Perpetual Trustees Victoria Ltd v Suncorp-Metway Ltd & Anor

Encroachment of Buildings Act 1922 LEGISLATION CITED: Environmental Planning and Assessment Act 1979 Land and Environment Court Act 1979

Amateck Ltd v Googoorewon Pty Ltd (1993) 176 CLR 471 Attard v Canal [2005] NSWLEC 222 CASES CITED: Black v Apps [2005] NSWSC 943 Cuthbert v Hardie (1989) 17 NSWLR 321 Wherry v Trustees of the Sisters of Charity of Australia (2000) 111 LGERA 216

APPLICANT Mr M Staunton, barrister Instructed by Mr S Stierli, Hicksons FIRST RESPONDENT LEGAL REPRESENTATIVES: Mr P James, solicitor James Legal Pty Ltd

SECOND RESPONDENT No appearance

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

30263 of 2009 Perpetual Trustees Victoria Ltd v Suncorp-Metway Ltd and Amer El-Nachar

JUDGMENT 1 Commissioner: The second respondent is the registered proprietor of Lot 1 DP 215837 and Lot 1 DP 211112, which are jointly known as 29 Angus Avenue Auburn (the property). A house is erected on Lot 1 DP 211112 (the House lot); Lot 1 DP 215837 (the Driveway lot) is the driveway used for access to the side and rear of the house. At the rear of the property a laundry shed and carport are erected across both lots. 2 By mortgage registered No AC135653 dated 8 December 2005 the first respondent became the first registered mortgagee of the land in Lot 1 DP 211112, and following judgment for possession obtained possession on 18 April 2008. By mortgage registered No AD142869 dated 2 March 2007 the applicant became the first registered mortgagee of the land in Lot 1 DP 215837, and following judgment for possession obtained possession on 21 November 2008. The House lot was sold at auction on 20 September 2008 for $420,000. The contract has been rescinded; in the meantime, however, the purchaser obtained access and there has been damage to the property. 3 On 27 April 2009 the applicant commenced proceedings pursuant to s3(2) of the Encroachment of Buildings Act 1922 (the Act) seeking orders that the first respondent remove so much of the shed, carport, and eaves and guttering along the south side of the dwelling as encroach on the Driveway lot, and in the alternative, an order that the first applicant pay compensation for transfer of the applicant's property to the first respondent. The application was amended on 10 July 2009 to remove the alternative claim. 4 There has been no appearance by the second respondent. The applicant has filed an affidavit of attempted service by a licensed process server stating that on attending the property the premises were vacant and a neighbour informed her that the second respondent had departed overseas some time ago. It was apparent from the view that the premises are still vacant. An affidavit of enquiries recounts unsuccessful attempts to locate the second respondent, and I am satisfied that the applicant has made reasonable efforts to locate the second respondent. There was no application for an order for substituted service, however, there is no reason to expect that the second respondent would have wished to participate in the proceedings which are contested by the two mortgagees in possession. There are no orders sought against the second respondent and consequently no prejudice to him. 5 The proceedings were commenced onsite as a conciliation conference under s34 of the Land and Environment Court Act 1979, however no agreement was reached and the matter proceeded to a hearing. Relevant statutory provisions 6 The relevant definitions in s2 of the Act are: Adjacent owner means the owner of land over which an encroachment extends.

Boundary means the boundary line between contiguous parcels of land.

Building means a substantial building of a permanent character and includes a wall. Encroaching owner means the owner of land contiguous to the boundary beyond which an encroachment extends.

Encroachment means encroachment by a building, and includes encroachment by overhang of any part as well as encroachment by intrusion of any part in or upon the soil.

Owner means any person entitled to an estate of freehold in possession:

(a) whether in fee simple or for life or otherwise, (b) whether at law or in equity, (c) whether absolutely or by way of mortgage, and includes a mortgagee under a registered mortgage of a freehold estate in possession in land under the Real Property Act 1900.

Subject land means that part of the land over which an encroachment extends. 7 It is not in dispute that the applicant and first respondent are each the "owner" and "adjacent owner" of the relevant lots; that the parcels of land are contiguous and share a common boundary; and that the shed, carport, and part of the eaves and gutters of the house encroach over the applicant's land, in the latter case by up to 0.13m. 8 Section 3 of the Act sets out the orders that can be made and the considerations to be taken into account: 3 Encroachments

(1) Either an adjacent owner or an encroaching owner may apply to the Court for relief under this Act in respect of any encroachment. (2) On the application the Court may make such orders as it may deem just with respect to: (a) the payment of compensation to the adjacent owner, (b) the conveyance transfer or lease of the subject land to the encroaching owner, or the grant to the encroaching owner of any estate or interest therein or any easement right or privilege in relation thereto, (c) the removal of the encroachment. (3) The Court may grant or refuse the relief or any part thereof as it deems proper in the circumstances of the case, and in the exercise of this discretion may consider amongst other matters: (a) the fact that the application is made by the adjacent owner or by the encroaching owner, as the case may be, (b) the situation and value of the subject land, and the nature and extent of the encroachment, (c) the character of the encroaching building, and the purposes for which it may be used, (d) the loss and damage which has been or will be incurred by the adjacent owner, (e) the loss and damage which would be incurred by the encroaching owner if the encroaching owner were required to remove the encroachment, (f) the circumstances in which the encroachment was made. 9 Section 4 of the Act deals with compensation, and s14 confers power to order costs. Evidence 10 The applicant has provided a surveyor's report dated 6 November 2008, which is Annexure A to these reasons. This shows that the eaves and gutter on the southern side of the house overhang the Driveway lot by distances varying from 0.08m to 0.19m. Approximately half of the laundry shed and one third of the carport are located over the Driveway lot. 11 The applicant relies on Valuation reports prepared by Mr K C Adams of WBP Property Group Pty Ltd dated 31 August 2009 and 13 September 2009. The first respondent relies on Valuation reports prepared by Mr D Bird of Kohler Bird dated 8 August 2008, 19 November 2008, 13 May 2009 and 10 September 2009. 12 Mr Adams provided four assessed values: (1) diminution of the value of the property as a whole as a result of the removal of the Driveway lot: $65,000 (2) value of the Driveway lot as a single strip of land (on the assumption that the most likely purchaser would be the House lot): between $30,000 to $35,000 - $32,500 (3) diminution of the value of the Driveway lot if the parts of that lot encroached upon are transferred to the House lot: value of the residual area $5,000 (4) diminution of the value of the Driveway lot if it is ordered that easements be granted in favour of the House lot effectively allowing the encroachments to remain: value of the residual area $5,000. 13 The assessed values for (3) and (4) were arrived at taking into account a 1m setback required by council which would leave the Driveway lot with an approximate width of 1.745m and the rear portion reduced in depth by approximately 9.9m leaving a residual area of approximately 47 sq m. This residual lot would have no significant benefit other than as a potential walk way access to neighbouring properties on the southern side boundary. 14 Mr Bird has assessed as at 8 August 2008 the value of the property as a whole at $460,000 (or forced sale at $410,000); and the House lot at $390,000 (or forced sale at $350,000). On that basis, the value of the Driveway lot would be in the order of $60,000 to $80,000. As at 19 November 2008 Mr Bird assessed the value of the House lot at $330,000 (forced sale $300,000). In his report dated 13 May 2009 Mr Bird expresses the opinion that there is no further development potential to the Driveway lot because of its dimensions, and that it would appear to be of no particular use or benefit to any party other than the prospective owner of the House lot. On that basis this parcel of land has no discernible value on a stand alone basis, however if amalgamated with the House lot the increase in overall value of the property would be within a range of $20,000 to $40,000. 15 Mr Bird provided a critique of the valuation provided by Mr Adams on 10 September 2009; Mr Adams responded on 13 September 2009. 16 Evidence of estimated costs of removal of the encroachments is in the form of a report by Mr M Khaicy, civil engineer of Northpoint Commercial Projects Pty Ltd. Mr Khaicy estimated that the total cost including consultancies and approvals and preliminaries would be $63,911, including $16,445 for relocation of the encroaching eave and gutters; $449 for relocation of an airconditioning unit; $8,423 for removal of shed (including $1,700 for replacement); and $7,590 for removal of the carport.

Applicant's submissions 17 The applicant seeks removal of the encroachments, and submits that pursuant to s3(3) of the Act the following matters should be considered: (a) application made by the adjacent owner 18 The applicant submits that both applicant and first respondent are mortgagees in possession, and it is their clear intention to sell the properties. However the encroachments would constitute a defect in title, and would be a significant impediment to any sale by the applicant, but not to the first respondent. (b) situation and value of the land and extent of encroachment 19 Relying on the evidence of Mr Adams, the applicant submits that a transfer or easement of the subject land would significantly undermine the value of the residue. Here, in contrast to the situation in Attard v Canal [2005] NSWLEC 222, the encroachments take up a significant part of the parcel of land. (c) character of the encroaching building 20 While the encroachments by the eaves and guttering is small, there needs to be a setback from the boundary. The only way to access the carport is through the Driveway lot. The house has an approval for an internal laundry, and there is room to relocate a shed on the House lot. (d) loss or damage suffered by reason of a transfer or easement 21 The loss or damage that would result from a transfer of the subject land or easement would be a reduction in the value of the security; the encroachments would be a defect in title which would be reflected in the sale price. (e) loss or damage suffered by encroaching owner 22 The only evidence is that provided by the applicant that the cost of removal would be in the order of $63,000. That amount could be reduced, as the house has been gutted and economies of scale could be achieved if the work was done at the same time as repairs to the house. Given the divergence in values assessed for the Driveway lot from $20,000 to $70,000, financially it would be preferable to remove the encroachments. (f) circumstances of the encroachment 23 The applicant became aware of the issue in November 2008 and took steps quickly to bring the application. The carport serves no useful purpose without the driveway. First respondent's submissions 24 The first respondent submits that there should be no order requiring removal of the encroachments, and that on that basis the parties may be able to reach an agreement. There is no evidence that any neighbouring property would be interested in acquiring the Driveway lot, and the cost of removal of the encroachments would be a greater expense than the Driveway lot is worth. The first respondent pays the council rates and carries the sewer line, and arguably may have an equitable interest in the land. To remove the structures would diminish the value of both lots. Even if the encroachments are removed there is only one person who would be interested in acquiring the driveway lot and that would be any potential purchaser of the House lot. To order removal of the encroachments would defeat the purpose of the Act, which was to try to redress the deficiencies of the common law approach. The first respondent disputes whether a 1m setback would be required for an existing dwelling. The first respondent submits that if the carport and shed are to be removed, the costs should be shared because there are encroachments on both lots.

Consideration 25 Evidence as to the background to the construction of the encroachments and the title history was provided in the form of an affidavit from Mr T Reid, solicitor, based on his search of Department of Lands title records, and of Auburn Council records which include a number of applications to council. The first, in 1958, was for the extension of a veranda. At that time the property was known as Lot 54 in DP 12790. The second application, in 1978, was for approval to build a laundry as an addition to the property. A third application for approval of a swimming pool was made in 1980, and a fourth, for approval of an extension to the front of the property, was made in 1981. A fifth application was made in 1999 for approval of application of a brick veneer to the house, extension of the veranda at the rear, and construction of the carport and external laundry and toilet. By the time of this application, the second respondent was registered proprietor. Council records relating to this application indicate that there had been a development application approved in 1961 for the partitioning of the dwelling into two units, and that that consent was subject to a condition requiring the provision of access to both flats. The council refused the 1999 application. Notwithstanding that refusal, council records indicate that the second respondent constructed the works in question, and in 2004 obtained a building certificate.

26 It is not in dispute that the subdivision that created the Driveway lot as a separate lot was registered in 1962, and that the house had been erected some time before then. I agree with the applicant's submission that this most likely occurred in order to comply with a condition of a consent granted by the council in 1961 for the change of use to two flats which required that parking facilities be provided for two cars and that "suitable and approved access must be maintained to Flat No. 2". Based on the affidavit of Mr Reid which is supported by the title search, the Driveway lot was transferred to Margaret Irene McLaren in or about 1983; the House lot was transferred to Grahame Rothwell McLaren and Margaret Irene McLaren as joint tenants in 1980; and the two lots came into one ownership in December 1984, with the transfer of the House lot to Margaret Irene McLaren solely. Both lots were transferred to the second respondent in May 1987.

27 Based on the council records, I am satisfied that the laundry shed and carport at the rear of the property were erected some time after an application was made to council in 1999, and before 2004 when the second respondent obtained a certificate under s149D of the Environmental Planning and Assessment Act 1979. It is not apparent from the evidence at what stage during the modifications made to the southern side of the house over the years the present eaves and gutters were constructed, or whether the overhang was in existence when the Driveway lot was created. From 1987 until 2008 the two lots were owned by the second respondent. It was not until the first respondent obtained possession of the House lot on 18 April 2008 that there were a separate "encroaching owner" and "adjacent owner" as defined in s2 of the Act. While the encroachments were physically in existence before then, the "encroachment" for the purposes of s3 of the Act arose from that date: Wherry v Trustees of the Sisters of Charity of Australia (2000) 111 LGERA 216. 28 Based on the Sewerage Service Diagram the two lots are treated as one property, and it is possible (although not entirely clear as the boundary line is not marked) that services run from Lot 1 DP 211112 to Lot 1 DP 215837. The two lots are treated as one for valuation purposes by the Land and Property Information Division of the Department of Lands, and for rating purposes by the Auburn Council. 29 Considering the s3(3) factors first: (a) who made the application 30 I agree with the applicant that either it or the first respondent could have made the application, as both are an "adjacent owner" and an "encroaching owner' as defined in s2 of the Act. As mortgagees in possession both have a similar interest in taking steps necessary to enable them to realise the securities they obtained. While I accept the applicant's submission that its capacity to do so may be restricted if the encroachments remain, thus providing it with an incentive to initiate the application to obtain the orders it is seeking, the first respondent equally has an interest in having the situation resolved. It is not significant that these proceedings were initiated by the applicant. (b) the situation and value of the subject land, and the nature and extent of the encroachment 31 The "subject land" in these proceedings is those parts of the Driveway lot over which the eaves and gutters overhang and on which the shed and carport are constructed, or, in the terms used by the High Court in Amatek Ltd v Googoorewon Pty Ltd (1993) 176 CLR 471, "the land vertically under the encroachment". The only part of the Driveway lot which could be the subject of an order made under s3(2) of the Act for "conveyance transfer or lease" to the first respondent is that part of the applicant's land over which the encroachments extend. None of the valuation evidence directly addressed the value of the subject land in those terms, although Mr Adams assessed the value of the residue of the Driveway lot without the subject land as $5,000. 32 The subject land constitutes a significant part of the Driveway lot. The Driveway lot has an area of approximately 101.2 sq m; on the evidence of Mr Adams, the encroachments take up somewhere between 30 to 54 sq m of that, depending on whether the setback assumed by him is accepted. The parties disagreed as to whether the Driveway lot has any value to anyone other than a purchase of the House lot. While I accept the applicant's submission that there is potentially some value for the three immediately adjoining properties, it was apparent from the view that those properties all have independent street access, and that the Driveway lot has most value to any purchaser of the House lot to obtain off street parking and access to the rear of the property. (c) the character and extent of the encroaching building and the purposes for which it may be used 33 The encroachments take three forms: the overhang of the eaves and gutters along the southern side of the house; part of the laundry shed; and part of the carport. It is not in dispute that the house has approval for an internal laundry and that there is space to relocate the shed. I agree with the applicant that the carport serves no purpose unless access is possible using the Driveway lot. (d) the loss or damage which has been or will be incurred by the adjacent owner 34 It is not in dispute that the adjacent owner is a mortgagee in possession and that its interest lies in selling the land which formed the security for its loan. I accept the applicant's submission that the existence of the encroachments would have to be disclosed in any future sale, and may have some negative effect on a sale price; however, it is difficult to quantify what that would be. Mr Adams' assessment of the value of the Driveway lot without the encroachments was that it would be in the order of $30,000 to $35,000. In his report of 8 August 2008 Mr Bird reached a value for the Driveway lot of between $60,000 to $80,000. In his report of 13 May 2009 Mr Bird assessed the land as having "no discernible value", however if amalgamated with the House lot or both were to be sold together, the overall value of the property could increase between $20,000 to $40,000. Both valuers were of the opinion that the most likely purchaser of the Driveway lot if it were sold separately would be the owner of the House lot; and on that basis, the encroachments would be of some value to such a purchaser. 35 In considering what the value of the Driveway lot might be, I note Mr Adams' comment that Mr Bird's estimate in August 2008 of the value of the property (and the consequential inference as to the value of the Driveway lot) was made before the September 2008 sale, and damage to the property, occurred. While it is clear that the valuers approached the task differently, the most recent assessment of Mr Bird in May 2009 comes close to that of Mr Adams in August 2009, and I am satisfied that the value of the Driveway lot to the most likely purchaser (that is, the owner of the House lot) is in the order of $20,000 to $40,000. If the Driveway lot were to be purchased by the owner of the House lot, the encroachments would not cause any loss, and may represent a part of the value of the Driveway lot. If the Driveway lot is sold to someone other than the owner of the House lot, the encroachments would have a negative effect on the value. (e) the loss and damage incurred if the encroachments were required to be removed 36 The first respondent submitted that the estimate of $63, 910 to remove the encroachments was a low estimate, however provided no evidence in support. It is clear from the evidence before me in the form of Mr Khaicy's estimate that the most significant component of the cost of removal, other than for approvals and preliminaries, would be for the relocation of the encroaching eaves and gutters. If that work is not undertaken, the cost would be closer to $45,800. I agree with the first respondent that even on that basis the costs of removal are significant. (f) the circumstances in which the encroachments were made 37 I accept that for all practical purposes the House lot and the Driveway lot have been treated as one property, and that the encroachments only became that when the unity of title that existed from 1984 ended in 2008. In this context it is also relevant that the property is regarded as one property both for land valuation and rating purposes. While it appears that the encroachments in the form of the shed and carport were erected by the second respondent without the consent of the council, that situation was rectified in 2004 by the issue of a building certificate. The present circumstance involved no misconduct by either the applicant or the first respondent. 38 In considering whether or not to make the orders sought by the applicant, it should be noted that the power to order "conveyance lease or transfer" of land or "any easement right or privilege" is limited in s3(2)(b) of the Act to the "subject land" which, as discussed above, is limited to the land vertically under the encroachments. The power to order payment of compensation under s3(2)(a) is limited to compensation payable in respect of any grant to the encroaching owner of some title to allow the encroachment to continue to exist: Wherry v Trustees of the Sisters of Charity of Australia (2000) 111 LGERA 216. The applicant amended its application and is now only seeking an order under s3(2)(c) that the encroachments be removed. The first respondent opposes the making of such an order. 39 The estimated cost of carrying out the work required to remove the encroachments ($63,911) exceeds the value of the Driveway lot to the only purchaser with a real interest in acquiring it, namely the owner of the House lot (somewhere in the range of $20,000 to $40,000). Even if the work required to remove the overhanging eaves and gutter were not carried out, the cost of removing the other encroachments would still be in excess of that value. If the encroachments were to remain, as argued by the first respondent, the applicant would be entitled to some compensation. 40 In my view I should exercise the discretion conferred by s3 of the Act as follows. First, the encroachment by the overhanging eaves and gutter have no practical effect on the Driveway lot, and the cost of their removal is substantial. As was the case in Black v Apps [2005] NSWSC 943, I would decline to make an order for their removal. For similar reasons, even if the airconditioning unit on the southern wall of the house is a "building" for the purposes of the Act (see Cuthbert v Hardie (1989) 17 NSWLR 321), I would not make an order for its removal. The laundry shed and carport are more substantial encroachments, and I agree with the applicant that it is not appropriate to leave the situation as it is. While the most realistic potential purchaser of the Driveway lot would be any prospective owner of the House lot, and the encroachments would have some value to such an owner, these encroachments would constitute a significant impediment to any sale to someone other than the owner of the House lot. Both the shed and carport also constitute encroachments on the House lot. In my view, the appropriate outcome would be to order their removal, with the parties to share the costs of doing so. During the hearing the parties requested that if I were to reach this conclusion, they have the opportunity to come to some agreement as to how that might be done, or failing agreement, to be heard. It is appropriate to allow the parties to have the opportunity to consider the mechanism for sharing the costs of carrying out the work and the time required for it to take place. 41 To enable this to occur, I give the following directions:

1. The parties are to file agreed draft orders to reflect these findings by the close of business on Monday 19 October 2009;
2. The matter is set down for mention before me at 9.30am on Wednesday 21 October 2009;

3. If (1) is complied with I will make orders in chambers and vacate the mention;

Linda Pearson Commissioner of the Court

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