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Develop and be damned is not a good strategy

The Court of Appeal has held that public policy interests do not justify the release of restrictive covenants where a developer deliberately builds houses on land in breach of those covenants.

Background

Millgate, a property developer, obtained planning permission for, and then built, houses and flats on a development site. Part of the land was subject to a restrictive covenant that prevented residential development. Millgate was aware of the covenant but chose to ignore it. The houses built in breach of the covenant were subsequently sold to a housing association for social housing use. Millgate then applied for the restrictive covenant to be released under the procedures in section 84 of the Law of Property Act 1925.

Releasing restrictive covenants

Section 84 allows the Upper Tribunal (Lands Chamber) to order the release of restrictive covenants on a number of grounds. These include (in section 84(1A)) that the restrictive covenant confers no practical benefit of substantial value on the person who benefits from the covenant, or that the restriction on use is contrary to the public interest.

In the current case, the Upper Tribunal, presented with a situation where land was now available for social housing pursuant to a planning permission that required its provision, released the restrictive covenant on the ground that it was contrary to the public interest for the covenant to remain. The grant of planning permission, and the provision of social housing pursuant to it, meant that the public interest ground had been satisfied.

Appeal

The Alexander Devine Children’s Cancer Trust owned the land with the benefit of the restrictive covenant. It wanted to build a hospice on its land. The grounds of that hospice would now abut a residential development reducing the amenity of its facilities. The charity appealed against the order of the Upper Tribunal. The Court of Appeal has allowed the appeal and reinstated the covenants. It is now open for the charity to seek an injunction requiring the houses to be demolished and the land reinstated to be open land. Whether or not the injunction would be granted or damages granted in place of an injunction is a different issue that was not the subject of the appeal proceedings.

The Court of Appeal’s decision

A number of points of interest arise from the Court of Appeal’s decision that provide useful guidance on when the public interest ground for the release of a restrictive covenant will be available. In summary these are:

  • The grant of a planning permission does not, of itself, mean that the public interest ground is satisfied. Planning permission says, in effect, that a particular development will be allowed. It does not necessarily mean that the carrying out of the development will be in the public interest so that any covenants that impede the development should be released;
  • There is a public interest not only in enabling the use of land by releasing covenants but also in having private contractual rights such as restrictive covenants respected. In cases where it is in the public interest to order the release of restrictive covenants, the public interest reasons for releasing the covenants should be clearly set out by the Upper Tribunal;
  • When determining whether it is in the public interest to release restrictive covenants, the Upper Tribunal should consider whether the applicant has made fair use of the opportunities to negotiate a waiver of the covenants or to test the public interest arguments by applying to the Upper Tribunal before development proceeds. Where the applicant knowingly rides roughshod over the proper procedures, this is highly relevant when determining whether it is in the public interest to release the covenants. It is contrary to the public interest for a developer knowingly to build in breach of a covenant and then present the Upper Tribunal with a fait accompli of a completed development and ask for the covenants to be removed to cure its own lack of regard for the rights of others;
  • When determining whether the public interest ground is satisfied, the Upper Tribunal has to take into account all material circumstances. In the current case, there were alternative options for the developer that would have avoided the need to build social housing on the land by making a commuted payment to the local authority for alternative housing or by designing the overall development to allocate other land within the site for social housing. By not taking those factors into account, the Upper Tribunal had erred in its decision-making process in holding that the public interest ground was satisfied;
  • In exercising its discretion in the current case, the Upper Tribunal failed to attach sufficient weight to the “deliberately unlawful and opportunistic conduct of Millgate in the circumstances of this case, which was directed to subverting the proper application of section 84 without good reason.”

Conclusion

It is clear that restrictive covenants can be released where planning considerations mean that it is in the public interest to do so. Section 84 specifically provides that the Upper Tribunal must take into account the development plan and any declared or ascertainable pattern for the grant or refusal of planning permission in the relevant areas, as well as the period at which and context in which the restriction was created or imposed and any other material circumstances. However, public policy will not allow developers carte blanche to develop and damn the consequences of ignoring restrictive covenants.

The Alexander Devine Children’s Cancer Trust v Millgate Developments Limited [2018] EWCA Civ 2679

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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