Developers get their hands slapped by the Supreme Court

The Supreme Court has not, prior to the case of Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45, had cause to consider an appeal relating to section 84 of the Law of Property Act 1925 (LPA 1925). 

Section 84 empowers the Upper Tribunal to discharge or modify restrictive covenants where one or more specified grounds are satisfied in order to enable development of burdened land. 

Background

Millgate Developments Ltd (‘Millgate’) obtained planning permission to carry out a housing development on land that was unaffected by the restrictive covenant. It was a condition of the planning consent that Millgate provide affordable housing. In order to satisfy the condition, Millgate built 13 homes and bungalows on adjacent land (the Development Land) in breach of restrictive covenants, in favour of Alexander Devine Children’s Cancer Trust (‘the Trust’) which specifically prohibited the use of the Development Land for building or for any purpose other than parking of motor vehicles. 

Millgate was aware of the covenants and of objections raised by the beneficiaries of the restrictive covenants, but continued to build regardless. Importantly, other options were available to Millgate in respect of the provision of the affordable housing which could have avoided the affordable housing being constructed on the site adjacent to the hospice in breach of the covenant.

The Upper Tribunal

Millgate brought an application under section 84 LPA 1925 seeking retrospective modification based on section 84(1)(aa) on the basis that the restriction should be considered to be contrary to the wider public interest with money being adequate compensation. They also advanced an argument that the social housing development was in the public interest and the grant of planning permission supported this assertion. 

The Upper Tribunal found in Millgate’s favour, allowing the development which had already been built to remain and ordering Millgate to pay compensation of £150,000 to the Trust. The Trust wished to protect the Trust Land in order to provide a peaceful setting for the children and their families at the hospice and took the case to the Court of Appeal. 

Court of Appeal 

The Court of Appeal disagreed with the Upper Tribunal’s approach and held that the Upper Tribunal had erred in granting modification of the covenant and upheld the covenant meaning there was a risk that the Court could order the demolition of the affordable housing which had been built in breach of the covenant.

A crucial factor in the Court of Appeal's reasoning was that Millgate proceeded in flagrant disregard for the covenant, in full knowledge of its existence and without making an application for discharge or modification as envisaged by section 84 in advance of breaching the covenant and developing the land.

The Court of Appeal also found that the Upper Tribunal had failed to have proper regard to the availability of alternative for the delivery of the affordable housing and, as such, they had failed to correctly assess whether the covenants would be contrary to public interest. 

Housing Solutions Ltd (‘Housing’), who had by now acquired the social housing site from Millgate, appealed the decision.

Supreme Court

The Supreme Court upheld the decision of the Court of Appeal.

The Supreme Court focussed on the relevance of Millgate’s cynical breach. Lord Burrows (with whom Lord Kerr, Lord Lloyd-Jones, Lord Kitchin and Lord Hamblen agreed) concerned himself primarily with grounds two and four of the grounds of appeal. These being: 

1. Did the Upper Tribunal, at the jurisdictional stage, make an error of law by ignoring Millgate’s cynical breach while regarding as highly relevant the fact that, by the time of the application, 13 housing units had been built? 
2. Did the Upper Tribunal make an error of law by failing properly to take account of Millgate’s cynical conduct in the exercise of its discretion?

After careful consideration, the Supreme Court held that the effect of Millgate's cynical breach of covenant was to fundamentally alter the position in relation to the public interest.

Lesson to be learnt

It is clear that the Court is likely to take a dim view where a developer acts in a cynical manner and proceeds to carry out works in breach of a restrictive covenant. This case further sends a strong message to developers about the importance of seeking to discharge any restrictive covenants prior to commencing works.