Quarry covenants affecting Synlait's new Pokeno dairy factory
Quarry covenants affecting Synlait's new Pokeno dairy factory
Thursday 20 June, 2019
The Court of Appeal has recently delivered a decision on land covenants restricting land use, which affects the land Synlait has constructed its new $250 million Pokeno dairy plant on. The Court of Appeal has ruled that the land covenants be reinstated, meaning the plant has been constructed in breach of covenants restricting the use of the land in a way that prevents its use for a dairy factory.
A summary of facts:
- Synlait entered into a conditional contract in February 2018 to purchase 28 hectares of land from Stonehill Trustee Limited (Stonehill);
- The contract was conditional upon Stonehill obtaining a removal of certain land covenants which restricted the use of the land to grazing, lifestyle farming, or forestry. Those covenants had been put in place when the neighbouring land was being used as a quarry.
- The Synlait land and some of the neighbouring land has been rezoned from rural to industrial land, and there are other industrial developments nearby including another dairy plant (Yashili NZ Dairy Company);
- In 2012 Waikato District Council’s Plan Change 24 came into effect, rezoning the covenant affected land as ‘Industrial 2’ and other Pokeno land as ‘residential’, to enable growth of the village. New Zealand Industrial Park Limited (NZIPL) is the current owner of neighbouring land which has the benefit of the quarry covenants registered over the Synlait land. NZIPL’s land has remained zoned for aggregate extraction and processing.;
- After entering into the contract with Synlait, Stonehill attempted to negotiate the removal of the land covenants with NZIPL, but was unsuccessful;
- Synlait began earthworks in March 2018, when it still only had a conditional contract to buy the land;
- NZIPL complained in June 2018 about Synlait starting to build its factory and requested that construction cease. Stonehill (still the landowner at that time) ignored the complaint;
- Stonehill applied to the High Court to have the covenants removed- and was successful. After the High Court removed the covenants, Synlait took title to the land;
- NZIPL appealed the case to the Court of Appeal.
- The $250 million factory is nearly completed;
- The covenants were created in 1998 and 2000 and restricted land use to grazing, lifestyle farming or forestry for 200 years from registration.
- The neighbouring land owners (land the Synlait plant now sits on) had agreed to enter into the land covenants with Winstone Aggregates who proposed to establish a quarry. The covenants restricted the use of the land to grazing, lifestyle farming and forestry as Winstone did not want problems with its neighbours down the track if its proposed quarry created noise, vibration, earth movement, dust, effects of explosion and the usual incidents of quarrying;
- Winstone was granted a resource consent for a quarry in 2002 which expired in 2009 without a quarry being established;
High Court decision
In 2018 Stonehill (then still the owner of the Synlait land) made an application to the High Court under section 317 of the Property Law Act 2007 for the extinguishment of the land covenants over its property to be sold to Synlait.
In November 2018 the High Court held that the covenants be extinguished over the Synlait land. The Judge held that the extinguishment or modification of the covenants, to permit the operation of the Synlait dairy factory , would not substantially injure NZIPL and that the covenants had been made worthless or ineffective because of development of the area which would make obtaining resource consent to set up a quarry difficult.
Some of the surrounding land area had now transitioned from a small village settlement to a larger residential settlement, and other parts including the Synlait land is now zoned as industrial land.
The High Court found:
a) there had been a change in the nature or extent of the use being made by the benefited land, much of which had been sold and would never be developed as a quarry;
b) the character of the neighbourhood had changed beyond recognition;
c) the covenants had no continuing practical value;
d) the continuation of the covenants would impede the reasonable use of the burdened land in a manner or to an extent that could not reasonably have been foreseen by the original parties to the covenants;
e) extinguishment would not substantially injure NZIPL; and
f) the use of the burdened land had changed and was now zoned ‘Industrial 2’.
Appeal to the Court of Appeal
NZIPL’s appeal against extinguishment was allowed.
In short, while the Court acknowledged that there had been changes to land use and the character of the neighbourhood, the changes were not sufficient to justify interference with NZIPL’s property rights.
The Court noted that “The courts are reluctant to allow contractual property rights to be swept aside in the absence of strong reasons” and “We do not agree with the Judge’s conclusion that the covenants, although only 18 to 20 years old, are now of little or no effect and of no practical value”.
The Court disagreed that the changing nature of Pokeno from a small village surrounded by farms and vineyards into a much larger residential settlement with a significant industrial precinct has rendered the covenants worthless. The Court found the covenants did have value and should remain, despite practical difficulties in obtaining a resource consent and zoning impediments that may make the development of a quarry difficult. Air discharge consents would be harder for a quarry to obtain because of the dairy factory’s sensitivity to contaminants, including dust.
“In our judgment, the Judge was wrong to conclude that the extinguishment or modification of the covenants, so as to permit operation of the Synlait dairy factory, will not substantially injure NZIPL and valuation evidence was not required to establish that it sustained injury”.
Indications are that leave will be sought to appeal the decision to the Supreme Court.
Insights for landowners/developers:
The Court of Appeal’s judgment provides an important reminder to always:
- check the nature of interests registered against a title to a property prior to purchase; and
- seek legal advice on the impact and affect of restrictive land covenants, particularly those that may restrict or impede any proposed development of a site you are buying.
Caution should be exercised when land covenants specifically prohibit a particular activity on land. The Synlait case demonstrates how difficult it can be to extinguish or vary land covenants which a land owner finds undesirable for its proposed site use.
What does this mean for resource consent application determinations by local authorities?
It is settled law that, in determining a resource consent application, consent authorities are concerned with a proposed activity’s effects, not the nature of private property rights which are outside a consent authority’s jurisdiction (i.e. a consent authority is concerned with the purpose of the Resource Management Act 1991 (RMA), not other property law matters). The High Court has held that private property rights, such as land covenants, should only be taken into account where they are relevant to, or reasonably necessary to, determine an issue under the RMA (for example, no complaints covenants and reverse sensitivity effects): Congreve v Big River Paradise Ltd. In those circumstances, the land covenants will be a matter to have regard to under s 104(1)(c).
Another issue arises from the Synlait decision: should a consent authority grant a consent that cannot be exercised because the activity is restricted by land covenants? The Environment Court has cautioned that decisions to decline consent on the basis that it will be impossible to exercise the consent should not be made lightly. “To do so would usurp or arrogate the applicant’s options”: Director-General of Conservation (Nelson-Marlborough Conservancy) v Marlborough District Council. Restrictive land covenants are able to be varied or removed. The Environment Court has warned that even if such options seem unlikely or are not determined at the consent application stage with certainty, they may technically be feasible, in which case the resource consent application should not be rejected on the basis of futility.
Watch this space to see whether the law on the interface between land covenants and the RMA changes following the Court of Appeal’s decision. Until then, consent authorities should continue to apply the test in Congreve v Big River Paradise Ltd in determining consent applications that involve private property rights.
Tompkins Wake has considerable experience advising landowners, developers and local authorities in relation to covenants, including applications to the Court to extinguish or modify land covenants. Please contact Kate James or Bridget Parham if you have any questions.