Time to Check Out Those Covenants

RMA, MDRS & the future of land sales

Those of you keeping an eye on the legislation for property development will know all about the changes to the Resource Management Act (RMA) that have set the landscape for the government’s plan to increase residential housing supply in the main cities and suburbs in New Zealand. Under the Medium Density Residential Standards (MDRS) councils have to allow three-storey developments and three units per site without requiring resource consent, removing previous height-to-boundary standards on an average-sized lot. However, private land covenants are the last line of defence, or block, to a developer’s property dreams and if you are buying or selling you need to pay close attention to these rules.

Buying, selling & converting a cross-lease title

So what does this mean for land-owners? You may already have seen multi-unit dwellings popping up on sites that were originally one property in your neighbourhood. This will be the new norm as developers seek to capitalise on the new MDRS provisions and build two or three homes where one sat previously. If you are subdividing your land to profit from these opportunities, or you are converting from cross-lease to freehold titles with your neighbours, you might want to consider putting a covenant on the land before you sign the deal to sell to a future developer or check that there aren’t restrictive covenants already on the land, if you are buying.

Ready to build a three-storey? Check the covenant!

A covenant is a legal instrument registered on the title, within which you outline specifics relating to future land uses which usually restrain types of building to the benefit of the adjacent land owners. When the land is sold or resold, the new owners must comply with the covenant restrictions. They can cover things like a further subdivision of a lot of land, building materials, height and location, and future land use. Often they are limited as to duration, which essentially allows for the character of a development to establish itself before they expire. Always make sure you have done due diligence on the property you are intending to purchase with respect to covenants before you put in your offer. You may have plans to recoup your investment with a multi-unit, multi-storey development, but if the land covenants restrict this, your plans could be foiled at the outset.

A note for cross-Lease holders

Converting a cross-lease to fee-simple (freehold) title is something that can add value to your property, especially if you are in zone for MDRS developments. Make sure your surveyor understands your wishes upfront so that they can protect against certain types of developments on the adjoining property, if that’s what you wish. Covenants can only be removed if the original covenantor or their successors agree to them being extinguished. This may involve other landowners in the original development. There are legal and financial penalties for breaches. Be aware though that any covenants you add now are rules you will also have to adhere to should you wish to sell your land in the future! A property without covenants will be more attractive to buyers than one with constraints. If you aren’t sure about the short, medium, and long-term consequences of covenants for your land, speak to a good surveyor about your next move first: it could save you time and money in the long run. If you are in the market for developable land, make sure you check for covenants. It may sometimes be possible to get them removed in consultation with neighbouring property owners, but you will need to do your research first.