Modifying or discharging Restrictive Covenants - The Supreme Court considers a Developer’s “cynical” breach.
25th November 2020
25th November 2020
Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd, is the first case in which the highest UK court has considered s.84(1) of the Law of Property Act 1925.
So, I hear you say, what is Section 84(1) Law of Property Act 1925?
S. 84(1) LPA 1925 provides the Upper Tribunal with a power to discharge or modify restrictive covenants affecting land where certain circumstances apply. Those circumstances include:
where the restrictive covenant is deemed obsolete;
where it is felt to be contrary to the public interest; or
where the parties agree that it should be discharged.
The Tribunal has power to order that compensation is paid in relevant circumstances.
Background to this case
In this case, the party entitled to the benefit of the restrictive covenant, preventing development of an area of open land directly neighbouring their own, was the Children’s Cancer Trust the owners of a hospice treating terminally ill children.
The party seeking the discharge or modification of the restrictive covenant was Housing Solutions Ltd, a property company providing affordable housing, who had agreed to buy 13 residential units constructed by a developer, Millgate, on the encumbered land neighbouring the hospice. It was Millgate who had made the S.84 application to the Upper Tribunal as part of the sale agreement with Housing Solutions. Housing Solutions was named as having an interest in the application land, as prospective purchaser.
The restrictive covenants that affected the relevant piece of land provided that:
No building structure or other erection of whatsoever nature shall be built erected or placed on the land.
The land shall not be used for any purposes whatsoever other than as an open space for the parking of motor vehicles.
In July 2013, Millgate applied for planning permission to build 13 affordable housing units on the application land. Millgate made no contact at that time with the Children’s Cancer Trust regarding the restrictive covenants nor prior to commencement of construction of the units some time later. Millgate were fully aware of the restrictive covenants. Following construction the upper floor bedrooms of 9 of the units directly overlooked the hospice grounds, an area that had previously been designed as a place of quiet and private respite for those children and their families finding themselves at the hospice.
A pertinent point, which came back to bite Millgate in the later stages of this matter, is that had Millgate applied to build the very same units on another part of the same land not overlooking the Hospice grounds and not affected by the restrictive covenant, planning permission would have been granted and thus this issue would not have arisen at all.
Millgate’s application under section 84(1) LPA 1925 to remove the restrictions succeeded before the Upper Tribunal, who found that the restrictive covenant should be modified to allow the occupation and use of the application land for the 13 housing units already built on it by Millgate, provided that Millgate paid £150,000 as compensation to the Trust. This decision was based upon the public interest point, based in part on the fact that the units were already constructed and were housing, or ready to house, those in priority need of housing.
However, the Court of Appeal felt that the Upper Tribunal had made various errors in law and overturned that decision so Millgate appealed to the Supreme Court.
The Supreme Court Decision
The central question for the Supreme Court was whether the Upper Tribunal failed, when exercising its discretion, to properly take into account the cynical nature of Millgate’s breach, while regarding as highly relevant the fact that, by the time it made its application the 13 housing units had been built.
Lord Burrows, the lead Supreme Court Judge, used the phrase “cynical breach” as a summary of the conduct of Millgate in deliberately committing a breach of the restrictive covenant, with a view to making a profit from so doing.
Lord Burrows found that even though it took into account Millgate’s cynical conduct, something had gone fundamentally wrong with the Upper Tribunal’s exercise of discretion on the particular facts of this case, so that there had been an error of law. In his view, the Upper Tribunal failed to take into account two particular factors of Millgate’s conduct in exercising its discretion.
The first was that, had Millgate respected the rights of the Trust by applying for planning permission on the part of the same piece of land not subject to the restriction, there would then have been no need to apply to discharge the covenant under S.84 and the hospice would have been left unaffected.
The second was that, had Millgate respected the rights of the Trust by applying under s.84 before starting to build on the affected site, it is likely that the developer would not have been able to satisfy the “contrary to public interest” jurisdictional ground under S.84 and thus would not have had to have built elsewhere on the land such as not to affect the Trust and those in the hospice.
Although the Court considered other grounds, it held unanimously that Millgate’s appeal should fail.
The Court left open the question of what should happen to the housing already built. On paper, there could be an application for injunctions both to stop any further occupation of the housing or even requiring the partial or total demolition of the housing or, as an alternative, payment of significant damages to the Children’s Cancer Trust.
This update follows on from our earlier Legal Updates regarding restrictive covenants in
March 2018 (here) relating to parking restrictions;
February 2020 (here) relating to the development of a neighbouring building; and
September 2020 (here) relating also to development restrictions on neighbouring land.
The take away point here is that a party seeking to enforce or to avoid compliance with restrictive covenants should always take specialist legal advice. This might apply to erection of new building or extension but also where perhaps a leaseholder is seeking to make alterations.
As ever, we are happy to advise on the enforcement of, and/or applications to discharge or modify, current covenants.
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