Let us suppose you are a property developer with your eyes on a plot of land that will make a nice little residential development. You know there are covenants on the title restraining development, but they were imposed a very long time ago; there has been a lot of other development in the area since; you have planning permission for your project; and, frankly, the covenant barely adds to the amenity of those protected by it. Unfortunately, the covenant owners scent the rich smell of money, and ask for an obscene amount of it to release their rights – so much as to make the project unviable.
You are in a bind because if you delay with your development your planning permission will expire, and with construction costs booming, you really want to make progress. So you give the word for the bulldozers to move in. But because you want to make sure you are doing things the right way (and to make your eventual house sales easier), you also apply to the Upper Tribunal (Lands Chamber) to modify or discharge the covenant in question under section 84 of the Law of Property Act 1925.
By the time your application wends its way to a hearing in 18 months’ time, your development is pretty much complete, and your lovely new houses are on the market. In accordance with the advice you have received, the Upper Tribunal agrees that the covenant impedes your development; agrees the development would be an eminently reasonable use of the land; and also agrees the covenant does not secure practical benefits of value or advantage to its owner. Job done and covenant discharged, surely?
Perhaps surprisingly, the answer is no, not necessarily. That is because proving any of the various grounds in section 84 is a necessary condition for modifying or discharging the covenant, but not a sufficient condition. What many applicants overlook is the discretion residing in the tribunal, implicit in the reference in the legislation to it having “power” so to act. It is therefore entirely possible for the tribunal to hold that, even if a ground has been made out, the covenant should not be discharged. This will be rare. As noted in the current last word on the subject, Rogers and another v Dinshaw and others [2024] UKUT 1 (LC); [2024] PLSCS 11: “In circumstances where jurisdiction is established, the tribunal will not normally decline to exercise its discretion unless there is a compelling reason for it no to do so.”
A number of recent cases illustrate the workings of this discretionary stage.
“Cynical breach” cases
Perhaps the largest category of such cases is those where the developer has rushed its development, aiming for a fait accompli which the courts are unlikely to require undoing (although a couple of celebrated cases show the courts will require demolition in appropriate cases).
Two examples. First, in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45; [2021] EGLR 1, the developer constructed 13 houses in breach of covenant and in the face of objections from the beneficiary of the covenant. The Court of Appeal and the Supreme Court were clear that the application should not have succeeded at the discretionary stage, and stressed the importance of deterring a cynical breach. Secondly, in Fosse Urban Projects Ltd v Whyte and others [2023] UKUT 286 (LC); [2023] PLSCS 205, the Upper Tribunal again declined to exercise its jurisdiction in favour of a developer which had made out grounds (a) and (aa) of section 84, but had deliberately adopted a “build-first-and-apply-later” approach.
Conversely, in Howard and others v Surana [2023] UKUT 248 (LC); [2023] PLSCS 179, where again construction work in breach of the covenant had also already taken place by the hearing, the tribunal exercised its discretion in favour of the developer, explaining that it would not thereby be approving or rewarding cynical conduct by modifying the restrictions to regularise the position for the future, because the right to seek a financial remedy for the past breach would remain.
Similarly, in Rogers v Dinshaw, the tribunal used its discretion in favour of the developer, largely because of its evidence that it had not known of the existence of the covenant until after it had completed the development. That enabled the judge to say this was not a situation where an applicant, with profit in mind, cynically breached a covenant in the expectation that no objections would arise or that those with the benefit could be “ameliorated with a financial inducement.”
Further, in a subsequent stage of the Alexander Devine saga, the tribunal decided finally to modify the building restrictions in Housing Solutions v Smith [2023] UKUT 25 (LC). In doing so, it said: “It is not for the tribunal to pursue a mission of punishment where the modification of the covenants will not injure [the objector], where [the developer] has already paid a heavy price for its misconduct, and where the cynical breach of covenant has made no difference to the fact of the tribunal’s jurisdiction.”
Lastly, in Kay v Cunningham and another [2023] UKUT 251 (LC); [2023] PLSCS, where again cynical breach was alleged, the tribunal nevertheless used its power to order modification of the covenant.
Other cases
The tribunal has shown it is prepared to exercise its discretion against modification in other cases where the conditions under section 84 have otherwise been satisfied. These include cases where the application is tainted by unlawful or dishonest conduct (for example, where the applicant has cut down protected trees or demolished protected buildings); numerous cases where the covenant is recent and, worse, where the applicant is the original covenantor; cases where the outcome would simply be unfair (as in Re: Barters’ Application [2017] UKUT 451 (LC); [2017] PLSCS 213); and more technical cases (for example, where the objectors have the benefit of easements over the application land – see Re: Clarke’s Application [2015] UKUT 44 (LC); [2015] PLSCS 58).
So the general message we can offer is: in preparing for or responding to a section 84 application, pay just as much attention to the discretionary stage as to the jurisdictional stage.
Guy Fetherstonhaugh KC and Emily Windsor are barristers at Falcon Chambers
