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Developers in the rough over upkeep

WITH the lifestyle themes becoming more important in the marketing of residential estates, it is common for these developments to be built around recreational facilities such as golf courses, ornamental lakes or marinas.

But this trend has raised issues of how developers can implement legally enforceable requirements to ensure all estate residents pay for the upkeep of their common use facilities.

KPMG Legal partner Ted Sharp said the current Land Transfer Act did not have provision for positive covenants – a legal requirement to make an owner do something positive – on freehold titles. Mr Sharp said without this provision there was no legal way of ensuring scheme owners, for example, paid a levy for ongoing maintenance of common user facilities.

While a negative or restrictive covenant can run with a land title, a positive covenant could only be implemented between two parties when signing a contract and did not run with the land.

Mr Sharp said while an estate developer may be able to come to an agreement with the original purchaser of the title, it was when the property was onsold that those positive covenant agreements were no longer legally valid.

“If you have an ornamental lake, for example, who is going to own it and who is going to maintain it?” he said. “I don’t think legislation has kept up with the change.”

Mr Sharp said that, in the past, common user facilities were vested in local authorities such as the Water and Rivers Commission, however, faced with public liability issues, these bodies were tending to shy away from such land vestments. 

To get around the shortfalls in the Land Transfer Act, developers try to use negative covenants to legally bind owners to a positive act, such as maintaining the amenity of surrounding estate.

Clark Whyte principal David Whyte said this method usually ended up in double negatives and made for cumbersome drafting.

Mr Whyte said all it took to create a legal headache was for one rogue consumer to argue that the covenant was actually positive and therefore did not run with the land.

“The problem is not so much when the developer is there, it is when the developer is gone or when the property is on-sold,” he said.

In some cases home owners’ associations were set up to look after the common property of a subdivision, however, these organisations required a resident to manage the association and usually collapsed after a period of time, according to Mr Whyte.

One solution was to implement tiered rates with local government – residents would pay higher rates to have a higher standard of local government services in their estate boundaries.

Mr Whyte said this approach was politically sensitive because it would create inequality, as certain areas could pay more than others.

The Department of Land Administration is currently corresponding with industry stakeholders to investigate what amendments are needed in the Land Transfer Act.

DOLA acting manager of registration service branch Bruce Roberts said it was on DOLA’s agenda to amend the act so that positive covenants applied to all freehold land. Mr Roberts said increasing numbers of developers were looking for positive covenants on subdivisions’ common areas.

“It makes it more difficult and more expensive for developers entering into different schemes to do some things,” he said.

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