What are Encumbrances and Covenants — And Why You Should Check Them Before You Buy
When buying a property, it’s easy to focus on the obvious things — price, condition, and location. But one area buyers often overlook is what’s sitting on the property title.
This includes encumbrances and covenants, which are legal conditions that can restrict how you use the property or tie you into obligations you didn’t expect.
These are especially important in newer subdivisions, where residence societies or associations are common — and the obligations tied to them may be hidden in plain sight.
What is an Encumbrance?
An encumbrance is any legal interest or obligation registered on a property title that can limit how you use the land or affect ownership. These include:
- Mortgages
- Easements (e.g. shared driveways or drainage rights)
- Caveats
- Leases
- Covenants
Not all encumbrances are problematic, but they’re always worth checking — especially when they involve covenants that can’t be easily changed.
What is a Covenant on a Property Title?
A covenant is a specific type of encumbrance. It’s a legal agreement registered on the title that sets out what you can or can’t do with the property. Common examples include:
- Building size or height restrictions
- Approved paint colours or materials
- No subdividing or additional dwellings
- Landscaping or fencing rules
- Where bins or vehicles can be stored
These are often used by developers to ensure a consistent standard across a neighbourhood. In many cases, covenants are also used to bind owners to the rules of a residence society or association — which brings us to an important distinction.
Understanding Residence Societies vs Associations: What’s on the Property Title?
In modern subdivisions, you’ll often see covenants used to bind property owners to community rules. However, how those rules are structured makes a big difference.
Residence Societies (Incorporated Societies)
- The covenant on your title binds you to join a society
- The society is set up as an incorporated society with a formal constitution
- Rules are governed by that constitution and can be amended by vote at an AGM or special meeting
- The constitution is a separate document, so the rules do not appear directly on the title
- This setup provides more flexibility and can evolve over time
Associations (Rules Embedded in the Covenant)
- All the rules are written directly into the covenant registered on the title
- To change anything, the covenant must be varied on every single affected title
- This typically requires unanimous agreement from all affected owners and approval from LINZ
- If the covenant was created as part of a resource consent, council involvement is likely required
- In practice, these rules are effectively permanent
Can a Covenant or Encumbrance be Removed from a Title?
Legally, it may be possible to remove or change a covenant — but in practice, it’s rare.
To make any change, you would generally need:
- Consent from the party or parties who benefit from the covenant (e.g. developer, neighbours, or council)
- Agreement from all affected owners (if it applies to multiple properties)
- Approval from LINZ to register the change
- Council approval, if the covenant was a condition of a resource consent
Even if you go through this process, removing the covenant may still breach the original consent conditions — and councils have the power to enforce those obligations, regardless of what’s been removed from the title.
The reality is that covenants, especially those tied to associations or shared infrastructure, should be treated as permanent.
Risk for Property Buyers
It’s common for buyers to assume that a fee simple (freehold) title means there are no strings attached. But many such titles — especially in newer developments — have binding covenants that carry significant restrictions or obligations.
What to Ask Your Lawyer Before Buying Property with a Covenant
Before committing to any property purchase — especially in a newer development or subdivision — it’s essential to:
- Ask your lawyer to review the title in full, including all encumbrances and covenants
- Get a plain-English explanation of what each covenant means
- Clarify whether the property is linked to a residence society or association
- Confirm how the rules are structured — are they in a constitution or embedded directly in the covenant
- Treat covenants as permanent, unless your lawyer advises otherwise
Real Examples of Covenant Issues on Titles
- A homeowner is told to remove a garden shed because it breaches landscaping rules written into a covenant
- A buyer discovers they’re responsible for a shared private laneway — including upkeep and legal liability
- An investor joins what they thought was a flexible society but finds out the rules are embedded in the covenant and cannot be changed
Final Thoughts on Covenants and Encumbrances
Covenants and encumbrances aren’t inherently bad — they often exist to protect property value and neighbourhood consistency.
But once they’re on a title, they become legal obligations. Buyers should always investigate what’s recorded, who benefits from it, and whether the rules can be changed — before going unconditional.
Because once you’ve settled, those obligations are yours — and they’re likely to stay with the land long after you’ve moved in.
