Enforcing give-and-take arrangements

The difficulty surrounding the enforcement of unwritten give-and-take arrangements was recently demonstrated in the case of Hikurangi Forest Farms Limited v Negara Developments Limited [2018] NZHC 607 (the Hikurangi case).

Give-and-Take arrangements

Give-and-take arrangements are a response to situations where the rugged topography of rural land makes it impractical to erect a fence along the legal title boundary between two properties. Instead of fencing along the legal boundary, adjoining owners may erect a fence along a line most effective for stock control. Fences subject to a give-and-take arrangement will therefore often deviate from the legal boundary. There may be a number of deviations and each one results in one landowner losing the use of some of its land to its neighbour (the “give”) and one landowner gaining the use of some of its neighbour’s land (the “take”). This is particularly common in forestry estates, where the party benefiting from the “take” often plants trees on the relevant land, because the topography might naturally assume it is within a title boundary.

In size, such areas are often not material relative to the size of the forest estate, but the financial value of the trees on the relevant land can be substantial at the time of harvest.

How can I make an arrangement enforceable?

Give-and-take arrangements generally have no recognised statutory legal status, and require an agreement to determine rights. Without this, it may not give rise to an interest in land, and are therefore not registrable. It is important to ensure that if you are currently party to a give-and-take arrangement, or if you are considering entering into one that has this issue, that you get the agreement in writing. If unwritten, give-and-take arrangements are very difficult to enforce in court against a new registered proprietor should they refuse to recognise the arrangement as they may claim they are bona fide purchasers without notice.

If you cannot get the agreement in writing, it is important to ensure that the other party to the agreement has knowledge of the arrangement in order to support a claim of fraud, equitable estoppel or constructive trust, three claims that were rejected in the Hikurangi case. This is discussed further below.

Hikurangi Forest Farms Limited v Negara Developments Limited

Hikurangi Forest Farms Limited (Hikurangi) argued that there was a give-and-take arrangement in place between it and its adjoining landowner in respect of an area of land on the boundary between the two properties in which Hikurangi had planted pine trees eventually worth $45,000.00 at the time of harvest, and that this arrangement had been breached resulting in the loss of that money. The Court rejected Hikurangi’s claims, deciding that there was an unwritten give-and-take arrangement between Hikurangi and its original neighbour, but that once the neighbour sold the land and the purchaser became the new registered proprietor, there was no purchaser knowledge of the arrangement preventing the new registered proprietor from obtaining indefeasible title for the whole area of the title including its trees. Hikurangi’s three main arguments were:

  1. Fraud under the Land Transfer Act 1952 (LTA): that the new registered proprietor committed fraud under the LTA as it had knowledge of Hikurangi’s unregistered interest in the trees;
  2. Equitable Estoppel: that the new registered proprietor led Hikurangi to believe and rely on that belief that it owned the trees; and
  3. Constructive Trust: that it be would unconscionable to allow the new registered proprietor to retain the benefits of Hikurangi’s efforts in relation to the trees.

The High Court’s discussion and rejection of Hikurangi’s three main arguments delivers some helpful pointers on how to ensure that unwritten give-and-take arrangements will survive transfer and registration from one landowner of land subject to an arrangement to the next.

Possible factors to defeat neighbours’ claims in a give-and-take context

Fraud under the LTA

This requires dishonesty in the form of actual knowledge of an unregistered interest, and includes wilful blindness as to its existence. When a purchaser becomes registered proprietor of land, they usually will acquire an indefeasible title against any unregistered interests in that land. However, if there is fraud against the holder of an unregistered interest, then this will defeat the indefeasible title. Hikurangi’s claim of fraud therefore turned on whether the sale was done with knowledge of the give-and-take arrangement that existed. The evidence given did not satisfy the Court that there was actual knowledge or wilful blindness. Hikurangi had minimal contact with the new registered proprietor about the trees it had planted, and took no actions to ensure that the other party had knowledge of its efforts to maintain the “take” area. Without this knowledge, whatever give-and-take arrangements that existed at the time of the sale came to an end when the transfer was registered.

Equitable Estoppel

The elements required to establish an estoppel are: (1) that a belief or expectation has been created or encouraged by words or conduct of one party; (2) to the extent an express representation is relied on, this should be unequivocally expressed; (3) the other party reasonably relied to its detriment on the representation; and (4) it would be unconscionable for the party to depart from the belief or expectation.

As fraud had not been made out, the new registered proprietor gained indefeasible title and so any claim in equitable estoppel could only apply to conduct post-registration. Hikurangi claimed that it acted in reliance on the assumption that the give-and-take arrangement would continue and that the new registered proprietor remained silent as to that fact. Knowledge was again key here. The only relevant evidence of discussion of this assumption between Hikurangi and the new registered proprietor was when a Hikurangi employee phoned the other side to say that Hikurangi considered it owned the trees in the “take” area, and offering money per hectare of that area. There was no specific conversation about the arrangement itself. The other party had not done anything to lead Hikurangi to believe or expect it could harvest the trees in the “take” area, nor rely on to its detriment, and the earlier conduct of the original neighbouring landowner could not bind subsequent owners.

Constructive Trust

The fundamental elements of a constructive trust claim is that one party has been unjustly enriched by the efforts of another party in circumstances where it would be unconscionable to allow the enriched party to retain all the benefits of the enrichments.

Hikurangi’s claim relied on proof that either the new registered proprietor knew that Hikurangi had planted in that area while it was owned by the original neighbour and on any rights that conduct gave rise to surviving it becoming the new registered proprietor or that it knew and allowed Hikurangi to do something after that point which improved the value of the area. The Court found that there was no evidence of the new registered proprietor knowing of the planting and reject the constructive trust claim.

What this means for you

Give-and-take arrangements need to be recorded in writing if possible. If this is not possible, in order to protect your interests, make sure that you communicate clearly to the other side exactly what you are doing in reliance on the give-and-take arrangement. As shown by the Hikurangi case, claims for the upholding of unwritten give-and-take arrangements turn on knowledge of the arrangement and acts taken in reliance on the arrangement, and without this, the arrangement will not survive transfer and registration, and will not be upheld.

The ideal position for both parties is to have a registered forestry right over the areas of forested land (for the commercial forester on the one hand), and a registered lease of land if the adjoining land is farmland. Where the abutting land is also commercial forest, then reciprocal forestry rights should be entered into.

Who can help