant. The plaintiff has not discharged his onus of showing that the proposed modification will not cause substantial injury to the beneficiaries. Therefore the application will be refused.


14.  His honour summarised his findings in the nine paragraphs that followed.


15.  One of the objectors’ main contentions was that a re-subdivision of a large piece of land into two or more housing Lots of at least 500m2 and each of which is restricted to a single dwelling, does not therefore make for a change to the character of the neighbourhood or an erosion of the benefits of the covenant burdening the plaintiff’s land.


16.  His Honour noted that in Stanhill (2005) 12 VR 224, Morris J had concluded in an application to vary (at paragraph 17):


… it is sufficient [in an application under section 84(1)(c)] to show that the proposed discharge or modification will not cause harm to the persons entitled to the benefit of the restriction which could be regarded as being of real significance or importance. This will require a judgment call in the particular circumstances being considered; it does not admit of some universal answer based upon the attitude of the beneficiary, the original purpose of the covenant or any other similar factor.


17.  His Honour then noted that more recent authorities in the Supreme Court had not adopted or endorsed the approach of Stanhill and prefer to apply the ‘longstanding principles’ about s 84 that preceded it.


18.  Mukhtar AS J chose not to enter into debate about that point of law. Instead, he found at paragraph 92:

In this case, I think the submission is academic because I take the view that the plans and elevations as put forward by the plaintiff in evidence from which to judge the application show substantial change to the build form and density of the plaintiff’s land, and, there will be no relief to the mass of the proposed build form when seen from the gardens of beneficiaries. In my view that will constitute substantial injury.



19.  The objectors did a substantial amount of work to analyse the expert evidence and show that, in fact, the character of the neighbourhood in the area of the application was still vastly a single dwelling neighbourhood, and that any variation to the single dwelling covenant as proposed would cause substantial injury.


WG Stark

Hayden Starke Chambers 

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