Property covenants explained: what buyers and developers need to know
When you’re buying into a new subdivision or development, there’s usually a lot of excitement around designing your home, settling into the neighbourhood, and imagining what life might look like once you move in. But one thing that often gets overlooked are the covenants.
More formally called restrictive covenants, these are rules or conditions that apply to a property. Done well, they can protect value and enhance a neighbourhood. Done poorly, they can limit your options and create real headaches for both buyers and developers.
Why covenants can be a good thing
When you’re buying in a development, covenants can protect the look and feel of the neighbourhood. Minimum build standards, restrictions on relocatable homes, and landscaping requirements are common. These give buyers confidence that the subdivision will hold its value and that the house next door won’t suddenly turn into a bright pink shack with a tin roof.
Developers also like covenants because they can make it easier to sell sections and new homes. Buyers want certainty, and covenants can provide it.
The flip side – Covenants that hurt value
Not all covenants are created equal. Some are so restrictive they make it harder to sell homes or even scare buyers off.
I once worked with a developer who subdivided large sections but then required prohibitively large homes to be built on them. Great in theory, but in practice it priced out most buyers and slowed sales.
Other covenants I’ve seen include:
No cats
No chickens
No caravans or motorhomes on site
No outdoor fires
Limits on how many pets you can have
Restrictions on paint colours (sorry, no bright yellow!)
Some are sensible, but others can feel overly prescriptive and limit your buyer pool.
Design covenants – getting it right
One of the most important areas is design covenants. Restrictive design rules can protect long-term value, but if they’re too rigid they can backfire. This ties in with something I’ve written before: good design sells.
The team at KEY2 put it nicely:
“At KEY2, we recommend design covenants that balance quality with flexibility. A well-structured covenant should allow developer discretion to maintain a consistent standard across the neighbourhood, while still giving homeowners freedom in their design choices. For example, a 140m² home can be designed to look just as impressive from the street as a 200m² home - it’s about smart design, not just size. This approach protects long-term value while keeping the development accessible to a wider range of buyers.”
That balance is key. The best covenants set a tone for the development without stifling smart, affordable design.
What developers should think about
If you’re putting covenants in place, think carefully about whether they add or subtract value. Good covenants protect your buyers’ investment, create confidence in the market, and help sales. Poorly thought-out covenants can restrict your buyer pool, drag out sales, or even reduce land value.
Ask yourself:
Would I buy here under these rules?
Do the covenants suit the size, price point, and location of the development?
Could they prevent a buyer from getting finance?
A lender’s perspective
From a bank or lender’s point of view, covenants are usually fine if they’re reasonable. But if they’re too restrictive, they can raise red flags. For example, a covenant that requires oversized houses or limits normal use of the property could affect resale value, which may make lenders nervous. That nervousness can flow through to a buyer struggling to get their mortgage approved.
Final thoughts
Restrictive covenants aren’t inherently bad. In fact, many are very useful. But like most things in property, balance matters.
If you’re buying, don’t just skim the glossy brochures – ask for the covenant document and read it carefully. Make sure you’re comfortable living under those rules.
If you’re developing, keep your covenants balanced. Think about how they’ll be perceived by buyers and lenders. Well-considered covenants can boost sales and protect values. Heavy-handed ones can do the opposite.
And as for the no-cat rules… well, Milo (our family dog) would be perfectly happy with that one.