The Supreme Court dismisses appeal of housing developer for “cynical breach” of restrictive covenant
Helena Bannister discusses the recent case of Alexander Devine Children’s Cancer Trust v Housing Solutions Limited.
In the recent case of Alexander Devine Children’s Cancer Trust v Housing Solutions Limited 2020, the Supreme Court considered, for the first time, the power conferred upon the Upper Tribunal under section 84 of the Law of Property Act 1925.
In July 1972 a farmer sold part of their land (“the Application Land”) to a company (“SSPC”) that owned adjacent land (“the Unencumbered Land”). As part of the sale, the parties agreed restrictive covenants that (i) no building structure would be built on the land and (ii) the land would be used for car parking. The Application Land and the Unencumbered Land together formed a plot referred to as the “Exchange House Site”. The farmer’s son later inherited the land next to the Application Land and made a gift of part of it to the Alexander Devine Children’s Cancer Trust (“the Trust”) for the construction of a hospice for seriously ill children. Millgate Developments Ltd (“Millgate”), aware of the restrictive covenants, acquired the Exchange House Site in 2013. Millgate later applied for and obtained planning permission to build 23 affordable housing units on the Exchange House Site in 2014. Millgate completed the development and in July 2015 made an application to the Upper Tribunal seeking modification of the restrictive covenants, pursuant to section 84 of the Law of Property Act 1925. Both the Trust and the farmer’s son, entered objections to the application.
Under section 84, there are five statutory grounds upon which the Upper Tribunal may rely to discharge or modify restrictive covenants. The ground of most significance in this case allowed for the discharge or modification ‘If the restriction impeding the reasonable user of land is contrary to public interest’. Relying on this ground, the Upper Tribunal granted Millgate’s application and held that the restrictive covenants should be modified, stating that the ‘public interest outweighs all other factors in the case. It would indeed be an unconscionable waste of resources for those houses to remain empty’.
The Trust appealed and the case was heard by the Court of Appeal (“COA”), by which point Millgate had transferred the development to Housing Solutions.
Court of Appeal
Housing Solutions were now the respondent and, in November 2018, the COA overturned the decision of the Upper Tribunal. Housing Solutions subsequently appealed to the Supreme Court.
On 6 November 2020 the Supreme Court dismissed the appeal of Housing Solutions. Section 84 applications to the Upper Tribunal consist of two parts - a jurisdictional stage, in which the applicant has to establish that a statutory ground arose; and a discretionary stage, in which the Upper Tribunal exercises its discretion as to whether the covenant should be modified or discharged.
The central issue considered by the Supreme Court was the weight to be given to Millgate’s conduct at each stage. Lord Burrows used the phrase “cynical breach” as a shorthand description of Millgate’s conduct, in deliberately breaching the restrictive covenant with a view to making profit. The Supreme Court held that this conduct was not relevant at the jurisdictional stage. However, it was appropriate to consider Millgate’s cynical breach at the discretionary stage.
The court upheld the principle that it would only be appropriate to interfere with the discretionary decision of a Tribunal if the Tribunal had made an error in law in application of that discretion. This was deemed to be the case as, when exercising their discretion, the Upper Tribunal failed to consider two “omitted factors”:
- Millgate could have built on the Unencumbered Land, not the Applicant Land
- Had Millgate respected the rights of the Trust by applying under section 84 before starting to build on the Application Site, it is likely the developer would not have been able to satisfy the public interest ground
Millgate’s decision to build the homes and later ask the Upper Tribunal to strike a balance between the public interest of the affordable homes and that of the children’s hospice, was considered as presenting the Upper Tribunal with a ‘fait accompli’, and such conduct ought not to be condoned.
This case demonstrates that developers should ignore restrictive covenants impeding land at their peril, and promotes the use of early section 84 applications or the negotiation of a release of the covenant prior to building. Furthermore, this case provides guidance in relation to the scope that ought to be applied to the ground of public interest - cynical breaches of restrictive covenants ought to be considered during the discretionary stage of the application, rather than the jurisdictional.