It is not uncommon to see encumbrances registered against titles. They are a tool used when a landowner has an obligation to someone like an incorporated society or a neighbour. An encumbrance might require that a landowner:
- join an association,
- maintain some native bush, or
- reinstate a firewall.
Sometimes they even impose obligations that don’t really have that much to do with land, like a restraint of trade.
The use of these encumbrances in this way has always been a little bit awkward. It’s not absolutely clear precisely how they are expected to work, or in fact whether they do work properly. If the recommendations of the Law Commission are taken on board we may see the end of encumbrances being used to secure these types of obligations. Instead, covenants in gross will be used, that’s a land covenant in favour of an entity rather than in favour of other land. They will only be allowed when they really do touch and concern the land.
The land covenants we currently create are all in favour of land. You might make a commitment for the benefit of other land in the subdivision that you will only build one house on your section for example. The right to enforce the covenant belongs to the owner of the land, rather than an individual that may or may not own the land.
We are used to easements in gross (for example access might be provided to members of the public) but whether covenants in gross work has been questioned by the courts. That’s why we need this area of the law tidied up.
What’s the net result of the changes? Hopefully, we’ll see simpler documents, particularly in subdivisions, although existing encumbrances will remain. The requirement to negotiate with the banks for the correct priority for the encumbrance will be gone and covenants will be used to record obligations to third parties (as well as other properties as is currently the case).
By Debra Dorrington