LEGAL NOTES A recent decision serves as a warning to developers who try to push through schemes in breach of restrictive covenants.
Key points
- Developers who implement planning permission in breach of restrictive covenants do so at their own risk
- Landowners who benefit can enforce the covenants without having objected to the application for planning permission
- The court will be disinclined to reward high-handed and opportunistic behaviour, or parties who deliberately flout their legal obligations
What should developers do when restrictive covenants impede development? Tempting though it may be to try to steamroller through a development, despite objections, the Court of Appeal decision in Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and another [2018] EWCA Civ 2679; [2018] PLSCS 209 suggests that this would be unwise.
The developer had knowingly broken a restrictive covenant while constructing 23 units of affordable housing to comply with an obligation in a section 106 agreement in respect of a bigger and more valuable housing development nearby. The developer was aware of the covenant and of objections to its development on the ground that the outdoor facilities of a children’s hospice, which was to be constructed on the land that benefited from the covenant, would be seriously compromised as a result of its actions. Even so, the developer pressed on and did not apply to modify the covenant until the development was completed.
First instance
The developer’s application succeeded at first instance on ground (aa) of section 84(1) of the Law of Property Act 1925. It 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 is contrary to the public interest, and a monetary payment will provide adequate compensation for the discharge or modification of the covenant.
The Upper Tribunal (Lands Chamber) (the UT) considered that it would be an unconscionable waste of resources if much needed properties were to remain empty, or to be demolished, and that the public interest in the provision of social housing outweighed all other factors in this case. So it agreed to modify the covenant on condition that the developer paid £150,000 to compensate the hospice for loss of amenity and for the cost of the remedial planting and landscaping required to provide privacy for those using the hospice garden.
Public interest
The Court of Appeal has reversed the decision. It held that the UT had attached too much weight to the planning permission and that the restrictive covenant was not contrary to the public interest because the developer had permission to construct affordable housing. Re Bass Ltd’s Application [1973] 228 EG 927 confirms that, although the grant of planning permission indicates that a proposed development will not be harmful, it does not follow that it is positively in the public interest for development to take place.
Sales LJ (now Lord Sales), who spoke for the court, explained that the public interest requires contractual and property rights to be respected in dealings between private persons. In Re Collins’ Application [1975] 30 P&CR 527, the Lands Tribunal ruled that, for a section 84 application to succeed on the “contrary to the public interest” ground, that interest must be “so important and immediate as to justify the serious interference with private rights and the sanctity of contract”. Therefore, when applying the “contrary to the public interest” test in section 84, the court or tribunal should consider whether an applicant had tried to negotiate a waiver of a restrictive covenant, or had applied to modify or discharge it, before knowingly breaking it.
The position might be different and a waste of resources might be relevant to the public interest if, despite due diligence, a developer failed to identify the existence of a covenant until building in breach of it, and then sought to regularise the position, or had had reason to believe that the covenant would be waived and had therefore had a reasonable excuse for building without making an application under section 84. But that was not what had occurred in this case.
Conduct and discretion
The developer had acted with its eyes wide open and had broken the restrictive covenant even though it could have provided the affordable housing required by the local authority without violating the restriction. It could have constructed the buildings on a part of the site that was not affected by the covenant, or could have paid the local authority £1.64m for the provision of social housing elsewhere.
The Court of Appeal ruled that this “deliberately unlawful and opportunistic” conduct should have been taken into account while the UT was determining whether the statutory conditions for modifying the covenant were satisfied. Instead, it postponed consideration of the developer’s behaviour and took it into account while deciding whether or not to exercise its discretion to modify the covenant. But that had been wrong; no discretion to modify the covenant had arisen.
Furthermore, even if the discretion had arisen, the developer’s application should have been refused. In Re George Wimpey Bristol Ltd’s application [2011] UKUT 91 (LC); [2011] PLSCS 146, a developer had tried to steamroller through a scheme by changing the character and appearance of land in the hope that the tribunal would, as a result, allow development to continue. But the tribunal refused to reward the developer for flouting its legal obligations. The same approach should have been taken to the fait accompli presented by the developer in this case – not least because there should not be any incentives for would-be contract breakers to press ahead with development despite objections from the beneficiaries of covenants.
What next?
The Court of Appeal’s decision was robust. But it is understood that the developer is seeking permission to appeal. Practitioners will watch the case with interest and, if the trust wins, will be keen to see whether the developer will have to demolish the affordable housing or will be allowed to pay damages for the breach of covenant instead.
Allyson Colby is a property law consultant
