Back in December 2018, we reported on the Court of Appeal’s decision in The Alexander Devine Children's Cancer Trust v Millgate Developments Ltd, a case concerning a developer’s application to discharge a restrictive covenant it had built residential homes knowingly in breach of. The case has now been before the Supreme Court, who agreed with the Court of Appeal that the conduct of the developer meant that it wasn’t entitled to have the covenant retrospectively discharged under the “public interest” limb of s.84 Law of Property Act 1925, albeit on a different analysis.
It was held the so-called “cynical” conduct of the development company was relevant to the application, but only at the second, “discretionary”, stage of the s.84 assessment. The first instance decision of the Upper Tribunal to discharge the covenant erred in law by failing to consider two specific factors relating to conduct.
Developers should be mindful of this ruling when conducting their initial due diligence on a development site and considering tactics for dealing with restrictive covenants and potential agreements with neighbours. This should be done on a prospective, and not retrospective, basis.
Background
The facts, set out in more detail in our piece on the Court of Appeal decision, concerned a piece of land situated in Maidenhead (the “Application Land”) together forming a wider plot (the “Exchange House Site”), subject to restrictive covenants, the benefit of which vested in the neighbouring Alexander Devine Children Cancer Trust (the “Trust”).
Millgate Developments Ltd (“Millgate”), with planning permission, but with full knowledge of the restrictive covenants and despite opposition from the farmer’s Son and the Trust, proceeded with the development of housing on site. Millgate then applied to the Upper Tribunal pursuant to s.84.
The first instance decision
The Upper Tribunal allowed Millgate’s application to modify the restrictive covenants and, in turn, ordered £150,00.00 of compensation to be paid to the Trust. Much was made by the tribunal of the fact that planning permission had been obtained.
This was subsequently overturned by the Court of Appeal who found the tribunal to have erred in law by failing to take into account, at the “contrary to the public interest” stage, the “deliberately unlawful and opportunistic” conduct of Millgate For more detail on the Court of Appeal decision, you can read my colleague Natalie’s summary here.
The Supreme Court decision
Is Millgate’s conduct relevant to the “jurisdictional stage”?
Lord Burrows saw that there was a two-stage test under s.84. The first stage, found within s.84(1)(aa) and (1A)(b) is a “jurisdictional ground” and requires the owner of the burdened land to prove that the continued existence of the restriction would “impede some reasonable user of the land” and that the restriction impeding such user is “contrary to the public interest”. This jurisdictional ground should be interpreted “narrowly” and focus on whether the impediment to the use of the land is contrary to the public interest, rather than whether in all the circumstances of the case it would be contrary to the public interest to maintain the restriction. In this case then, the question was whether it was in the public interest for the 13 affordable housing units to be used.
Lord Burrows held that the Upper Tribunal did not err at this stage and that, on the facts, the restriction on Millgate’s use of the Application Land was indeed contrary to the public interest at this stage of the analysis. However, at this jurisdictional stage of the assessment of Millgate’s application, the Supreme Court found that contrary to the analysis of Sales LJ in the Court of Appeal, Millgate’s conduct is not relevant.
Is Millgate’s conduct relevant to the “discretional stage”?
The second element of s.84 is the Upper Tribunal’s discretion to, having satisfied itself that the restriction impedes a reasonable use of the land contrary to the public interest, modify or discharge the restriction. This is where Millgate’s conduct must be considered and ultimately, on the facts, means that such a discretion should not have been exercised.
Lord Burrows found that the Upper Tribunal had erred in law by failing to consider the two following factors relating to Millgate’s conduct:
- If Millgate had respected the rights of the Trust and applied for planning permission avoiding the Application Land, there would have been no need for a section 84 application.
- If Millgate had applied under section 84 before starting to build, it would likely not have been able to satisfy the jurisdictional ground. Instead, permission would have been granted for the affordable housing on the rest of the Exchange House site so that upholding the restriction would not be contrary to the public interest. Developers should not be rewarded for presenting to the Upper Tribunal a fait accompli.
Conclusion and Implications
The case brings some much needed guidance on the legitimate scope of s. 84, as well as the extent to which a professionally-advised owner of burdened land’s conduct in consciously acting in breach of a restrictive covenant is relevant to the assessment of whether or not the covenant should subsequently be discharged or modified by the tribunal. However, it has confirmed that such conduct is relevant at the “discretionary” stage only.
The court left open the delicate question of what now happens to the 13 houses, with the obvious route being the Trust applying for an injunction to tear them down or, at the very least, extensive damages significantly eroding Millgate’s development profits.
The Supreme Court has made clear that private law restrictions on the use of land can only be unilaterally discharged through s.84 in exceptional circumstances. In other words, restrictive covenants are not to be ignored and may present significant, potentially very expensive, obstacles to a development strategy. Such covenants should be addressed before the first brick is laid by way of agreement, comprehensive insurance arrangements or, as a last resort, a prospective (not retrospective!) s.84 application.
