For property developers, investors, and landowners in New Zealand, old easements or covenants can be more than just lines on a title - they can be roadblocks to progress. Restrictions created decades ago often clash with modern land use, holding back subdivisions, redevelopment projects, or changes in access. With urban growth and intensification accelerating, the ability to modify or remove these outdated rights has never been more relevant. Recent court decisions under the Property Law Act 2007 are reshaping how and when these changes can be made, making it essential to understand the rules before you buy, build, or plan your next project.

Extinguishment and modification of easements - "The times they are a-changin"

There can be no doubt that occupation of land and its use has changed dramatically in New Zealand in the last decade. Population growth, urban development and a change in the way we use and live on our land are just some of the reasons driving change. Unfortunately, older easements and covenants have not been able to keep up with the change and are thus becoming incompatible with 'modern' land use. The consequence is in a steady increase of applications before the courts for modification or extinguishment of easements or covenants pursuant to section 316 and 317 of the Property Law Act 2007 (PLA).

Section 317 of the PLA

As a starting point, the relevant sections of the PLA afford the court a discretionary power to order an extinguishment or modification of an easement or covenant if:

• since the creation of the easement/covenant, there has been a change:
  
  • In the nature or extent of use being made of the land which benefits from the easement, the burdened land, or both – s 317(1)(a)(i);
  • In the character of the neighbourhood – s 317(1)(a)(ii); or
  • Any other circumstances the court considers relevant
• the continuation of the easement/covenant would impede "reasonable use" of the land burdened with the easement/covenant- s 317 (1)(b); or
• there is an agreement between the parties, or by way of act or omission, a party can be considered to have abandoned the right to the easement or covenant in whole or in part – s 317(1)(c)(i) – (ii);
• modification or extinguishment will not substantially inure any party - s 317(1)(d); or
• in the case of a covenant:
  
  • it is contrary to public policy or to any enactment of or rule of law; or
  • for any reason it is just and equitable to modify or extinguish the covenant in whole or in part.

If the court orders a modification or extinguishment, the party in whose favour the order is made may be required to pay compensation to the person or persons specified in the order (s 317(2)). The basis for determining compensation is not discussed in this article and will be addressed separately in a future article.

What must be established in order to obtain an order for modification/extinguishment?

The onus of proof lies on the servient owner (of the burdened land) to establish that reasons exist for the orders sought and to satisfy the court that they are appropriate. Importantly, the onus is not on the owner of the dominant tenement (the one which benefits from the easement/covenant) to establish a need for the continuation of the easement or covenant.

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The Synlait case

Many who practice in this area will be familiar with the Supreme Court's decision of Synlait Milk Ltd v NZ Industrial Park Ltd [2020] NZSC 157, in which the court affirmed the legislative intent behind s 317 of the PLA 2007. Importantly, the Supreme Court expressed a "progressive broadening" of the scope of orders available under s 317, marking a shift away from the previously stricter requirement that strong reasons had to be provided by applicants seeking relief. In the Supreme Court's view, the importance of property and contractual rights should not be ignored, but should rather be considered in the factual context of each case. On this aspect, it is worth pointing out that the Court of Appeal in Hurlimann v Lilley [2023] NZCA 173 indicated that privity of contract will carry more weight in cases where the original parties (owners) are seeking extinguishment or modification.

In Synlait, the Supreme Court set out the following two-step test to be applied under s 316-317 of the PLA:

• Step 1: a determination as to whether one or more of the grounds in s 317(1) is made out; and
• Step 2: whether the court should exercise its discretion in making the orders sought.

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Parklands Properties case

The Court of Appeal in F & J Reynolds Trust & Anor v Parklands Properties Ltd [2021] NZCA 394, made it clear that change is to be considered in the context of the impact of the change on the benefit or burden flowing from the particular easement/covenant. Therefore, a mere change in circumstances will not be sufficient to justify a modification or extinguishment order.

The majority of the Court:

• agreed with the finding of the High Court that there had been sufficient change in the character of the neighbourhood as housing developments had been built near the properties in question. However, the changes had not materially changed the benefits that the benefited property enjoyed from the right of way. Moreover, the attractive long tree-lined driveways (which would be removed or degraded by extinguishment) remained the same;
• found that the burden on the burdened land was essentially the same as it had been when the right of way was created.  Moreover, the easement then and now did not prevent development because access could be obtained across other land, but it always restricted the ways in which it could be developed. Simply put, the burden never changed.

Since the burden remained unchanged, the owner's decision to develop the land in a way that necessitated the extinguishment of the right of way was not, in itself, sufficient to demonstrate a change in the benefits conferred by the right of way.

Importantly, the Court of Appeal in Parklands Properties supports the approach that there must have been an actual change. Accordingly, a plan or intention to subdivide does not amount to a change of use, character, or relevant circumstances under s 317(1).

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Impeding the reasonable use of the burdened land in a different way than initially envisaged – s 317(b)

This ground could be satisfied if, for example, a change in the use of the property results from a change in technology, which could not have been foreseen by the original parties.

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Any other circumstances – s 317(1(a)(iii)

Oh yes, a "catch-all" provision. Time will tell what circumstances will justify an order under this sub-section. Interestingly, the High Court, in Kingsbeer v Okey [2024] NZHC 2323, extinguished an easement for reasons including the respondent's extended failure to comply with the Court of Appeal's orders to repair road damage caused by the respondent's use of the easement.

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"No substantial injury" – s 317(1)(d)

The inquiry concerns the effect of the modification or extinguishment, moreover whether it would substantially injure the owner of the land that benefits from the easement/covenant. The relevant case law pre Synlait describes this ground as “long stop against vexatious objections to extended user” and “designed to cover the case of the, proprietorially speaking, frivolous objection”.

The word “substantial” contemplates that there may be injury that is less than substantial. The Court of Appeal has expressed that “substantially” is not capable of precise definition and encompasses conditions that may differ in fact and degree (see Plato v Ashton (1984) 2 NZCPR 191 (CA)).

Where to from here?

As the demand for housing and property development grows, so will litigation under s 317. While a more liberalised approach is now adopted and preferred, it is important to bear in mind that a degree of caution in exercising the discretion to extinguish or modify remains appropriate (Synlait at [77]).

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If you need advice or have any questions regarding any aspect of this article, please contact us for professional assistance.