The Alexander Devine Children’s Cancer Trust v Millgate Developments Limited
A recent decision in the Court of Appeal has highlighted the willingness of the Courts to uphold the enforceability of restrictive covenants, irrespective of the apparent social value of any development constructed in breach of them.
Millgate Developments Limited (“the Developer”) developed a 13 unit site for onward sale to a social housing provider. The site was affected by restrictive covenants (“The Covenants”) in favour of The Alexander Devine Children’s Cancer Trust (“the Trust”), who managed a children’s hospice. The Covenants prevented the development of housing, with the aim of maintaining the undeveloped nature of the area in order to provide amenity to the users of the hospice.
The law recognises that, in some instances, flexibility is required when dealing with restrictive covenants; Section 84 of the Law of Property Act 1925 (“Section 84”) permits application to the Upper Tribunal to partially discharge or modify them. One of the possible routes to a successful application is to demonstrate to the Court that the covenant is impeding a reasonable use of the land, contrary to the public interest.
The Developer was aware of the existence of the Covenants prior to the commencement of development. However, the Developer only applied for modification under Section 84 after most of the works had been completed. The Developer applied for modification on the basis that, by preventing the construction of social housing, the Covenants were contrary to the public interest.
The site had been developed in accordance with a planning obligation and planning permission that the Developer had obtained for a larger site. The obligation and permission were structured so that the Developer’s imperative was to finish the construction of the 13 affordable units as soon as possible, so as to trigger the ability to construct and occupy further dwellings on the larger site. The Upper Tribunal decision afforded significant weight to the planning obligation, and whilst acknowledging the well-established principle that planning decisions do not alter individual’s legal rights in land, stated that it did “reflect an objective assessment…which fully takes into account the public interest”. The Tribunal were also satisfied that the Covenants were contrary to the public interest as it “is not in the public interest for these houses to remain empty”.
The Upper Tribunal approved the Section 84 application and modified the Covenants to permit the development, and the Developer was ordered to pay £150,000 in compensation to the Trust.
The Court of Appeal reversed the decision of the Tribunal, taking issue with the reasoning adopted, with a particular focus on the failure of the Developer to submit its Section 84 application prior to the commencement of development, and prior to making any attempt to negotiate modification of the Covenants. Accordingly, the fact that the works had already been built was not considered to be a factor in the Court’s determination of what constituted the public interest. Consequently, the Court of Appeal ordered that the development be demolished.
The discharge of restrictive covenants by the Upper Tribunal so as to enable development of residential dwellings is not uncommon and is an important part of a system which aims to balance the rights of individual beneficiaries of covenants, and the wider interests of the public. No doubt, development across the country would be significantly hindered if Section 84 was not available, or if it was not within the remit of the parties to freely negotiate in this regard. However, this case demonstrates that, even in a housing market where demand considerably outstrips supply, the Courts will not sanction the practice of ‘build now – modify later’.