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Put your mind at ease: understanding some of the rights and restrictions on property

Property Law News | February 2016

If you're planning to purchase a property, is it subject to any easements or covenants? Does anybody else have a right to access the property?

These are just a few of the myriad of questions you should be asking as part of your due diligence when you are planning to purchase a property. It is especially important that you are aware of and understand the ramifications of any rights which are registered on title to the property you are interested in and the effect that they may have on your enjoyment of the property.

Covenants and easements

Two of the most common rights which will appear on a Certificate of Title (CT) for a property are covenants and easements. At first glance these two rights may seem to be very similar in their application because 1) they both record an interest on the property in favour of someone else, be it a person, corporation or public authority; 2) they both enjoy indefeasibility once they have been registered on title and 3) they both pass with the property when it is transferred from one owner to another.

This, however, is where the similarities end. A covenant on land is generally restrictive in nature and prohibits the use of land in a way contrary to its terms. A covenant creates an equitable interest in land and serves to notify potential purchasers that the property is burdened by the interest that is described in the title documents. Common forms of covenants can include restrictions on the building materials for structures on a property, the fencing materials which are permitted to be used or the use to which the property can be put.

An easement, by contrast, creates a proprietary right on a property which falls short of possession but passes an interest in the property from a “servient tenement” to a “dominant tenement”. Easements by their very nature can affect the value of the servient tenement to the extent of the right enjoyed by the dominant tenement.

The four characteristics which define an easement are well settled principles in property law and derive from the findings of the English Court of Chancery in the case of Re Ellenborough Park [1956] Ch 131 and are briefly described as follows:

  1. There must be a dominant and servient tenement;
  2. The use of the land the subject of the easement must be connected to the use of the dominant land;
  3. The owners of the dominant and servient tenements must be different people; and
  4. The right must be capable of being the subject matter of a grant for 2 reasons:
    a) Easements cannot be passed by possession because they do not physically exist; and
    b) The right must be a right of utility and benefit, that is, the right cannot be merely for recreation or other purposes.

Case study: which right was created?

One of the difficulties with understanding which right has been created lies in the construction of the documents which purport to give the right. This was evidenced in the recent decision of the NSW Court of Appeal in Registrar General v Jea Holdings [2015] NSWCA 74. The facts of the case can be briefly stated as follows:

  1. In 2011, Jea Holdings acquired three lots of land for market value;
  2. A fourth lot [Lot 4] was used as a carpark;
  3. A hotel owned by Awar Pty Ltd was situated on a neighbouring lot to Lot 4;
  4. The lot containing the hotel had a covenant recorded on title which restricted the use of the land on Lot 4 to be exclusively used as a carpark for the benefit of the hotel guests and the guests of a shopping centre owned by Jea Holdings on the 3 lots it had acquired in 2011;
  5. Awar Pty Ltd applied to the Registrar General [RG] to have the covenant recorded as an easement on the CT in favour of Lot 4;
  6. The RG issued a notice proposing to register the easement on title to Lot 4 but was successfully restrained by Jea Holdings in the NSW Supreme Court;
  7. The decision of the Supreme Court was overturned by the Court of Appeal which was satisfied that the instrument complied with all 4 characteristics of an easement [as outlined above] notwithstanding that it had originally been registered as a covenant on title. It was further held by the court that Jea Holdings took the land subject to the “omitted easement”.

Understanding the rights, legal or otherwise, that are attached to any property you are planning to purchase will help you make an informed decision on whether or not the property is suitable for your intended use be it commercial or residential.

Forum Law’s solicitors have a strong experience in conveyancing and property law which has been extended to individual clients and corporate and government clients for over 20 years. If you have any questions or concerns about legal matters regarding conveyancing and property law give us a call for an obligation-free chat for up to 30 minutes on the phone or make a time to visit us in Leichhardt on (02) 9560 3388.

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