What is a Restrictive Covenant?
A restrictive covenant is a document registered against a title of a property at the Alberta Land Titles Office. It includes an agreement between the owners of two or more properties about how a property may be used and developed. Typically a restrictive covenant places some limitation on future use (e.g. can only use for a detached dwelling) and/or creates obligations about how the development of the property will be undertaken (e.g. maximum building height of 12m). The agreement “runs with the land” meaning it is binding on all future owners of the subject properties that are referenced in the agreement.
A restrictive covenant is often described as “private” land use and development control compared to the “public” system administered through the Land Use Bylaw.
How and Where are Restrictive Covenants Used?
Developers of subdivisions use restrictive covenants to enforce a particular building scheme or architectural appearance of their project. For example, a developer may wish to have all future homes in an area to have a minimum size and architectural theme (e.g. contemporary western ranch). In Olds, restrictive covenants have been used in the Vistas subdivisions, the Lakeridge area around Winter Lake, and the Highlands subdivisions.
What are the Basic Legal Requirements for a Restrictive Covenant?
The application of a restrictive covenant as an interest in land is regulated under the Land Titles Act, RSA 2000, Chapter L-4. The development of the restrictive covenant dates back to the mid-nineteenth century. The common law developed certain requirements that had to be satisfied in order for a restrictive covenant to be enforced by and against subsequent owners of the parcels of land affected.
A restrictive covenant must have four aspects written into the document to be legally enforceable:
1. There must be a parcel of land which is subject to a restriction (called the servient tenement) and a parcel of land which benefits from the restriction (called a dominant tenement).
2. At least one restrictive or negative covenant (an item that is prohibiting something as opposed to allowing something) must be included so that a court can remedy a breach by granting an injunction.
3. The covenant must “touch or concern the land” through a restriction that enhances the use or value of the dominant tenement.
4. The covenant must be annexed to the land through express words stating such or by implication though the provisions included in the agreement.
The servient and dominant tenements must be expressly identified and are typically listed in a schedule attached to the agreement. It is possible for a property to be both a servient tenement and a dominant tenement which means that there is a mutual and shared obligation between the properties involved in the agreement.
Who Creates and Approves the Content of Restrictive Covenants?
A developer, lawyer working for the developer, or a consultant working for the developer, or a combination of these persons typically prepare the content of a restrictive covenant. Since the developer usually owns all of the parcels created at the time of subdivision they are able to unilaterally establish the content of the agreement between all servient and dominant tenements.
The municipality has no say in the content of a restrictive covenant unless the developer or person creating the covenant consents to include any input offered by the municipality. Restrictive covenants are not subject to any requirement for municipal approval prior to acceptance and registration at Land Titles.
Who Enforces a Restrictive Covenant and How is Enforcement Achieved?
A restrictive covenant is only enforceable by the parties to the restrictive covenant. This means only the developer, if they own one of the dominant tenements, and any other registered owner of a dominant tenement, may enforce the restrictive covenant. For a municipality to have authority to enforce a restrictive covenant, the municipality would need to be the registered owner of at least one of the dominant tenements.
While the decision to pursue enforcement of a restrictive covenant can be made by one or more of the eligible parties, actual enforcement is done by the courts. The person(s) who decides to seek enforcement must obtain a court order (injunction) to stop a use or development that goes against the restrictive covenant.
What are the Consequences of Breaching a Restrictive Covenant?
The worst consequence of failing to comply with a restrictive covenant and where an eligible party successfully obtains a court order enforcing the restrictive covenant is financial cost to the party in breach. This may include legal costs related to court preparation and appearances. It may also include the costs of removing any violating structures or changes and returning the property to the state it was in before the breach occurred.
Can a Restrictive Covenant be Removed or Changed?
A restrictive covenant can be removed or changed in one of two ways. One is with the written consent of all registered owners of each dominant tenement. This takes the form of a restrictive covenant amending agreement that is then registered at Land Titles.
The other way is through a court order under Section 48(4) of the Land Titles Act. The court can modify or discharge a restrictive covenant on proof, to the satisfaction of the court, that the modification:
1. will be beneficial to the persons principally interested in the enforcement of the condition or covenant (meaning the owners of the dominant tenements), or
2. that the condition or covenant conflicts with the provisions of a land use bylaw or statutory plan under Part 17 of the Municipal Government Act, and
3. the modification or discharge is in the public interest.
If the court decides to modify or discharge then the court order is registered at Land Titles.
Do Restrictive Covenants Expire?
A restrictive covenant only expires if the agreement contains a set term or sunset clause (e.g. this covenant is void after July 2150).
Is the Municipality Obligated to Follow or Enforce Restrictive Covenants?
If the municipality is not a party to the restrictive covenant, meaning the municipality does not own a servient or dominant tenement, then the municipality is not bound by the restrictive covenant and cannot enforce any of its restrictions. If the municipality owns a servient tenement then its decisions relating to that parcel are bound by the restrictive covenant. If the municipality owns a dominant tenement then it can seek leave from the court to enforce the restrictive covenant against the owners of one or more servient tenements. Planning decisions made by the municipality are not bound by the content of restrictive covenants.
Can a Municipality use Restrictive Covenants?
Yes. The municipality must meet all the expectations of the Municipal Government Act and the Land Titles Act regarding the form and structure of the restrictive covenant.
ISSUES THAT CAN ARISE WITH RESTRICTIVE COVENANTS
Expectations that the Town Enforces
The distinction between the private role and rules set out in a restrictive covenant and the public role and rules set out in the Land Use Bylaw is not well understood. Landowners and the general public often expect that the municipality is the main enforcement body for restrictive covenants and that all development approvals will be based on the restrictions of the restrictive covenant. This puts landowner and public expectations at odds with the reality of the municipality’s legal ability to act.
Questionable Legal Structure
Some restrictive covenants manage to get registered and may not meet the requirements of the legislation and common law to properly run with the land and be binding on future property owners. Where the structure of the document is questionable, it requires a court decision to obtain a final interpretation. Landowners subject to a restrictive covenant often seek the municipality’s decision on this aspect in the hopes that they do not have to bear the expense of seeking a remedy from the court. Answering the question in any way, other than to advise the inquiring party to seek legal advice, exposes the municipality to liability.
Restrictions Subject to Determination by Developer
The restrictions that are created may leave considerable discretion to the Developer, or someone acting on the Developer’s behalf, to interpret and apply restrictions like architectural appearance. There may be no obligation for consistency. Records of the decisions made for each property are not available to the municipality.
Pre-Approval by Developer before Applying to Municipality
The restrictions may include a requirement for purchasers and servient tenements to obtain “pre-approval” of their building and site plans before the owner of a servient tenement can submit their plans for municipal approvals. This requirement and/or the outcome may or may not be known to the municipality. It can also conflict with the municipality’s duty to process an application and the municipality’s obligations to the owner of the servient tenement.
Approving Authority Missing in Action
The restrictive covenant may assign a pre-approval role or decision making role to the Developer or a person acting on the Developer’s behalf and not identify a clear successor. After the Developer has completed the project, meaning they have sold all their lots, they may no longer be an owner of a dominant tenement. This means the developer is no longer legally able to act under the restrictive covenant. In other cases the Developer may have been a corporation established for the project and the corporation may have been dissolved once the project was completed. In other words, the legal entity that was the Developer no longer exists. This can leave the property owners without a clear means of seeking “pre-approval” and confirming that their proposed property improvements meet the requirements of the restrictive covenant.
Inconsistency with Municipal Regulations
Restrictive covenants often address items that the municipality has chosen not to regulate or may be more permissive or restrictive than the municipal regulation. This pits the municipal rules applying to the community at large against those of the restrictive covenant. It can lead to a development being approved by the municipality but contrary to the restrictive covenant and vice versa. For example, a restrictive covenant may require a certain concrete pattern for a driveway but the municipality may not even require development permit approval for installing or replacing a driveway.
Neighbour against Neighbour
Where a restrictive covenant is properly structured to allow for enforcement by owners of dominant tenements, it may pit neighbours against one another. This may involve disagreement over the interpretation or application of the restrictions. It may also involve legal action against a neighbour to enforce the restrictive covenant.
Frustration of Sale of Property
The existing owner(s) may have difficulty closing a sale of their property where a clear answer cannot be provided to a potential purchaser. This can happen where it is not clear who determines the acceptability of a proposed change to the property under the restrictive covenant or the party that would make the determination no longer exists.
The Developer may choose to enforce the restrictions or may choose to not enforce. Owners of dominant tenements may choose to enforce or not enforce. This can lead to uncertainty as one owner appears to be allowed to do something to their property that another owner was denied. Enforcement can also occur at any time which can become a tool used in interpersonal conflicts between neighbours or take on different interpretation as owners of the dominant tenements change.
Effect on Property as Area Evolves
Restrictive covenants often focus on the initial or first wave of development of the properties in a subdivision. The restrictions may not contemplate changes to the properties as the subdivision matures and evolves. This means the area can become fixed in time. For example, where the restrictive covenant mandates the use of brand name exterior treatments and there comes a point when these materials are no longer on the market. It can become more difficult if there is no party assigned the role of checking proposals against the restrictions and providing approval.
Difficulty in Amending
Changing or removing a restrictive covenant is not easily accomplished. The easiest method involves the written consent of every registered owner of a dominant tenement. This means achieving 100% consensus on any proposed change. Failing that, a court remedy needs to be obtained.
Town of Olds Planning & Development