Throughout New Zealand, many local and regional authorities have revised their land zoning and land usage rules to promote residential property development to keep pace with the growing population and demand. Significant areas of land which have been rezoned residential may be restricted from further development by historical covenants. Recently, however, covenants have received increased attention from the Courts, specifically whether they can be modified or extinguished in light of the changing circumstances.

Covenants can either be positive or restrictive rules that affect how property owners use their land. They run with the land and bind future owners as they are most often entered into for perpetuity. However, there is frequent conflict as covenants are independent of zoning changes and this has resulted in an increased need for the modification of covenants, such as in the recent Supreme Court case, Synlait Milk Limited v New Zealand Industrial Park Limited [2020] NZSC 157.

In Synlait, the Supreme Court detailed their analysis of how land covenants may be modified or extinguished under section 317 of the Property Law Act 2007. This case is seen as a catalyst or ‘game changer’ for the modification of covenants.

The case involved a 140-ha block of land situated in Pokeno. The land in question was subject to two virtually identical 200-year covenants (entered into in 1998 and 2000) that limited the use of the land to planting, forestry, grazing and lifestyle farming. However, the land was subdivided and sold to four different owners. As the covenants ran with the land, the burdened land was split across three titles.

In 2018, Stonehill Trustee Limited on behalf of Synlait Milk Limited, applied to the Court to modify the covenants so that it no longer applied to the burdened land that Synlait Milk Limited was constructing their $280 million dollar infant milk formula factory on. The grounds that allow a Court to modify and/or extinguish an easement or covenant under section 317 include changes to the use of the land, neighbourhood and whether the continuation of the covenant (or easement) would impede the reasonable use of the land. It also requires the Court to assess whether any modification or extinguishment would significantly injure any party.

In reaching their decision, the Supreme Court noted that the surrounding area of Pokeno had undergone significant growth since 2008. The population grew from 500 to 5,000 and much of the area was rezoned as residential and industrial. The Supreme Court stated that the character of the neighbourhood had changed dramatically and that the covenants in question were inconsistent with zoning changes to the area. Changes in ownership, surrounding subdivisions, and whether the modification of the covenant would cause substantial injury to the party opposing the modification, New Zealand Industrial Park Limited, were other significant factors considered when reaching their decision.

The Supreme Court also noted that when the covenants were entered into, the changes to population, zoning, and manufacturing operations could not have been reasonably foreseen. Therefore, the impediment of the covenants was greater due to these changes and the continuation of the covenant would restrict the reasonable use of the land. As a result, the Court stated that the appeal would have been allowed had the parties not reached a settlement.

The Synlait case shows the constant need for property law to evolve to keep up with our dynamic and expanding cities. Furthermore, that even the most traditional land law concepts are subject to change.

If you need help with a Land Covenant issue or concern, contact Glen Low.

The information contained in this article is necessarily of a generalised nature and is correct as at July 2023. Specific advice should be sought in relation to any particular situation.

Article written by Ambika Saha