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Gentlemen's agreement to access water supply trumped by Land Transfer Act

30 May 2016

When you own land in New Zealand your title is recorded in a computer register. As the registered owner, your title is guaranteed by the state. No one has any claim against or interest in your land unless that claim or interest is registered against your title.  Your title is said to be “indefeasible”. As with most legal rules, there are exceptions to the indefeasibility rule. The most significant of these is fraud – for example, if you acquired your land by forgery. The success of one party in a recent case turned on this principle of indefeasibility of title.

Gentlemen’s agreement modifies registered easement

The case of Kiwi Trustee Limited v Lin [2016] NZHC 595 involved a property that had originally been a dairy farm. The original owner had sold off some of the land and registered water easements over it to retain access to the water supply. After selling the land the original owner used areas of the land outside the registered easement area to access the water supply. The new owner allowed him to do this. These informal arrangements continued even after both properties changed hands. As the judge said: “In a fairly traditional farming way everyone regarded it as very much a “give and take” arrangement.”

Neighbourly relations deteriorate

In 2013 Ms Lin purchased the land which was subject to the water easements. At that time the owner of the land having the benefit of the water easements was Kiwi Trustee Limited. After Ms Lin had purchased the property her farm manager had trouble with stock from Kiwi’s property straying onto her land. Ms Lin therefore had the property and the easement areas surveyed. It was discovered that the water pipes had been laid outside the easement area defined in the registered easement. Ms Lin’s farm manager relocated the pipes within the easement area, fenced the property and issued trespass notices to prevent Kiwi from accessing the water supply except as permitted by the registered easement.

Kiwi objected to the relocation of the pipes. It instructed lawyers. It lodged a the caveat against Ms Lin’s title claiming it had “equitable” easement rights in addition to those under the  registered easements. It also issued proceedings claiming interference with its rights under the easement. Kiwi pointed to the conduct of the owners of the land after the easements had been registered which showed they agreed to the additional rights. Kiwi also complained that it could not now properly access the water supply as some of the easement area recorded in the registered easement was too steep and some was too boggy. Ms Lin argued that she had acted within her rights under the registered easements and had not interfered with Kiwi’s rights. She disagreed that it was impractical to use the area of the registered easement for access to the water supply.

Ms Lin’s title paramount

The decision to be made by the judge in this case was whether to allow Kiwi’s caveat claiming the additional easement rights to remain on Ms Lin’s title, or whether it should lapse. (The caveat prevented Ms Lin from dealing with her property until the matter had been determined by the Court.) Whether or not the caveat should remain on Ms Lin’s title depended on whether Kiwi had a “reasonably arguable case” for the additional easement interests it claimed. The judge noted that Kiwi might have grounds for obtaining a court order for the modification of the easement under the Property Law Act 2007.

The judge referred to the provisions in the Land Transfer Act 1952 which provided for the registered owner’s title to be paramount. The judge said that the fact that Ms Lin may have been aware of the neighbour’s use of the water supply in a way that was additional to the rights conferred by the registered easement did not amount to “fraud” by Ms Lin, and nor did her conduct “touch her conscience” so as to give Kiwi the additional rights. As a result the judge held that Ms Lin owned the land subject only to the registered easements and the caveat was to be removed.

Although this decision might seem unfortunate for Kiwi, it is clearly the correct one. It is not hard to see how difficult it would be for anyone buying land if they could not be sure that only those interests actually registered against the title could be claimed against the land. Gentlemen’s agreements might work while neighbourly relations are good, but as soon as they become sour or other people become involved, they can create more problems than they solve.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.