Restrictive covenants – Discharge or modification – Public interest – Section 84(1)(aa) and 84(1A)(b) of Law of Property Act 1925 – Application to modify restrictive covenants to permit construction of social housing – Housing already built by date of application – Appellant appealing against refusal of application – Whether appropriate to grant modification on ground that restriction contrary to public interest – Appeal dismissed
The appellant’s predecessor in title (M) built 23 social housing units on previously developed land within the green belt in Maidenhead, Berkshire, in breach of restrictive covenants benefiting the adjoining land, which had been gifted to the respondent trust for the construction of a children’s hospice. In May 2015, M agreed to sell the completed site to the appellant.
After completing the development, M applied to the Upper Tribunal, under section 84 of the Law of Property Act 1925, to modify the restrictive covenants that prohibited the use of part of the land for any purpose other than parking vehicles. The respondent objected to the application.
Section 84 conferred power on the tribunal to order the discharge or modification of a restrictive covenant on five grounds. At least one of the grounds had to be satisfied (the jurisdictional stage) before the tribunal could decide whether to exercise its discretion. The ground under section 84(1)(aa) and (1A)(b), relevant in the present case, was where the restriction was impeding the reasonable user of land contrary to the public interest.
The tribunal granted the application on condition that the appellant paid £150,000 to the respondent as compensation. The tribunal considered that the public interest outweighed all other factors and it would be an unconscionable waste of resources for the remaining houses to stay empty: [2016] UKUT 515 (LC); [2016] PLSCS 339. The Court of Appeal overturned that decision and refused the application: [2018] EWCA Civ 2679; [2019] EGLR 7.
The appellant appealed. Issues arose whether: (i) the tribunal, at the jurisdictional stage, made an error of law by ignoring M’s cynical breach of the restrictive covenants; and (ii) the tribunal failed properly to consider M’s conduct in the exercise of its discretion.
Held: The appeal was dismissed.
(1) A narrow interpretation was required of what was meant by “contrary to the public interest”. It was clear from the statutory words that if one was satisfied that the proposed use of the land was reasonable (as in the present case) one had to ask whether the impediment of that use by the continuation of the restrictive covenant was contrary to the public interest. The question to be asked was not the wider one of whether it would be contrary to the public interest to maintain the restrictive covenant. The wording required one to focus more narrowly on the impeding of the reasonable user of the land and ask whether that impediment, by continuation of the restrictive covenant, was contrary to the public interest. On the correct interpretation of the 1925 Act, the good or bad conduct of the applicant was relevant at the discretionary stage only and not at the jurisdictional stage. Accordingly, the tribunal did not err in law at the jurisdictional stage by ignoring M’s cynical breach of covenant while regarding as highly relevant the fact that, by the time of the application, 13 housing units had been built: SJC Construction Co Ltd v Sutton London Borough Council [1975] 1 EGLR 705, Winter v Traditional & Contemporary Contracts Ltd [2007] EWCA Civ 1088; [2008] 1 EGLR 80, Re The Trustees of the Green Masjid and Madrasah [2013] UKUT 355 (LC); [2013] PLSCS 243 and Lawrence v Coventry (t/a RDC Promotions) [2014] 1 EGLR 147; [2014] EGILR 57 considered.
(2) It was only appropriate for an appellate court to interfere, at the discretionary stage, with the decision of the specialist tribunal charged by parliament with exercising the discretionary power to decide matters under section 84 if that tribunal had made an error of law. Once a jurisdictional ground had been established, the discretion to refuse the application should be cautiously exercised. However, something had gone fundamentally wrong with the tribunal’s exercise of discretion on the particular facts of this case such that there had been an error of law. It was clear that the tribunal had taken into account the cynical nature of the breach by M but failed to take into account, in the exercise of its discretion, two important factors concerning the effect of M’s conduct.
Had M initially applied for planning permission to build the affordable housing on land unencumbered by the covenant on another part of the site, the local planning authority indicated that permission would have been granted. There would have been no need to apply to discharge the covenant under section 84 and the hospice would have been unaffected. Further, had M respected the rights of the respondent by applying under section 84 before starting to build on the application site, it was likely that the developer would not have been able to satisfy the “contrary to public interest” jurisdictional ground. By going ahead without first applying under section 84, M presented the tribunal with a fait accompli where the provision of affordable housing meant that it could satisfy the “contrary to public interest” jurisdictional ground. It was important to deter such a cynical breach.
At the jurisdictional stage, the tribunal was correctly looking at matters as they stood at the date of the hearing and not as they stood prior to the breach of covenant. But at the discretionary stage the importance of M’s cynical breach of covenant was highly relevant since its effect had been to alter fundamentally the position in relation to the public interest. Accordingly, the tribunal’s failure to take the omitted facts into account in the exercise of its discretion constituted an error of law.
(3) Since the tribunal had not relied on Lord Sumption’s comments in Lawrence v Coventry (t/a RDC Promotions) [2014] EGILR 57, any dispute about whether or not it had been correct to do so did not arise.
(4) The tribunal had expressly taken into account M’s ability to satisfy its planning obligation by making alternative provision of equivalent affordable housing elsewhere. However, it regarded that alternative as outweighed by the waste of not using the affordable housing already built. Accordingly, the tribunal had not erred on that point.
Martin Hutchings QC and James McCreath (instructed by DAC Beachcroft LLP of Bristol) appeared for the appellant; Stephen Jourdan QC and Emily Windsor (instructed by Russell-Cooke LLP) appeared for the respondent.
Eileen O’Grady, barrister
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