Most properties will have at least one ‘interest’ listed on its record of title. Some of these are relatively easy to understand. Some are not so clear. In this edition we’re looking at covenants and consent notices.
A covenant is essentially a promise by an owner of land to do something, or not to do something. These promises might be able to be enforced by your neighbours, or by a third party (such as a developer or residents’ society).
New subdivisions will often have covenants registered by developers, creating long lists of rules regarding how big a new house can be, what building materials you can use, and even where you can put your clotheslines.
Consent notices are like covenants but are between the landowner (current and future) and the local council. They are registered on land as part of the subdivision consent process. They can cover things such as the type of foundations required on unstable land, stormwater requirements, the maximum site coverage on a lot, or whether a property can be subdivided.
More often than not we are seeing both covenants and consent notices on title in new subdivisions. Interests on titles are only getting more complicated, not simpler. Now I know what you’re thinking – this all sounds like something that the lawyer should be explaining to the buyer, but unfortunately complaint decisions have made it clear that agents “should be familiar with and able to explain clearly and simply the effect of any covenants or restrictions which might affect the rights of a purchaser” (LB v REAA [2011] NZREADT 39).
We will be the first to admit covenants are not an easy read. We also tend to find that parts are often irrelevant as there’s now a property built, and the covenant was originally put on to manage the initial build. However, generally we find there are particular covenants that buyers are interested in. These are:
- whether there’s a restriction on number of dwellings per lot
- if you can subdivide
- any restrictions regarding pets
- any restrictions on parking trade vehicles or using the house as a home office
- and the height and placement of fences.
We appreciate that part of the selling process involves selling the buyer the potential in the property, but you should be careful about advising buyers about what they can and cannot do without checking first. There are complaint decisions about agents misleading buyers that they can subdivide, when they could not (Zhao - Complaint C16325) or that their view was protected by a covenant on a neighbouring property, when it was not (Masefield v REAA [2015] NZREADT 30).
Unfortunately, this means you can’t rely on the purchaser’s lawyer to do all the leg work. If a covenant or consent notice does come up, you should read and disclose it, do your best to explain, and recommend the potential buyer seek legal advice before making an offer (we know you do this last one already….).
Understanding the title for each of your properties, or at least understanding what presents the most risk for you and buyers will be a win/win for both your professional conduct and for the buyer.
As always – feel free to give us a call if you have any covenant or consent notice questions – 04 390 2123.
Katherine, Sam, Jordan, Maria, Madi and Laura (our latest addition to the team).