A recent High Court decision has prevented the potential subdivision of a property at St Arnaud, near Nelson. The decision highlights the ‘roadblock’ effect land covenants can have, particularly where the proposed development has the potential to cause injury to neighbouring landowners.
In Beechnest (2014) Ltd v Marshall [2023] NZHC 519, Beechnest, a property developer, purchased two large lots of land in St Arnaud, with the intention of subdividing the property into 10 more lots, which would be developed into rows of tightly built houses. This subdivision was opposed by four parties (“the Neighbours”) who claimed that this proposed subdivision would be a breach of a covenant over the investment property purchased by Beechnest, which was intended to stop further subdivisions. The Neighbours were particularly concerned with the impact on their views and the loss of amenity, ambience and economic damages to their properties which they argued the covenant was intended to preserve.
Beechnest applied to the Court, under section 317 of the Property Law Act 2007 (“the Act”), which allows the Court to modify or extinguish covenants in certain circumstances. The Neighbours opposed the application on the basis that they would be substantially injured by the covenant’s removal. The case initially went to the District Court who refused to grant removal or modify the covenant and was subsequently appealed by Beechnest to the High Court.
To prove that they would be substantially injured, the Neighbours argued that their property views would be impacted by the proposed development. The Neighbours stated those views were a major motivating factor for them purchasing the properties. The houses owned by the Neighbours were specifically positioned and designed to capture as much of the views of the nearby wetlands as possible. The Court considered that the effect of removing the covenant would desecrate the Neighbours’ views in a way which was “very real and significant to them”.
The Neighbours also stated that the subdivision would impact the ambience of the environment in which their properties were located. The District Court stated that a 10-lot development would create an intensification that would be more suited for suburban environments. The construction of 10 houses instead of just 2 would have created more noise and traffic for a longer period of time, which the Court also took into consideration.
Counsel for Beechnest argued that the Neighbours should have had knowledge that the 2 lots were going to be subdivided in the future based on a bundle of packets given out, which included a Tonkin + Tonkin report. This was rejected by the Court, which found that none of the Neighbours knew about the proposed subdivision. Instead, the Neighbours relied on their knowledge that there was a covenant over the 2 lots which prevented further subdivision.
The Court considered that the loss of the covenant itself would diminish the economic value of the Neighbours’ properties. Counsel for Beechnest submitted expert valuation evidence, which suggested that for properties nearby, there was no premium paid for the expectation of unimpeded views of the wetlands. While the Court accepted this evidence, they distinguished it by stating that the Neighbours’ properties were closer to the views of the wetlands which made them more important to the Neighbours. Due to the nature of the area and the impact it could have on the subjective preference of an individual buying a home from the Neighbours, the Court found that further subdivision could impact the economic value of the Neighbours’ properties.
Counsel for Beechnest also argued that the covenant had been imposed in error, and it ought to be extinguished on the basis it amounted to a change in circumstances under section 317(1)(a) of the Act. The Court rejected this by stating that Beechnest’s failure to notice the covenant at the time of purchasing the lots did not constitute a “change in circumstances” for the purpose of s 317.
The High Court held that the District Court had not made any mistakes in its findings and refused to grant Beechnest’s application to remove or modify the covenant.
Key Takeaways
This case demonstrates the importance of prudent due diligence when purchasing a property. Equally, this case demonstrates the way the courts treat covenants around potential subdivisions and the action that neighbours, and other potentially impacted parties can take to preserve their rights.
If you need help regarding property development matters, subdivisions, sale and purchase of property, or covenants, please contact Sarah Churstain or Jordan Todd.
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