Restrictive covenants on your title: what they mean

You've found the block, you've pictured the second storey or the granny flat out the back, and then your lawyer points to a line in the title that says you can't build it. That line is a restrictive covenant, and it can quietly shape what you're allowed to do with a property long before you've signed anything.

Covenants are easy to miss and expensive to ignore. If you're buying in Victoria, here's what they are, where to find them, and what your options look like if one stands between you and your plans.

What a restrictive covenant actually is

A restrictive covenant is a private agreement, recorded on the property's title, that limits how the land can be used or developed. It's a promise the original owner made to benefit other land nearby, and it sticks to the land rather than the person.

A covenant runs with the land, which means every future owner is bound by it. When you buy a property burdened by a covenant, you inherit the restriction whether you like it or not, and you'll pass it on to whoever buys from you. Most covenants have no end date, so they can apply for decades.

There are two key terms here: the burdened land is the property the restriction applies to (yours, if you're buying it), and the benefited land is the land that gets the protection, usually neighbouring lots. In a new estate, it's common for the developer to place the same covenant on every lot, so all the owners benefit from it and can hold each other to it.

The covenants you're most likely to run into

Covenants come in many forms, but a handful turn up again and again on Victorian residential titles:

• Single dwelling covenants, which prohibit building more than one home on the lot. These are the ones that catch out buyers planning a subdivision, a duplex, or a unit development.

• Building material and design restrictions, which dictate things like roofing materials, external colours, fencing height, or minimum floor area, usually to keep a streetscape consistent.

• Setback and siting restrictions, which control how close a building can sit to a boundary.

• Restrictions on removing soil, stone or sand from the land.

• Prohibitions on commercial or industrial use in a residential area.

A single dwelling covenant is the one that does the most damage to buyer plans, precisely because the property can look like a perfect development site until the covenant says otherwise.

Where a covenant shows up before you buy

In Victoria, a vendor has to tell you about a covenant before you sign. Specifically, the vendor's statement must include a description of any easement, covenant or other similar restriction affecting the land, whether it's registered or not, along with particulars of any existing failure to comply with it.

In practice, the relevant details should appear in the title search, the plan of subdivision, or a separate instrument attached to the Section 32. This is exactly the kind of detail a contract review is built to catch. If a covenant isn't properly disclosed, a purchaser may have the right to end the contract before settlement, so it pays to have someone check the detail rather than the label.

Picture a young couple buying what looks like a generous corner block in Reservoir, planning to build a second unit at the rear. The title carries a single dwelling covenant from the 1950s subdivision. Nothing on the listing mentions it. A proper review of the Section 32 surfaces it before the deposit is paid, not after the plans are drawn.

If you're doing your homework before bidding at auction, covenants belong on the checklist alongside the rest of your due diligence. Our guide to pre-auction due diligence walks through what to confirm before you raise your hand, and covenants are a close cousin of easements on your title, which restrict your land in a different way.

Can a covenant be removed or changed?

Sometimes, but it's rarely quick or cheap, and the outcome is never guaranteed. There are two main paths in Victoria.

The Supreme Court route

The Supreme Court can modify or discharge a restrictive covenant. The most common grounds are that the covenant has become obsolete because the character of the neighbourhood has changed, or that the covenant impedes a reasonable use of the land without giving the benefiting owners any practical benefit. This is a formal court application, it requires legal advice, and the cost reflects that.

The planning permit route

Anyone can also apply to the council, as the responsible authority, for a planning permit to remove or vary a registered covenant. The test the council must apply depends on when the covenant was created, and the cutoff date is 25 June 1991.

For covenants created on or after that date, section 60(2) of the Planning and Environment Act 1987 applies: a permit can't be granted unless the council is satisfied that any benefiting owner is unlikely to suffer material detriment, including financial loss or loss of amenity.

For covenants created before 25 June 1991, an older and far stricter test applies: a permit can't be granted if a benefiting owner objects, or if there's any chance a benefiting owner might suffer detriment of any kind, even if they didn't object. Because most established covenants predate 1991, this test is hard to satisfy, and many applications fail.

One more trap for the unwary: the council can't issue a planning permit for work that would breach a covenant unless the covenant is removed or varied at the same time. So you can't simply get a building permit and quietly proceed in breach. The two issues have to be resolved together.

What this means for your purchase

The practical takeaway is simple. Before you commit to a property, especially one you intend to develop, subdivide, or significantly alter, you need to know whether a covenant is sitting on the title and exactly what it says. A covenant won't always be a dealbreaker. Plenty of buyers are happy to keep a single dwelling on a single dwelling block. But it should be a conscious decision, made with the full picture, not a surprise discovered after settlement.

This is where a lawyer earns their keep. Reviewing the Section 32, reading the actual covenant instrument rather than the summary, checking when it was created, and explaining how it interacts with your plans are all part of a proper contract review.

If you'd like us to check a Section 32 for covenants and other restrictions before you sign, our free contract review covers exactly this, often on the same day. If you're weighing up a property and want to talk through what a covenant means for your plans, get in touch for a quote.

This article provides general information about Victorian property law. It's not a substitute for legal advice on your specific situation. If you'd like to discuss your circumstances, get in touch.