3 common encumbrances and how they can trip you up
It’s important to inform buyers when certain encumbrances exist on the Title – or risk having the deal fall over.
An encumbrance is a registered interest in land by a person who is not the land owner, and any encumbrances on a property can usually be found listed on the Certificate of Title.
I recommend disclosing all encumbrances in the Offer and Acceptance, but there are a handful which pose a particularly significant risk to settlement if they are not disclosed. Below, I outline the differences between three of the most common encumbrances, and explain how you can stop them from endangering your settlement.
An easement is a common type of encumbrance that gives a person or company the right to use part of a property owned by someone else. For example, easements may allow gas, water, or sewerage to flow through the property, and are often granted to local councils, the Water Corporation, Western Power and Main Roads WA.
See our blog post on the importance of searching easements for an example of how an easement can affect a buyer’s plans for a property.
A memorial is an encumbrance that places some form of notice or restriction on a property. For example, the Western Australian Planning Commission may place a memorial on the Title stating that the land is reclaimed swamp, to allow buyers to take into account any potential issues associated with reclaimed swampland.
3. Restrictive covenants
A restrictive covenant places some type of restriction on the use of the land, such as restrictions on building material or on the size of the floor plan. Restrictive covenants are common in new developments, in which developers use restrictive covenants to ensure that properties maintain a level of uniformity.
All three of these encumbrances have the potential to affect the success of your settlement. As per the Joint Form of General Conditions (section 2.9), the buyer is entitled to terminate the contract up to three business days before settlement if the land is subject to an easement, a restrictive covenant, a memorial or a Title restriction*, unless that encumbrance is specified in the contract.
The Joint Form of General Conditions also states (in sections 2.6, 2.7 and 2.8) that when it comes to land that’s not vacant, if the buyer would “reasonably be expected to continue” the current use of the property and the encumbrance doesn’t affect that use, then “the Land will be treated as being sold subject to” that encumbrance, and the buyer will have no right to terminate. However, this is open to some interpretation (for example, how can a seller know if the buyer is planning to build a shed over a Water Corporation easement?), so it’s safer to always include encumbrances on the contract.
If a client’s Title contains an easement, memorial, or restrictive covenant, avoid having the deal fall over by ensuring that the encumbrance is disclosed to the buyer on the Offer and Acceptance.
* A Title restriction is another type of encumbrance that needs to be included in the contract, but this type of encumbrance is much less common than the other three listed in this article.
Near miss highlights the importance of searching ALL easements
A recent transaction has highlighted the importance of searching and examining encumbrances, especially easements. In the sale of a family home, an easement – one of two noted on the title – went unnoticed by the buyers’ real estate agent, leading to all kinds of unnecessary stress for both the buyers and the seller.
A sample of the Title, showing two easements that refer to other documents – the first easement is the one that was overlooked.
Easements, which grant the right to use a piece of land to a person or company who isn’t the land-owner, are noted on the Certificate of Title. They often refer to external documents that can be obtained through another search, but in this case, the buyers’ real estate agent only searched for the second easement – and not the first. Because of this, the buyers and seller were initially unaware that there was more than one easement.
Only after the offer became unconditional did their agent discover the other easement, belonging to the Water Corporation. The buyers’ representative contacted me at Residential Settlements and told me that the buyers were worried that part of a structure might be built over the newly-discovered easement.
Once alerted to the issue, I asked the seller to bring in plans of the house, which revealed that only one pillar of a pergola was located on top of the easement. After contacting the Water Corporation, the buyers gained assurance that any work that needed to be done within the easement could be done even with the pillar. The buyers’ fears were allayed and settlement was later completed.
Had the buyers received a copy of both easements (and this had been noted on the offer and acceptance), last-minute stress would have been avoided – and the seller’s real estate agent would not have risked damaging their reputation.
If you’re an agent, be sure to research any and all easements thoroughly and disclose their existence to the buyer, seller, and settlement agent. If in doubt, speak with your principal – or give one of us here at Residential Settlements a call on (08) 9459 0044.
If you’re buying or selling a property and you’re concerned about easements, ask your real estate agent about any concerns you may have before the offer has become unconditional.
Easements for Dummies
An easement put simply, is a proprietary interest in somebody else’s land. The most common forms of easements are rights of way and easements for services, such as water, electricity or sewerage.
The below diagram is a simple example of some different easements over land.
As you will see, there are two easements in this diagram. Lot 1 has two easements which burden the land and Lot 2 has one benefited easement and one burdened (or servient) easement.
The first easement, which is depicted in orange, is an easement for a right of carriageway (or right of way). This easement gives Lot 2 the right to access their lot through Lot 1’s land. Without this easement, Lot 2 would be landlocked and would not have legal access to their property from the road. The right of carriageway is burdened upon Lot 1 and benefited upon Lot 2. In our example, the orange easement is likely to be a road, driveway or track which the owner of Lot 2 drives down from the road to get to their land – he or she has the right to use this at all times, and the owner of Lot 1 must not obstruct or interfere with this use.
The other easement, depicted in purple, is an easement for electricity – this is where electricity lines run over the Lots. The easement burdens both Lots 1 and 2 and benefits the electricity company. The electricity company has the right to install their equipment on the easement land, and to enter the easement land to maintain or repair it.
Easements are usually but not always registered on the Title to the property. Registration takes place with Land and Property Information in NSW and the Office of Regulatory Services in the ACT. The purpose of registering an easement over land is to show on the public record that an easement exists. If you are purchasing land which has an easement registered on title, you are therefore aware of what the easement is, who it benefits and how it will impact upon your use of the land.
For example, if you have an easement on your land, you will not be able to build any structure on or over the easement land or use the easement land in any way which interferes with the rights of the benefited party, otherwise the owner of the land benefited by the easement may have the right to sue you, or to destroy the structure to gain access to the easement without being liable to compensate you for the damage.
If an authority has an easement registered over your land, they have the right to access the easement to maintain or repair the easement land or their equipment on the land. Action can be taken against if you interfere with their right to access the easement – for example you can’t lock or fence them out of the easement land, nor build over the easement land. If you did, the authority may then have the right to cut the lock, knock down part of the fence, or destroy your building or structure that is on the easement land.
If you are the benefited lot to an easement (i.e. Lot 2 above with the Right of Carriageway) and the burdened lot owner interferes with your right to use the easement, then you have the right to remedy.
There are two ways in which a benefited lot can take seek a remedy, these are:
- Abatement – That is the right to abate the interference of the easement. For example, say on our diagram, Lot 1 had built a shed over the orange easement, Lot 2 would have the right to pull down the shed to gain access to their property. Lot 2’s owner must ensure that:
- the force used is reasonable;
- it is not likely to be a breach of peace; and
- no injury to the public is caused.
However, the Courts have stated that while this right exists, it is not encouraged.
- Action – Legal action can also be taken against the servient lot. The owner of an easement can sue for damages, nuisance or seek an injunction.
Who Maintains an Easement?
Normally, the grant of an easement does not, of itself, impose on the burdened easement any obligation to make the easement suitable for use by the occupants of the benefited easement. So, for example, on Lot 1 the owner is not required to make up the way to any particular standard, or to maintain it at any particular standard. Nor is Lot 1 required to take steps to ensure the occupants of Lot 2 continued access to the easement. Lot 1′s only duty is to refrain from acts that would obstruct Lot 2′s use of the land. It follows that a the owner of the benefited lot who wishes to ensure that the easement remains useable, must do any necessary maintenance. For these purposes, Lot 2 has an implied right to enter the servient land to do whatever is reasonably necessary to make the easement suitable for the exercise of the right granted and to maintain it in a condition suitable for that use.
If you have a question about an easement which either benefits or burdens your land, or you wish to create an easement, please contact one of our experienced property lawyers to make an appointment on 02 6206 1300, by email on firstname.lastname@example.org or alternatively you may use our contact form.