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Warning for developers the risks of carrying out a development in breach of covenant

In the recent case of The Alexander Devine Children’s Cancer Trust v Millgate Developments Limited and others [2018] EWCA Civ 2679 (LC), the Court of Appeal reversed the decision of the Upper Tribunal (UT), to retrospectively modify a restrictive covenant to allow the development of land for social housing purposes, under s.84(1) of the Law of Property Act 1925. 

S.84(1) allows the UT to discharge/modify restrictive covenants, if it impedes the reasonable use of land if:

  1. It does not secure to the persons entitled to the benefit of it any practical benefits of substantial use or advantage to them; or
  2. Is contrary to the public interest.

The developer Millgate applied for planning permission to build affordable housing on a parcel of land, as part of a condition relating to another commercial development. The land on which the affordable housing was to be built was subject to restrictive covenants which provided that (1) no building was to take place on the land and (2) the land was to be used for any purpose, other than as a car park. Millgate were aware of the restrictions. The restrictive covenants were for the benefit of the Alexander Divine Cancer Trust and Mr Smith. Neither the Trust nor Mr Smith objected to the planning application.

Millgate obtained planning permission and began developing the site. Mr Smith became aware of the works. He wrote to Millgate pointing out that the works were in breach of covenant and requested that works were stopped. Millgate proceeded with the works and the works were completed on 10 July 2015. On 20 July 2015, Millgate issued an application to the UT, seeking modifications to the restrictive covenants under s.84. Both Mr Smith and the Trust objected to the application. As a result of the objection, Millgate entered into an agreement with the local Council, whereby they paid the Council £1,639,904 to allow Millgate to make alternative provision for affordable housing, if the application to modify the covenants was refused.

The UT granted the application on the basis that the construction of affordable housing was in the interest of the public and awarded the Trust £150,000 in compensation. Millgate subsequently transferred the houses to a Housing Association (to include 13 that had been built of the land subject to the covenants).

Mr Smith and the Trust appealed.

The Court of Appeal held:

  1. The UT fell into error when it applied the guidance of Lord Sumption in the case of Fen Tigers [2014] AC 822, which dealt with injunctive relief relating to noise nuisance. In applying this guidance, the UT had not given proper weight to the private property rights in issue.
  2. When considering if the covenants were “contrary to public interest”, the UT should have considered the actions of Millgate and the fact that they had not made an application before breaching the covenants, in order to test the public interest question. Furthermore, the land was in a green belt, which should have raised a presumption against its development. As such, the UT could not have been satisfied that the covenants were contrary to public interest.
  3. The UT failed to give proper consideration to the fact that there was an alternative provision for affordable housing, when considering the public interest.
  4. The actions of Millgate were “high handed and opportunistic”. The UT had failed to identify a public interest consideration which prevailed over the actions of Millgate

Comment:

Millgate were aware of the covenant and could have sought to negotiate a release/modification of the covenant from the beneficiaries or they could have submitted an application under s.84 prior to commencing the works. Developers should therefore be wary of acquiring land subject to these types of covenants and not to carry out works which are in breach of covenant. Covenants like these can have a catastrophic effect on the commercial value and use of property, therefore taking expert advice on their enforceability before acquisition is paramount.

Morgan LaRoche have an expert team who deal with an extensive range of property disputes to include disputes involving restrictive covenants. If you would like to find out more about this case or have a query in relation to restrictive covenants, please contact the Property Dispute Resolution team on 01792 776 752.

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