Restrictive Covenants: Consideration by the Supreme Court

The Supreme Court has considered the Upper Tribunal’s power to discharge or modify restrictive covenants affecting land under section 84 of the Law of Property Act 1925.

The Supreme Court’s decision in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45 should serve as a warning to developers that the court will take their conduct into account when considering an application under section 84.

Millgate Developments Limited (M) was a developer who acquired land, part of which was subject to restrictive covenants preventing any building on the land and any use other than as a car park. M was fully aware of the restrictive covenants but chose to disregard them and build affordable housing units on the land.

The neighbouring land with the benefit of the restrictive covenant had been gifted to the Alexander Devine Children’s Cancer Trust (the Trust), with the intention that it would build a hospice for children with terminal cancer.

Objections to the development were raised with M, who effectively ignored them and continued with the development, ultimately selling it to Housing Solutions Ltd.

It was only after building finished that M finally made an application to the Upper Tribunal to modify the restrictive covenants and allow the buildings to remain. The Upper Tribunal granted the application and ordered £150,000 in compensation be paid to the Trust.

The Court of Appeal allowed the Trust’s appeal, which Housing Solutions Ltd then appealed to the Supreme Court.

The Supreme Court was concerned firstly with determining whether the Upper Tribunal had jurisdiction to discharge or modify the restrictive covenants on the basis that upholding the restriction would be contrary to the public interest. If that test was met, had the Upper Tribunal correctly exercised its discretion in discharging or modifying the restriction.

The Supreme Court held that the Upper Tribunal had not erred in law in deciding that the public interest ground was met. The Upper Tribunal was correct in taking a narrow approach at that stage, by considering that the affordable housing had been built and it would not be in the public interest for the buildings to be left empty or torn down. It did not need to consider M’s conduct at that stage.

However, the Supreme Court held that the Upper Tribunal had erred in exercising its discretion to grant M’s application, as it failed to take two important factors into account.

Firstly, it did not consider the fact that the local authority had confirmed that it would grant planning permission for M to build the development on the part of its land not subject to the covenants. That would have achieved M’s development objective while respecting the restriction and negating the need for a section 84 application. Therefore, not only did M knowingly breach the restriction, he could have avoided it completely in the first place.

Secondly, the Upper Tribunal should have considered that if M had made the application before beginning to build, the ‘contrary to public interest’ ground would not have been met. It was only because M presented the Tribunal with 13 completed buildings that this ground was met. Had the application been made prior to building, the objection would have been that the development could be built on unencumbered land and therefore upholding the restriction would not have been contrary to the public interest.

It was M’s actions and ‘cynical conduct’ that altered the position in relation to the public interest and this is what the Upper Tribunal should have considered in exercising its discretion.

The Supreme Court refused Housing Solutions Ltd’s appeal and upheld the Court of Appeal’s decision.

It is now for the Trust to take action to enforce the restrictive covenants, whether that is seeking an injunction ordering the removal of the housing units or some form of monetary compensation. Whatever the outcome, it is clear that as a result of the developer’s conduct, the Trust will very much have the upper hand.

Here to Help

If you need advice on restrictive covenants, or any other property dispute matter, please contact John Wagstaffe, Partner and Head of Property Disputes.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.