Quick answer
Usually not much. Common easements for drainage, sewerage or a shared driveway, and covenants about building style, are routine and rarely stop a property-secured business loan. Lenders look harder at notations that limit access, block the use you're relying on, or affect your exit, such as a covenant preventing subdivision when you plan to subdivide. Existing mortgages and caveats matter most, because they decide where the new lender ranks.
Key points
- An easement is a right someone else holds to use part of your land for a specific purpose.
- A covenant restricts what the land can be used for, such as building materials or the number of dwellings.
- Routine easements and covenants rarely affect a business loan.
- Notations that limit access, use or your planned exit get closer scrutiny.
- Mortgages, caveats and registered leases on the title decide where a new lender would rank.
Usually not. Most easements and covenants are routine, and lenders see them on titles every day. A sewer easement along the back fence or a covenant about building materials won’t stop a property-secured business loan. What lenders look at more closely are notations that restrict access, block the property’s use or undermine your plan to repay.
The first time many owners read their own title is when a lender sends them a copy. Seeing words like “encumbrance” or “restriction” can be unsettling. This guide explains what those notations are, which ones matter for borrowing and how to check yours before you apply.
What do easements, covenants and encumbrances actually mean?
The Victorian land registry’s land registration glossary gives clear definitions that apply in substance across Australia.
Encumbrance. An interest in land held by someone other than the registered owner. The glossary describes encumbrances as placing limitations on a property, and lists mortgages, easements, leases and restrictive covenants as examples. It’s an umbrella term, not a red flag.
Easement. A right someone holds to use land belonging to someone else for a specific purpose. Drainage, sewerage and carriageway (right of way) easements are the common ones.
Covenant. A written agreement restricting what the land can be used for, such as the type of building material allowed. Covenants are often created when an estate is first subdivided, so every lot in a street may carry the same one.
Caveat. A document lodged by someone claiming an interest in the land. The glossary says a caveat note appears on the title, warning others that a third party may have rights over the property.
Which notations do lenders shrug off, and which change the deal?
Here’s how a property lender typically reads the common ones.
| Notation | What it usually means | How a lender tends to see it |
|---|---|---|
| Drainage or sewerage easement | Authority can access pipes on your land | Routine |
| Carriageway easement over your land | A neighbour can drive across part of your lot | Routine; checks it doesn’t affect the main use |
| Easement your land relies on for access | Your only access crosses a neighbour’s land | Fine if registered; closely checked |
| Covenant on building style or materials | Estate-wide design rules | Routine |
| Covenant limiting dwellings or uses | One house per lot, no commercial use | Matters if your exit or business use depends on it |
| Existing mortgage | A lender already has security | Decides whether a new loan is first or second |
| Existing caveat | Someone claims an interest | Must be explained, paid out or consented to |
| Registered lease | A tenant has rights for a term | Affects value and who can occupy if sold |
The pattern is simple: if the notation doesn’t change what the property is worth, who can use it or how the loan will be repaid, it rarely matters.
When does a covenant become a real problem?
When your plan depends on doing what the covenant forbids. Three situations come up regularly:
- Subdivision as the exit. An owner plans to repay a short-term loan by subdividing and selling a back block. A covenant restricting the lot to one dwelling means that exit can’t be relied on without getting the covenant varied or removed first.
- Running the business from the property. If you operate from a home or a mixed-use site and a covenant limits commercial use, a lender will want to understand the risk.
- Development value. If the valuation assumes the site can be redeveloped, a covenant or easement through the middle of it can cut that value back.
In each case, the fix is the same: tell the lender early, show them the covenant, and offer an exit that doesn’t rely on it.
Changing or removing a covenant is possible in some cases, but it’s a legal process with its own timeline, and it can involve the people who benefit from the covenant, the council or a tribunal depending on the state. That’s rarely something to start the week you need funds. Treat it as a separate project: borrow on the property as it stands today, and if the covenant is later lifted, the extra value becomes a bonus rather than a condition of the loan.
Easements can raise similar questions when they run through the middle of a block rather than along a boundary. A large pipe or power easement across the best building area can affect both today’s value and what could be built later, so the valuer will usually comment on it.
If you’ve spotted something on your title and you’re not sure how it affects borrowing, ask us in a 60-second enquiry. There’s no credit check at that stage.
What about restrictions that aren’t on the title?
Some of the most important limits on a property sit outside the title, in the planning system. Planning zones and overlays come from the local planning scheme, not the land registry, so a title search won’t show them.
Heritage is a good example. Heritage Victoria explains that a property can be on the state heritage register, protected by a local heritage overlay managed by the council, or both, and owners can check their address online. Bushfire and flood overlays work similarly. Our guides to heritage-listed property and hazard areas cover those in more detail.
A lender’s valuer will usually pick these up. Knowing about them first lets you frame the application properly.
How do you read your own title before applying?
You don’t need to become a conveyancer, but ten minutes with your title search is worth it.
- Order a current search from the land registry in the property’s state. If the property is in another state, our guide to interstate property as security explains which registry applies.
- Check the registered owner matches exactly how you’ll be signing.
- List every mortgage and caveat, with the holder’s name.
- Read each easement and covenant, or the instrument number that refers to it, and ask a conveyancer to pull any you don’t understand.
- Note any registered lease if the property is rented.
Bring that list to your first conversation with a lender. It saves a round of questions and shows you understand the security you’re offering.
An illustrative example
Illustrative only. A residential builder needs $300k to carry two jobs through to their final payments. He owns a large block with a house, debt-free, and plans to repay the loan by subdividing and selling the back half within a year.
The title search shows a sewerage easement along the rear boundary, which is routine, and a covenant created when the estate was developed limiting each lot to a single dwelling. The lender is comfortable with the security but won’t rely on subdivision as the exit while that covenant stands.
The builder reframes the plan: the loan is repaid from the two final progress payments, with refinance to a bank as the backup, and subdivision becomes a separate project once the covenant question is resolved. A first mortgage over the debt-free home goes ahead on that basis. See builder business loans for how construction businesses are assessed.
Know what’s on your title? You’re already ahead
Most owners only discover their easements and covenants halfway through an application. If you’ve read yours, you can walk into the conversation with answers instead of surprises, and that makes everything faster. Our property-secured lending covers first mortgages, second mortgages and caveat loans, from $20k to $5m, over homes, investment property or commercial premises, with the funds used for business purposes.
The enquiry is about 60 seconds of your time, with no credit check when you first enquire. We don’t spray your details across a pile of lenders, so your phone stays quiet apart from us. A real person reads your enquiry, considers the property and its title, and rings you to discuss the options. Please be accurate about what’s on the title and what’s owed against it; it’s the quickest way to the right structure.
Frequently asked questions
Can I get a second mortgage if my property has an easement?
Yes, in almost all cases. Drainage, sewerage and shared driveway easements are very common and are a normal part of a title. The lender's solicitor will read them, but they rarely change the outcome.
What is a restrictive covenant?
It's a promise recorded against the land that limits what can be built or done on it, often set when an estate was first subdivided. Typical examples cover building materials, fencing, the number of homes on a lot or certain commercial uses.
Will a covenant reduce how much I can borrow?
Only if it affects the property's value or your exit. A covenant about roof colours is irrelevant to a lender. A covenant that blocks the subdivision you planned to repay the loan with is very relevant.
What if my property relies on an easement over a neighbour's land for access?
That's fine if the easement is properly registered. A lender will want to see that legal access exists. If access depends on an informal arrangement, raise it early, because it can affect both the valuation and the lender's appetite.
How do I get a copy of my title?
Order a title search from the land registry in the property's state, or ask a conveyancer to do it. It's a good idea to read it before you apply so nothing on it comes as a surprise.