Restrictive Covenants: public interest under s.84 Law of Property Act 1925

Millgate Developments Limited & Anr v Bartholomew Smith & Anr [2018] EWCA Civ 2679

Alexander Devine Children’s Cancer Trust v. Housing Solutions Limited [2020] UKSC 45

Summary

The Supreme Court unanimously refused to modify or discharge restrictive covenants that prohibited building on the relevant land.

The developer’s conduct in building the houses on the land before addressing the objector’s rights under the covenants was considered “highly relevant” to the overall decision as to whether or not to allow the modification of the covenant.

This decision may now allow the neighbouring children’s hospice to seek an injunction to require the removal of the houses, although the decision on this remains a matter for the court’s discretion.

Facts

The original applicant had obtained planning permission for and completed a development of 23 social housing units on its land, including a block of flats, various terraced houses and bungalows. It subsequently transferred these to a housing association, Housing Solutions Limited. 

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 originally sought the modification of the covenants under grounds (aa) and (c) of s.84 Law of Property Act 1925 (“LPA”).

The key objector was a trust which owned immediately adjoining land which was being developed into a hospice for sick children. 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. (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.)

Please click here to see the decisions at the Upper Tribunal and the Court of Appeal.

Decision of the Supreme Court

There were four grounds of appeal to the Supreme Court, but the key point was the extent to which the developer’s conduct should be taken into account when deciding whether or not the covenants should be modified on the ground that they were “contrary to public interest”.

(The original application here sought to modify the restrictions under s.84(1)(aa) LPA 1925, i.e. on the basis that it impeded a reasonable user of land. Under s.84(1A), modification is permitted where (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) the restriction is contrary to the public interest. For the purposes of s.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.)

The Supreme Court agreed that the starting point with this type of application should be to ask whether impeding the reasonable use of the land by the continuation of the restrictive covenants is contrary to the public interest. Disagreeing with the Court of Appeal, the Supreme Court found that the conduct of the developer was irrelevant at this initial jurisdictional stage of considering public interest; it was a question of considering the merits of the competing uses of the land. Here, that meant considering the waste of housing against the hospice providing a sanctuary for children dying of cancer. The Supreme Court found no error in law made by the Upper Tribunal in deciding that ground (aa) was satisfied, i.e. the presence of the covenants was operating contrary to the public interest.

The developer’s conduct was, however, “highly relevant” at the discretionary stage and to the overall decision as to whether or not to order the modification of the covenant.

The Supreme Court considered whether the Upper Tribunal had made an error of law by failing properly to take account of the developer’s “cynical breach” in the exercise of its discretion. It noted that once a jurisdictional ground has been established, the discretion to refuse an application should be “cautiously exercised”. However, it found that the Upper Tribunal had made an error in exercising its discretion, but for different reasons to the Court of Appeal:

• The Supreme Court gave particular weight to the fact that the developer initially applied for planning permission to build the affordable housing units on an area of the land unaffected by the restrictive covenants and the local planning authority indicated that they would have granted permission. In other words, the developer could have built the development so as to avoid breaching the covenants and detrimentally affecting the trust.
• In the Supreme Court’s view, the developer’s decision not to take this approach fundamentally altered the position in relation to public interest. It pointed out that if the developer had respected the rights of the trust and not started the development before dealing with the restrictive covenants, the developer would not have satisfied the “contrary to public interest” jurisdictional ground in s.84(1)(aa).       It therefore agreed with Counsel for the trust when he said that it would be wrong to allow a developer “to secure the modification of the covenant in reliance on the state of affairs created by their own deliberate breach”.
  

The Supreme Court was “sorely tempted to agree” with the principle suggested by the Court of Appeal that a developer who commits a “cynical breach” should have its application refused. However, it felt that this would be too rigid a principle and would inappropriately fetter the Upper Tribunal’s discretion.

The Upper Tribunal’s failure to take account the above factors in its exercise of discretion was found to be an error of law and the appeal was rejected on this basis.

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