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06 February 2017

Restrictive Covenants - discharge or modification under s.84 Law of Property Act 1925

 Millgate Developments Limited & Anr v Bartholomew Smith & Anr [2016] UKUT 515 (LC)

Summary

Although the Tribunal was satisfied that the covenants had secured practical benefits of substantial value/advantage for the neighbouring hospice in the form of enhanced privacy and seclusion, it concluded that modification should be permitted under the second limb of ground (aa), i.e. on the basis that the covenants were operating contrary to the public interest.  Even though the applicant had concluded its development without regard to the covenants, it was not in the public interest for the houses to remain empty and a payment of £150,000 would meet the cost of the additional planting required to address the reduction in privacy, together with an additional sum to reflect “hassle” and other intangible factors.

Facts

The applicant had completed a development of 23 social housing units including a block of flats, various terraced houses and bungalows.  Planning permission for the development was granted on the basis that it would enhance the character and amenity of the area and was sensitive to adjoining uses.  However, the development breached certain restrictive covenants imposed in a 1972 conveyance which prohibited the use of the land for building or for any purpose other than the parking of vehicles.  The applicant sought the modification of the covenants under grounds (aa) and (c) of s.84 LPA 1925.

The key objector to the application was a trust which owned immediately adjoining land which was being developed into a hospice for sick children.   The roofs of the applicant’s bungalows were visible over the boundary fence with the hospice land and the upper floor bedrooms of the houses overlooked the hospice grounds.  The other sides of the hospice land were surrounded by fairly open countryside except for a small light industrial estate on one side. 

The trust contended that its carefully planned calm and peaceful environment for the hospice – particularly the outdoor areas – would be seriously compromised by the presence of new housing so close to its boundary. 

Issues

(1) Whether the Tribunal should exercise its discretion to modify the restriction under s.84(1)(aa) LPA 1925, i.e. on the basis that it impeded a reasonable user of land.  (Under s84(1A), modification is permitted where the Tribunal is satisfied that: (a) the person who is entitled to the benefit of the restriction does not secure any practical benefits of substantial value or advantage from it; or (b) that the restriction is contrary to the public interest.  For the purposes of section 84(1A), consideration also has to be given as to whether money is adequate compensation for the loss or disadvantage to the beneficiary as a result of the modification of the restriction.)

(2) Whether the Tribunal was satisfied that the modification would not injure the persons entitled to the benefit of the restriction, in accordance with s84(1)(c).

Decision

It was accepted that the housing redevelopment was clearly a reasonable use of the land and the Tribunal focused on considering the various practical benefits which the hospice claimed to enjoy from the restrictive covenants.  The primary alleged practical benefits considered were:  

Preservation of views: The Tribunal did not necessarily accept this as a practical benefit but noted that the only views worth preserving from the hospice land would be unaffected by the state of the application land. 

Preventing loss of privacy: The Tribunal noted that the bedrooms and indoor facilities of the hospice had been located looking towards the open countryside.   However, it accepted that the impact of the applicant’s development would be more apparent from the carefully designed grounds and outdoor facilities provided by the hospice, so that the children and their families would have a less private and less attractive environment than would have been the case if the covenants had been observed.  The Tribunal was therefore satisfied that practical benefits had been lost by the hospice land in the form of enhanced privacy and seclusion. 

Freedom from noise: The Tribunal agreed that the ordinary noise from the gardens of the houses and a children’s park on the application land would be audible at times in the hospice grounds, although it expected this to be muffled to some extent by the boundary fence and maturing trees there.  Nonetheless, the Tribunal accepted that the special context of the hospice meant that protection from the ordinary and otherwise unobjectionable noise of adjoining gardens and play areas was a practical benefit for the hospice.  It rejected the hospice’s suggestion that the covenants provided any significant protection from noise nuisance attributable to pets. 

No light pollution:  The Tribunal disagreed that this was a practical benefit secured by the covenants and did not consider that the use of ordinary domestic lighting could properly be described as pollution.  In any event, it did not expect the intrusion of light from the upper floors of the houses to be significant.

Substantial value or advantage?

Following the Tribunal’s conclusion that the covenants secured practical benefits for the hospice land by enhancing privacy and seclusion, it moved onto consider whether these benefits were of substantial value or advantage to the objectors. 

It was noted that the desired level of privacy and seclusion which the hospice was seeking to achieve would now require a different approach to the landscaping of the grounds.  It considered various solutions put forward by the parties in this regard in order to assess the value of the covenants in monetary terms and noted that the likely costs would be between £37,000-£70,000, concluding that the practical benefit was therefore one of substantial value or advantage.  Using the simpler route of assessing how the loss of privacy and seclusion would affect the service which the hospice was seeking to provide, the Tribunal was also “entirely satisfied” that the contribution which the covenants would have made to the privacy and environment within the hospice grounds would have been a real and substantial  advantage. 

In light of this conclusion, the Tribunal had no power to modify the covenants under the first limb of ground (aa).  For the same reasons, the application under ground (c) also could not be made out because the modification would injure the trustees as owners of the hospice land. 

Public interest?

In considering the alternative question under ground (aa) of whether impeding the applicant’s proposed use of the application land was contrary to the public interest, the Tribunal noted the importance of balancing the public interest in efficient use of land and the private rights over the same land. 

The Tribunal agreed that the grant of planning permission for the housing use of the application land was a material consideration, as was the fact that the social housing was intended for occupation by tenants who were likely to have been waiting for accommodation for some time.  It therefore concluded that the covenants were clearly operating contrary to the public interest given that it was not in the public interest for the houses to remain empty and was satisfied that this was sufficient to justify the exercise of the Tribunal’s power under section 84(aa) to override the objector’s private rights. 

However, to make an order on that basis, the Tribunal had to be satisfied that money would be an adequate compensation for the loss or disadvantage which the trustees were going to suffer as a result of the modification of the covenant.  In line with its consideration of the extent to which additional planting could mitigate the loss of privacy and seclusion, the Tribunal decided that an award of money sufficient to provide the additional planting required for this purpose would constitute adequate compensation to the hospice trustees. 

The Tribunal noted that it retains discretion whether to order the discharge/modification of a restriction under section 84(1) even where one of the prescribed grounds is made out.  In this context, it considered the applicant’s conduct in undertaking its development in breach of the covenants.  The applicant acknowledged that it had been aware of the covenants when it acquired the application land.  From the evidence given to the Tribunal, it seemed that the developer had either taken no steps to establish the identities of the beneficiaries of the covenants or had known the identities and chosen not to raise the issue of the covenants before beginning its redevelopment. 

The Tribunal noted that it did not wish to reward parties who flout the law or undermine the protection offered by restrictive covenants.  However, it noted the need to exercise its discretion judicially and not simply with a view to punishing a covenant breaker.  The Tribunal took account of an open offer made to the hospice by the applicant after the conclusion of the Tribunal hearing, offering a payment of £150,000 to the trust and to pay the trustees’ costs in return for the modification of the covenant.  (This sum reflected the hospice’s assessment of the cost of additional planting required together with an additional sum to reflect “hassle” and other intangible factors.)  The Tribunal considered this to be a constructive proposal and regretted that it had not been accepted by the objectors.

The Tribunal explained that it would have found it more difficult to exercise its discretion in the applicant’s favour if it had only succeeded in its case on the basis of the first limb of ground (aa).  However, it felt that the public interest of the parties who were waiting to be housed outweighed all other factors and that it would be an unconscionable waste of resources for the houses to continue to remain empty.  The Tribunal therefore exercised its discretion to modify the covenants to permit the applicant’s development.

In assessing the financial compensation for the modification of the covenant, the Tribunal rejected the suggestion that the hospice should enjoy some share in the developer’s profit from the development of the application land.  Instead, it was persuaded by the level of the applicant’s open offer, particularly since it considered that the applicant had sufficient experience and resources to assess an appropriate level of compensation and could have designed an alternative landscaping scheme at a lower level but had chosen not to.


This article was written by Emma Humphreys, for more information please contact Emma on +44 (0)20 7203 5326 or emma.humphreys@crsblaw.com

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