In Re Millgate Developments Ltd’s application [2016] UKUT 515 (LC); [2016] PLSCS 339 the company applied to the tribunal under section 84(1) of the Law of Property Act 1925 to modify restrictive covenants, which it had knowingly broken while constructing units on land to provide affordable housing in order to comply with a section 106 agreement with the local authority.
The 13 properties that had been constructed on the land were ready for occupation, but remained vacant pending the outcome of the application. The company acknowledged that, if its application were to be unsuccessful, it would have to pay £1.64m to the local authority to provide equivalent affordable housing elsewhere.
Ground (aa) in section 84(1) applies where a restriction impedes some reasonable use of land and does not secure to those entitled to the benefit of it any practical benefits of substantial value or advantage, or if it is contrary to the public interest, if a monetary payment will provide adequate compensation for the discharge or modification of the covenant.
Did the covenants, which prevented use of the land except as an open space for parking vehicles, secure any practical benefit for the owners of the dominant land? The tribunal accepted that the presence of the affordable housing units would reduce the privacy and seclusion available in the grounds of the new hospice for children, which was being constructed on the dominant land, and that users would be affected by noise from the neighbouring gardens. The cost of planting trees along the boundary of the dominant land to counteract these effects could reach £70,000. Therefore, the covenants did secure practical benefits of substantial value or advantage to the owners of the dominant land.
Could the tribunal modify the covenants on the ground that they were contrary to the public interest instead? The existence of planning permission for the construction of affordable housing to meet a pressing social need was a highly material consideration. The tribunal accepted that it did not follow that private rights could necessarily be overridden, but decided that the public interest in play in this case – that the units should not remain empty – was sufficiently important and immediate to justify the tribunal exercising its power under section 84(1)(aa).
The tribunal was also satisfied that money would adequately compensate the owners of the hospice land for the modification of the covenants. But the company had one more hurdle to clear; the company had deliberately flouted its legal obligations and tribunals tend to frown on developers who do so: see Re George Wimpey Bristol Ltd’s Application [2011] UKUT 91 (LC).
The tribunal was not keen to foster the idea that it might be easier to modify covenants where a development has been completed, since this might encourage contract breakers to ignore objectors. However, it was also conscious of the effect that its decision would have on individuals on the waiting list for new homes and it considered that it would be an unconscionable waste of resources for the units to remain empty. Consequently, the tribunal decided to modify the covenants on condition that the company paid the owners of the hospice £150,000 as compensation for the loss or disadvantage caused.
Allyson Colby is a property law consultant
