Ignore Covenants at your Peril

Article

17 January, 2019

Those dealing with the development of land for housing should take note of the recent case of The Alexander Devine Children's Cancer Trust v Millgate Developments Ltd and others [2018] EWCA Civ 2679 (LC), in which the Court of Appeal (CoA) refused to allow the modification of restrictive covenants that prohibited the development of land, where a development had knowingly been carried out in breach.

This case is of importance for developers and registered provider as planning permission will not automatically allow for covenants to be modified or removed. Additionally, the courts will consider any actions of the developer resulting in deliberately and knowingly breaching the covenants.

The Background

In July 2013, the developer (Millgate) applied for planning permission to build 23 affordable housing units on land known as Exchange House. Millgate was required to provide affordable housing to satisfy a planning condition relating to a separate development of houses for commercial sale. Part of Exchange House was burdened by restrictive covenants that prohibited the land being used for building or for any purpose other than a car park, and as such 13 of the units were built on the burdened land.

The restrictive covenants benefitted the adjoining land owned by Mr Smith, which he had donated to the trustees of the Alexander Devine Children's Cancer Trust (the Trust). Mr Smith was unaware of the planning application and at the time of the planning application, the Trust was unaware that it had the benefit of the restrictive covenants and subsequently did not object to the development.

Millgate obtained planning permission for the development and began building on the site. Once the development had begun, Mr Smith objected to the works on the grounds that the adjoining land had the benefit of the restrictive covenants. On the adjoining land, a hospice was to be built to accommodate terminally ill children, which included private gardens for the children. The upper floors of some of the affordable units overlooked the hospice and its gardens, and some of the units backed onto the boundary with the hospice. Mr Smith requested Millgate to stop the building work, but this did not happen.

In July 2015, Millgate applied to the Upper Tribunal (Lands Chambers) (UT) to modify the restrictive covenants pursuant to s84 of the Law of Property Act 1925 (LPA) to allow the units to be occupied. Mr Smith and the Trust objected. Also, in July 2015, construction of the hospice began.

In February 2016, Millgate entered into an agreement with the local council to allow them to make alternative provision of affordable housing in the event that the restrictive covenants remained in place and enforceable by paying to the council £1,639,904 as part of the alternative affordable housing provision in the planning permission. The council could use that sum to secure equivalent affordable housing elsewhere.

In November 2016, Millgate successfully applied to the UT for the restrictive covenants to be modified to allow the affordable units to be occupied and the Trust was awarded £150,000 in compensation. Millgate then transferred the units to a registered provider in February 2017.

The Appeal

The Trust appealed against the UT's decision on the following four grounds however, they did not appeal against the compensation of £150,000:

The UT should not have relied on the previous case of Coventry (t/a RDC Promotions) v Lawrence, in which an injunction was not granted as planning permission had been obtained in relation to a nuisance action.

The UT were mistaken in the interpretation of the public interest condition by treating the fact that the affordable units had been built as a highly relevant factor.

They failed to have regard for the alternative affordable housing provision.

They failed to attach appropriate weight to the fact that Millgate had deliberately and knowingly breached the restrictive covenants by proceeding with the development.

The CoA allowed the appeal and held that the condition for public interest had not been satisfied and the approach in Coventry v Lawrence should not have been applied as it did not give proper weight to the private property interests and attached too much significance to planning permission and public benefit.

The CoA also noted the Trust had not objected to Millgate's planning application as it was unaware of the covenants. Even if it had been aware, it was not required to object to the grant of permission as a condition for being able to enforce the covenants.

The way in which an applicant behaves in building on the land, including its dealings with the benefitting party is also relevant. In this case, as Millgate had deliberately circumvented the proper procedures for testing and respecting the Trust's rights, the UT could not properly be satisfied that it was contrary to the public interest for the covenants to be maintained.

Decision

The CoA decided that since Millgate had acted in a high-handed way by breaching the restrictive covenants without any justification or excuse, the UT should have exercised its discretion and refused Millgate's application and as such the CoA made an order to carry this outcome into effect and refuse Millgate's application to discharge/modify the restrictive covenants. They also reiterated that the case of Re Collins' remains the proper approach to modification and to establish a public interest ground it must be shown that that the interest is "so important and immediate as to justify the serious interference with private rights and sanctity of contract".

Moving forward it is important that those looking to develop land takes the necessary steps and this case is a warning to developers including registered providers developing land or acquiring new build units of the risks involved in carrying out development in breach of a restrictive covenant, even if planning permission has been obtained without objection or if the building has already been constructed.

If you are looking for any more information with regards to our services view our Housing & Regeneration section. You can also contact Lyndsay Baxter in our Housing & Regeneration department via email or phone on 01772 224384. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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