It is critical to draft society rules and land covenants correctly. In this case we look at how a proposed subdivision of a lot on a residential development, lead to High Court examination of a society’s rules.
The High Court was asked to issue a declaratory judgement by an Incorporated Society. It wanted to know if one of the owners of a residential development, was prohibited by the rules from subdividing his lot.
The owner of a lot wished to subdivide his 19 hectare block into two similar sized lots. He obtained resource consent from the District Council to do so.
The Society believed that such a subdivision would breach its rules. It wanted a declaration from the Court that the rules prohibited the subdivision. Also a permanent injunction restraining the land owner from subdividing.
The development comprised a 459 hectare block of which 273 hectares was farmland, 186 hectares native bush and 5 kilometres of coast line. The vision was for a premium residential subdivision on a working farm, created for a limited number of owners only. Common facilities included a beach house, swimming pool, tennis courts and pavilion, riding trails and walkways. The farmland was leased to a tenant who managed the farm so as to preserve the rural environment.
Each owner in the subdivision had a freehold title to their lot. This included the right to build a house on a designated site. All also had the right, in common with other owners, to use the common facilities and had an interest in the farm lease.
The Society rules provided that the lots shall not be further subdivided (with reference to the meaning set out in the Resource Management Act 1991). The rules also noted that there was a maximum number of lots permitted in the development. However, certain lot owners were permitted to subdivide “each of those lots into no more than two lots”, provided that a maximum of three lots was created from two specific named lots.
The High Court decision
The Court looked carefully at the wording used in the Society rules. It decided that the rules were clear and unambiguous and should follow their natural and ordinary meaning.The lots that were expressly permitted to subdivide the existing two lots into three were bound by the rules. The exception was granted to the owners of the specified lots to subdivide jointly so that two lots became three. The owners of one of those lots could not subdivide alone.
Clear drafting of the Society rules allowed it to preserve the intent of the scheme for the benefit of all the other owners. However, the court’s decision would have left the owners who wished to subdivide feeling disappointed.