On the 6 November 2020, the Supreme Court handed down an important judgment in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd (2020) UKSC 45 which serves as a stark warning for developers dealing with land encumbered by restrictive covenants.
This is the first time that the Supreme Court has considered section 84(1) of the Law of Property Act 1925 (“the Act”). Under this section of the Act, an application can be made to a tribunal for the discharge or modification of a restrictive covenant and gives the tribunal discretion to do so where one or more specified grounds are satisfied, so as to enable the development of burdened land.
In July 1972, a farmer sold a parcel of land (the “Land”) to a company that already owned the land next door (together as “the Site”). As part of the sale, the company covenanted that at all times (i) no building structure would be built on the Land, and (ii) the Land would only be used for car parking (“the Restrictive Covenants”). The farmer’s son, Mr Smith, inherited a parcel of land adjacent to the above and in 2013, gifted part of his land to Alexander Devine Children’s Cancer Trust (the “Trust”)
Millgate Developments Ltd (the “Developer”)”) acquired the Site, part of which was burdened by the Restrictive Covenants. In July 2013, the developer applied for planning permission to build 23 affordable houses, 13 of the houses were to be built in breach of the Restrictive Covenants. Planning permission was granted, and construction began in July 2014.
The Developer then applied to the Upper Tribunal for the discharge of the covenants under the Act. The ground relied upon by the Developer was that the covenant impeded the reasonable use of the land for social housing, which was contrary to the public interest. The Upper Tribunal allowed the application on the basis that it was “in the public interest” that the social housing be provided, notwithstanding the Developer's intended breach of the covenants.
The Court of Appeal subsequently overturned the Upper Tribunal's decision. The Supreme Court (led by Lord Burrows) agreed with the Court of Appeal that the Upper Tribunal decision “erred in law”, but concluded so through different reasoning.
The Supreme Court held that the Upper Tribunal had failed to consider two important factors at the discretionary stage of its decision-making process.
Firstly, it said that the Developer could have applied for planning permission to develop on an alternative plot on the Site (which did was not burdened by the Restrictive Covenants), meaning that an application to modify under section 84 would not have been required. The dispute could reasonably have been avoided i.e. modification was not necessary to deliver the public benefit element put forward by Developer.
Secondly, had the Developer applied to modify the restrictive covenant prior to building on the Site, he would have been unlikely to satisfy the “contrary to public interest” limb of section 84(10) of the Act. This is because the Developer “would have been met with the objection that planning permission would be granted for affordable housing on alternative unencumbered land” on the Site. Therefore, the upholding of the Restrictive Covenants would not be contrary to the public interest.
Lord Burrows confirmed that this judgment does not impact how a lower court may decide any prohibitory injunction application by the Trust against Developer, save for commenting on the range of other financial remedies that could be available to them.
It remains to be seen how the Trust take this matter forward. At present there has been no action for an injunction to remove the affordable units.
The decision has important legal as well as practical implications for developers seeking to rely on the public interest limb of section 84 of the Act and highlights the importance of seeking to discharge any restrictive covenants prior to commencing development works and possibly even before planning permission is obtained.
It is clear that the Developer’s conduct had an impact on the Court’s ruling. If another developer had applied for modification prior to carrying out the development and if there wasn’t an alternative plot of land available for use, the outcome may have been much different.
