Natura Developments v Ladysmith: Supporting the Section 219 Covenant

Section 219 covenants are an essential part of any local government’s land regulation arsenal, and can be especially useful in controlling the development process on properties requiring a great deal of oversight.  In a recent case, Natura Developments Ltd. v. Ladysmith (Town), 2015 BCSC 1673, a case argued by Susan Beach of Stewart McDannold Stuart on behalf of Ladysmith, the Supreme Court of British Columbia upheld Ladysmith’s power to impose a tightly controlled development process through a section 219 covenant.

In this case, the developer (“Natura”) called into question the validity of a section 219 covenant that prohibited all development on the property unless the owner complied with a development application process prescribed in the covenant.  The process set out in the covenant left discretion as to whether the land could be developed solely in the hands of Ladysmith.

Natura applied to the Court for an order cancelling the covenant under section 35 of the Property Law Act.  Section 35 gives the Court the authority to modify or cancel a restrictive covenant on the basis that:

  1. the covenant has been rendered obsolete by a material change in the lands, neighbourhood, or other circumstances the court views as relevant;
  1. the covenant impedes the reasonable use of the land without providing a practical benefit to others;
  1. modifying or cancelling the covenant will not injure those who are entitled to benefit from it; or
  1. the covenant is invalid or unenforceable and should therefore be cancelled.

The Court disagreed with Natura, and declined to cancel the covenant for any of the reasons allowed under section 35. In reaching its conclusion, the Court explained and reinforced the important role that section 219 covenants play in a local government’s ability to regulate land in the public interest.

“Obsolescence” under section 35

Natura argued that the covenant was obsolete as it bound all future development on the land to a “defunct” multiphase development plan contemplated by the previous owners.  Natura argued that it was unfair to restrict Natura’s use of the land based on an agreement between Ladysmith and the previous owner that would restrict density on the property to 15 units.  The Court responded by saying that while the owner’s intended use of a property should be considered in determining whether a charge is obsolete under section 35, courts do not need to balance the interests of a local government with a land owner in coming to a determination about obsolescence.  A covenant is obsolete when it no longer serves its original purpose, not when it becomes inconvenient for a landowner trying to develop the property.

In Natura’s case, the Court found that the covenant bound Natura to a specific development approval process.  Given that the covenant continued to serve its original intended purpose, to ensure that development would only occur on the lands in strict accordance with a prescribed approval process, it was not obsolete under section 35.

Regulation of land provides a “practical benefit”

In response to Natura’s argument that the covenant impeded the reasonable use of the property without providing a practical benefit to others, the Court provided a clear statement about the important benefits local governments provide the public when exercising their land-use regulation powers.

The covenant benefited Ladysmith by allowing it to ensure the property would be used in a manner consistent with community need and in the public good.  Although Ladysmith’s zoning and permit powers allow it to regulate land generally, the Court found that it was important that it be able to regulate land use on specific properties through the use of tools like section 219 covenants.

The Court also explained that the covenant provided a practical benefit to the individuals on neighbouring properties.  Although neighbouring landowners have no legal standing to enforce a section 219 covenant themselves, their concerns are relevant as they benefit from decreased density, increased privacy, and appropriate land use next to their properties.  Cancelling the covenant would both deprive the neighbours of these benefits, and prevent Ladysmith from ensuring that land within its boundaries is organized in a manner that best serves the public interest.

Sole discretion vs. uncertainty

Natura argued that since the covenant left development approval to Ladysmith’s sole discretion it was invalid, because its terms were too uncertain.  The Court agreed that one of the requirements of a restrictive covenant is that its terms must be clear, but the Court also held that a covenant is not unenforceable merely because its terms are subject to some debate.  In this case, the covenant prevented subdivision, construction, or application for building permits on the lands unless the owner first submitted a proposal to Ladysmith, and although it was within Ladysmith’s sole discretion to approve or deny the application, the Court did not find anything inherently uncertain about this process.

The covenant did not, for example, give Ladysmith the ability to arbitrarily or unilaterally change the permitted use of Natura’s land, nor did it rely on the terms of some external, unilaterally alterable document.  Rather, the covenant only gave Ladysmith the power to approve or deny a development application made by the owner in accordance with the approval process described in the covenant.  According to the Court:

“It could hardly be said that this scheme is uncertain.  It merely establishes a procedure under which an owner can request and Ladysmith can approve or reject a proposed use of the property.”

Importantly, it was found that the covenant would not fetter Ladysmith’s statutory or legislative authority as it expressly established that its terms would not limit the discretion, rights, duties, or powers of future decision-makers.  Ladysmith was and would continue to be free to exercise its best wisdom in deciding the type of development to be approved on the lands.  Natura has filed a notice of appeal, so stay tuned for further updates.

Natura Developments v. Ladysmith underscores the important public purpose that seemingly “small” agreements like section 219 covenants serve.  A covenant is a powerful tool and as the Natura decision shows, will allow a local government to exact precise control over the development of a particular property without resorting to a rezoning.  It is precisely, then, because they are so powerful that local governments must be vigilant in ensuring that their covenants are carefully worded and thoughtfully administered to ensure that they will stand up to close scrutiny in the event they are challenged in the courts.