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What are encumbrances and how can they affect my sale?

Property Law: 17 October 2023

Author: Lauren Woolley & Ralph Davies - Our People

An encumbrance is an interest in a piece of land by someone other than the registered proprietor. Encumbrances place limitations on a property and may affect how a property can be used and developed. Examples of encumbrances include mortgages, easements, covenants, section 173 agreements and caveats.

What are encumbrances and how can they affect my sale?

Mortgage - When taking out a loan to purchase a property the lender will generally require a mortgage to be given by the borrower as security for the repayment of the loan. The mortgage is registered on the title to the property and the property cannot usually be dealt with unless the consent of the mortgagee is obtained.

Easement - An easement is a right held by someone to use land belonging to another for a specific purpose. Common examples of easements are rights reserved for drainage, sewerage and carriageway easements.

Covenant - A covenant is a written agreement that limits the way land can be used and developed and is commonly referred to as a "restrictive covenant". It is often applied when an owner subdivides land and wants to restrict the use and development of the lots, for example:

  • limiting development to only one house on a lot;
  • controlling the type of building materials used for new buildings and fences; or
  • prohibiting the use of the land for quarrying, business or other types of trades or operations.

Section 173 agreement – Is an agreement with the land owner and responsible authority (generally a local council) to set out conditions or restrictions on the use or development of the land that must be fulfilled either before or after the grant of a planning permit, or to achieve other planning objectives in relation to the land.

Caveat – Is a notice that a person has a legal interest in the property. A caveat note appears on the title which gives prospective buyers notice that a third party is asserting rights over the property.

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