Don’t be cynical – motive is important when it comes to breaching restrictive covenants

The Supreme Court has for the first time considered the statutory power of the courts to modify or discharge restrictive covenants.

The power, contained in section 84 of the Law of Property Act 1925, allows freeholders burdened by a restrictive covenant to apply to the Upper Tribunal for the modification or discharge of that covenant on a number of prescribed grounds. One of those grounds is that the burden of the covenant impedes some ‘reasonable user’ of the land and is contrary to the public interest. This ground was considered in Alexander Devine Children’s Cancer Trust v. Housing Solutions Limited¹.

The facts

Housing Solutions constructed affordable housing units on land burdened by restrictive covenants against building for any purpose other than as a car park. Construction of those units was authorised by planning permission. The Trust owned the land that benefitted from the covenants and objected to the units during their construction on the basis they breached the covenants. Housing Solutions applied to the Upper Tribunal for the modification of the restrictive covenants to allow the units to be occupied. The Upper Tribunal accepted the application and agreed that the covenants should be modified. The Trust appealed and the case was eventually heard in the Supreme Court.

The decision

The Supreme Court refused to modify the restrictive covenants. As part of its judgment the Supreme Court stated that the Upper Tribunal had failed to consider two points in particular in reaching its decision to modify the covenants.

• Housing Solutions could have adopted an alternative layout that avoided breaching the covenants. In choosing not to pursue that alternative layout, Housing Solutions had acted cynically and solely in its own interest, at the expense of the interest of the Trust.
• The Upper Tribunal was only able to rule that modification of the covenants was in the public interest because the houses had been constructed at the point the Upper Tribunal was approached. The Trust had raised its objection during the construction of the units. The Supreme Court was reluctant to reward Housing Solutions for pressing on with construction after the objection had been raised.Again, this was viewed by the Court as cynical behavior.

The Supreme Court stopped short of agreeing with the Court of Appeal (which heard this case before it got to the Supreme Court) that a cynical breach would always outweigh the public interest ground for modifying or discharging a restrictive covenant.  However, the comments made by the Supreme Court suggest that the threshold for satisfying that ground will be raised where behaviour has been cynical.

What does this mean for developers?

This case serves as an important reminder that restrictive covenants should be considered very carefully where they affect a development. Whilst the procedure under section 84 is undoubtedly a useful tool, it cannot be used to override covenants that serve a valid purpose. In any case where the court is asked to look at a potential breach of a restrictive covenant, the court will look closely at the behaviour of the parties and at the alternative courses of action that could have been taken to avoid a breach.