Understanding Property Covenant: Your Guide to Real Estate Restrictions

Before you sign on the dotted line for your new property development venture, it’s crucial to understand the legal restrictions that may apply to the land you’re interested in. 

Property covenants are one such restriction that can significantly impact your plans for the property. Whether or not you know the term, property covenants can be a complex legal concept. Failing to understand them can lead to costly mistakes and legal disputes.

This guide will walk you through everything you need about property covenants, including the benefits of a permit, the use of the land, planning scheme, and how to amend covenant on land. 

We’ll also dive into understanding what a property covenant is. It’ll also explore how to subdivide the development of that land. And lastly, we’ll discuss how they work to navigate the process of complying.

Let’s dive in!

What is a Covenant on a Property?

A covenant on a property is a legal agreement between a property owner and another party. This is between a developer / estate development, owners corporate, or council / municipality. The purpose is to impose certain restrictions or obligations on the property’s use, development, or maintenance. 

These restrictions can range from limiting the type of structures built on the property to dictating how the property must be maintained. 

Covenants are typically recorded in the property’s deed as part of the real property, certificate of title, or in a separate document and binding to the land, meaning they apply to all future property owners.

The Different Types of Property Covenants 

With the general term defined, now is the time to dive deeper. 

There are several types of property covenants, each with its rules and restrictions. Here are the five most common types of property covenants:

1. What is a Positive Covenant?

A positive covenant is a legal agreement that requires the property owner to perform specific actions within their right to use, such as maintaining the property or paying fees for shared amenities like a community pool or park. 

Positive covenants are designed to ensure that the property is kept in good condition and that any shared resources are properly maintained.

2. What is a Negative or Restrictive Covenant Property?

A negative or restrictive covenant is a legal agreement that limits the use of the property in some way. These limitations include requiring the property to be used only for residential purposes, prohibiting certain types of businesses, or dictating the minimum size of any new construction. 

Estate developers or owners’ corporations typically put in place restrictive covenants to ensure that the community maintains a certain level of consistency and attractiveness.

The goal of a negative covenant is to protect the property’s value and prevent activities that could harm the community or the environment.

3. A Transferee’s Covenant

A transferee’s covenant is a legal agreement the property owner makes with a third party who is not yet the property owner. These covenants are typically used when the property is sold or transferred to another person or entity. 

The transferee’s covenant requires the buyer to agree to certain terms and conditions, such as complying with existing covenants or restrictions, to purchase the property.

4. A Transferor’s Covenant

A transferor’s covenant is a legal agreement that the seller or vendor of a property makes with the buyer or purchaser. 

These covenants are typically used to protect the buyer from undisclosed property issues or defects. The transferor’s covenant requires the seller to provide certain assurances, such as guaranteeing that the property is free from any undisclosed liens or encumbrances, as a condition of the sale.

Examples of Covenants on Property

The types of covenants we’ve mentioned above cover various covenants and the causes behind them. These can vary based on your location or type of properties, and you might also come across some unique restrictions based on such factors.

You’ll need help dealing with covenants once you start your property development venture. So here are some examples of covenants commonly faced by property developers:

Restrictions on Property Use

A covenant restricting the use of the property typically limits the activities that can be conducted on the land. 

For example, a covenant may restrict the property to residential use only, preventing the owner from running a business from the property.

Limitations on Property Alterations

Covenants that limit property alterations typically restrict what the property owner can do with the property’s physical structure. 

For example, a covenant may prohibit the construction of additional buildings or the modification of existing structures beyond a certain size or height.

Requirements for Property Maintenance

Covenants that require property maintenance typically impose obligations on the property owner to maintain the property in a certain condition. 

For example, a covenant may require the property owner to keep the property clean and tidy, maintain landscaping, or repair any damages.

Prohibitions on Certain Activities

Covenants that prohibit certain activities typically restrict what the property owner can do on the land. 

For example, a covenant may prohibit using the property for commercial activities, storing hazardous materials, or keeping certain animals.

FAQs

1. Where is the property covenant located?

Property covenants are usually included in the title deeds or a separate deed of covenant registered with the Land Registry.

2. How long do property covenants last?

Property covenants can last for a specified period or be perpetual and continue to affect the property until they are removed or varied.

3. Can you remove a property covenant?

A property covenant can be removed or varied by agreement between the parties involved or by applying to the authorities such as the Supreme Court of the State. This can be different for every case’s circumstances, so you should always proceed after consulting the experts.

4. How do covenants affect the value of a property?

Covenants can affect the value of a property positively or negatively, depending on their nature and their impact on the property. 

Covenants that restrict property use or alterations can limit the potential uses of the property and, therefore, decrease its value. On the other hand, covenants that require property maintenance or prohibit certain activities can enhance the property’s value by ensuring that it is well-maintained and attractive to potential buyers.

5. Are there any risks associated with covenants?

There are risks associated with covenants, particularly if they are breached. 

Breaching a covenant can result in legal consequences, such as an injunction, Building Order, or damages claim. Some covenants, such as those requiring ongoing maintenance or repairs, can be costly.

6. What is an encumbrance? 

An encumbrance is a claim or burden on a property, such as a mortgage, lien, or covenant. Encumbrances can affect the transferability and marketability of the property and may need to be addressed before the property can be sold or transferred.

What’s Next

To comply with the above covenants, any property owner should review the covenant agreement with a solicitor and understand the imposed restrictions and obligations. 

Covenant violations can result in legal consequences, and the cases can even lead to the supreme court. So you must take the process seriously and comply with its requirements.

So if you need clarification on any aspect of the covenant, it’s always better to seek the advice of a professional.

SQM Architects is the leading team of property developers in Victoria. Our team of veteran experts can help you wrap up your covenants, consider your property’s feasibility with them, effectively pursue negotiations, and make the most profitable decisions for you.

Contact our team today and book a free consultation to get started!