Developers Beware – Supreme Court Dismisses Appeal To Modify Restrictive Covenants Which Had Been Breached’

The Supreme Court recently dismissed an appeal by a housing developer to modify restrictive covenants where they were in deliberate breach. The development was built on land adjoining the site of a children’s hospice which had the benefit of the covenants.

The judgment in the case of Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd highlights the importance of instructing a solicitor to review and report on the Land Registry title for a prospective property or land acquisition. This is particularly true where there is an aspiration for future development, to ensure that any intention for the property or land is not in any way restricted.

If there are restrictive covenants burdening the property or land, then there are a few options to consider:

• Seek an indemnity insurance policy to protect against any claims made under the covenants;
• Seek to get a release from the party with the benefit of the covenants; or
• Apply to the Upper Tribunal to modify or discharge the covenants.

Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd

The background of the case was that part of the land now owned by Housing Solutions Ltd was burdened by the following restrictive covenants:

• The land could only be used for car parking; and
• A building structure should not be built on the land.

The land was previously owned by Millgate Developments Ltd, who obtained planning permission in July 2013 for a residential development, but had prior knowledge of the restrictive covenants.

In July 2015, Millgate applied to the Upper Tribunal for modification of the restrictive covenants in accordance with the Law of Property Act 1925 s 84(1) on the grounds that:

• It impended reasonable use of the land;
• It was contrary to public interest; and
• The Trust could be compensated.

At the time of the Upper Tribunal case, 13 of the houses had already been built.

The Upper Tribunal granted Millgate’s application to modify the covenants, however this decision was subsequently appealed by the Trust and the Court of Appeal overturned the decision.

Housing Solutions Ltd acquired the land from Millgate in September 2015 and appealed to the Supreme Court.

The Supreme Court rejected the approach of the Court of Appeal and refused to modify or discharge the covenants, on the basis that:

• Ultimately the breach could have been avoided. Millgate could have applied for planning permission for an alternative site layout, so that any buildings were on the unencumbered part of the site. This would have respected the Trust’s rights and achieved a satisfactory outcome for the developer.
• Millgate was only able to satisfy the public interest test in section 84(1) because they had already built 13 homes.

The Upper Tribunal’s failure to take either of these factors into account in the exercise of its discretion constituted an error of law and the Supreme Court rejected the appeal.

As a result of this decision, the Courts will now be reluctant to allow developers to profit where they have knowingly breached a restrictive covenant. If you acquire land or property for development which is burdened by a restrictive covenant, then it is thoroughly recommended that you seek legal advice at the earliest opportunity to avoid an unfavourable decision in the Court or face enforcement from a beneficiary of the covenant.