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First-home buyer loses High Court bid to remove restrictive covenants

9 Jun 2023

| Author: Heidi Bendikson

Property Law Act 2007, s 317 – appeal against High Court decision refusing relief – restrictive covenants – purchase subject to title – whether grounds for relief under s 317 made out – whether discretion to extinguish or modify covenant should be exercised

Hürlimann v Lilley [2023] NZCA 173 per Brown, Lang and Palmer JJ.

The appellant, Joshua Hürlimann, a first-home buyer in his twenties, signed an agreement for sale and purchase (ASP) to buy one of three lifestyle blocks Paul and Melanie Lilley were selling, after subdividing their seven-hectare rural property. They were planning on keeping a fourth block for themselves and later entered into agreements for the sale of two others.

The ASP, which was entered prior to title being issued, included a clause providing that no restrictive covenants would be registered on the land unless they received written consent from the purchaser. If any covenants were required to be registered and the purchaser objected, the purchaser would be entitled to cancel the agreement and obtain a full refund (clause 23).

Prior to title issuing, the relationship between the Lilleys and Hürlimann deteriorated and Hürlimann lodged a caveat against the unsubdivided head title to the property. Soon after, the Lilleys’ solicitor sent a series of documents to be registered on the title to Hürlimann’s solicitor. These included restrictive covenants (first covenants) that, among other things, restricted building design and allowed only a residential home to be built on the site.

Hürlimann sought advice as to whether clause 23 disallowed registration of the first covenants, to which he was advised it did not. Hürlimann instructed his solicitors to confirm the covenants were acceptable.

Shortly before settlement, the Lilleys proposed the registration of further covenants against Hürlimann’s section, preventing the erection of any residential dwelling. But after Hürlimann issued High Court proceedings, the Lilleys elected not to register that covenant.

Hürlimann continued High Court proceedings in respect of the first covenants, unsuccessfully seeking their extinguishment under s 317 of the Property Law Act 2007 (Act).

Hürlimann appealed the decision, arguing the High Court judge failed to exercise a two-stage process in applying s 317 of the Act. He also argued registration of the first covenants was an inherently inequitable and arbitrary act, noting that other sections in the subdivision did not have covenants registered on them. He further submitted the Lilleys imposed the covenants for the collateral purpose of forcing him to cancel the ASP.

Applicable principles – whether extinguishment of first covenants just and equitable – discussion of Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157 two stage approach – Court of Appeal noted that in cases solely based on s 317(1)(f) of the Act, a blended approach to the two stages may be adopted – Court of Appeal found ASP did not prevent Lilleys from registering covenants and there was no equitable obligation to ensure all sections would be subject to similar registered covenants – discussion of collateral purpose – Court of Appeal noted Lilleys were free to deal with land as they saw fit and that it was not for courts to police underlying commercial motives of parties –  noted factual findings from High Court as to why Hürlimann’s section dealt with differently – the Court of Appeal found High Court correct to conclude it would not be just and equitable to order the covenants extinguishment, the determinative factor being that Hürlimann consented to the registration of the covenants with full knowledge of their nature and effect.

Held: Appeal dismissed. No order for costs as Hürlimann legally aided.


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