Restrictive Covenants: Modification of restrictive covenants under section 84 of the Law of Property Act 1925 to allow affordable housing

Case name, reference and Bailii link 

Housing Solutions v Bartholomew Smith [2023] UKUT 25 (LC) BAILII Link 

Summary 

In Housing Solutions v Bartholomew Smith [2023] UKUT 25 (LC), an application was made to the Upper Tribunal (“the Tribunal”) to modify the restrictive covenants under section 84 of the Law of Property Act 1925 (“Section 84”). The application was considered necessary to allow affordable housing to be sold with a clean title, or to be let on statutorily protected tenancies. 

The Tribunal granted the application and exercised its discretion to modify the covenants on both grounds (aa) and (c) in Section 84.

Facts

This case was a development of the Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45 (“the Alexander Devine case”) where a housing development was built in knowing breach of covenant. The Tribunal was asked to modify restrictive covenants that burdened the developer’s land adjoining the Alexander Devine children’s hospice and although the application succeeded before the Tribunal, it was later rejected by the Supreme Court. 

Mr Smith’s agricultural land also benefitted from the restrictive covenants. Whilst Mr Smith opposed the initial application of the Alexander Devine case at the Tribunal, the appeal was brought by the Alexander Devine Children’s Cancer Trust (“the Trust”). Following the Supreme Court hearing, Housing Solutions reached an agreement with the Trust which was that in return for  payment, the Trust would release its covenants and allow the development to remain. 

Mr Smith was not a party to this agreement and did not agree any such release in subsequent negotiations with Housing Solutions. As such, Housing Solutions wasn’t able to sell the houses with clean title or let the houses on statutorily protected tenancies as the development remained in breach of the following covenants: 

1. “No building structure or other erection of whatsoever nature shall be built erected or placed on [the application land]”

2. The [application land] shall not be used for any purposes whatsoever other than as an open space for the parking of motor vehicles.”

Housing Solutions applied to the Tribunal for modification of the covenants. 

Mr Smith objected to the application to modify the covenants.  

Issues

The issue for the Tribunal was whether the covenant preventing the use of the houses for affordable housing could be modified by the Tribunal. 

In reaching the decision, the Tribunal considered the following objections made by Mr Smith:

1. The application to modify was an abuse of process as the matter had already been settled by the Supreme Court;
2. The application was prevented by the doctrine of res judicata meaning that the claim couldn’t be re-litigated;
3. Housing Solutions were estopped from pursuing the application as they did not reserve their right to apply to the Tribunal; and
4. The covenants benefitted Mr Smith’s land and the same decision reached in the Alexander Devine case should be made.

First instance (where relevant)

The Tribunal dismissed each of Mr Smith’s objections, as follows:

1. They found that the Trust’s agreement to the affordable houses meant that the circumstances had changed since the Alexander Devine case, and it wasn’t an abuse of process.
2. There was no res judicata as this case did not concern the public interest ground in Section 84 and instead only concerned the impact of the development and the restrictive covenants on Mr Smith who was not a party to the Alexander Devine case decision.
3. Housing Solutions were not estopped from making the application as they were able to bring an application to the Tribunal if they could should that circumstances have changed so that modification is appropriate. There was no need for Housing Solutions to reserve a right to apply to the Tribunal.
4. Mr Smith failed to demonstrate that the covenants secured practical benefits of substantial value for him or his arable land which would be diminished by the affordable housing. The covenants precluding the affordable housing were found to be of no benefit to Mr Smith.

As such, the Tribunal decided the covenants should be modified. They also recognised that though the breach by the original developer should not be ignored, it is not the Tribunal’s function to punish the developer where modification of the covenants will not injure the beneficiary, which they considered to be the case here.

As Mr Smith had lost nothing by reason of the modification, the Tribunal awarded no compensation. 

Comment (if where relevant – particularly if there is a point of note for general practice)

Developers will welcome this decision as it is common for restrictive covenants to have more than one beneficiary. This case is also helpful in demonstrating that if an application to modify or discharge restrictive covenants results in agreement with one beneficiary, the change in circumstances may result in a fresh application, which is more likely to succeed. However, the case also highlights the risk for any objectors as the Tribunal found that no compensation was payable to Mr Smith.

This case summary was originally published to Property Law in August 2023.