Developers beware! Lessons to be learnt from a recent restrictive covenants case

14th January 2019

Following the case of Alexander Devine Children’s Cancer Trust v (1) Millgate Developments Ltd and (2) Housings Solutions Ltd [1], a developer who built homes on a green belt of land in breach of a restrictive covenant faces the possibility of having to demolish all 13 homes.  Specialist Real Estate Litigators Martin McKeague and David Manda explain this important decision.

Millgate case

Millgate Developments Ltd (Millgate) obtained planning permission to carry out a housing development on land that was unaffected by the restrictive covenant. It was a condition of the planning consent that Millgate provide affordable housing. In order to satisfy the condition, Millgate built 13 homes and bungalows on adjacent land (the Development Land) in breach of restrictive covenants which specifically prohibited the use of the Development Land for building or for any purpose other than parking of motor vehicles. Millgate was aware of the covenants and of objections raised by the beneficiaries of the restrictive covenants, but continued to build regardless. (It should be noted that the beneficiaries of the covenant did not object to the planning permission.)

The Development Land was adjacent to a children’s hospice (the Trust Land). The Trust Land had been gifted to the Trust by the local farmer and had the benefit of a covenant.

In 2016, the Upper Tribunal (Lands Chamber) decided the case in favour of Millgate and allowed 13 houses which had been built on the Development Land in breach of the restrictive covenant to remain. Millgate was ordered to pay compensation of £150,000, but the beneficiaries wished to protect the Trust Land in order to provide a peaceful setting for the children and their families. The beneficiaries therefore took the case to the Court of Appeal.

Court of Appeal Decision

Section 84 of the Law of Property Act 1925 (the Act) sets out a power for the Upper Tribunal, in certain circumstances, to discharge or modify restrictive covenants affecting land.

However, the Court of Appeal confirmed that section 84(1B) of the Act also required the consideration of any other material circumstances and found that the Upper Tribunal had put the significance of the planning consent too high. The planning consent did take into account the private property rights afforded to the beneficiaries of the covenant but the court also made clear that there is an equal public interest in ensuring that private property rights are respected in dealings between parties.

The Court of Appeal also found that the Upper Tribunal had failed to have proper regard to the availability of alternative affordable housing provision (in that Millgate was able to pay a commuted sum of £1.6 million to the local authority to provide social housing elsewhere in the locality). Therefore the Upper Tribunal had failed to correctly assess whether the covenants would be contrary to the public interest.

Finally, the tribunal had failed to attach sufficient weight to Millgate’s deliberate and unlawful conduct. Millgate had been aware of the restrictive covenant and deliberately dismissed the objections it received about the development. The beneficiaries were easily identifiable and yet Millgate did not approach them to seek a release or modification of the covenant. It also failed to apply to discharge or modify the covenant under section 84 of the Act before it started building.

The Court of Appeal held that, under the circumstances, no discretion had arisen under section 84 and subsequently there was no basis upon which the Tribunal could grant that the restrictive covenant be modified so as to permit the residential development. Accordingly, the Trust’s appeal was allowed. The result is that the development has been found to be unlawful and is at risk of having to be demolished.

WM Comment

The Court of Appeal was very critical in its assessment of Millgate’s conduct. It confirmed that, even if the public interest was justified, it would not have exercised its discretion to modify or discharge the covenant due to Millgate having “acted in a high-handed manner by proceeding to breach the restrictive covenants without any justification or excuse”. The court stated that there was need “for due protection of the Trusts’ rights and to the general public interest in having the section 84 procedure invoked at the proper time and in the proper manner”.

The key takeaways for developers are to ensure that their conduct is exemplary when discovering and dealing with beneficiaries of restrictive covenants and that any application under section 84 is made before building works commence.

This case subsequently went to the Supreme Court. For an update and the Supreme Court’s decision, read more in Claire Acklam’s round up of development cases in 2020.

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[1] [2018] EWCA Civ 2679