Developers take heed… Conduct conquers all

The Supreme Court recently handed down its judgment in a landmark case, Alexander Devine Children’s Cancer Trust v House Solutions Ltd, this being the first time the highest court has been required to decide an appeal on section 84 of the Law of Property Act 1925.

What is a restrictive covenant?

Restrictive covenants are binding conditions that are written into a property’s deeds or contract by a seller to determine what an owner can or cannot do with their house or land under particular circumstances. They can cover a wide range of issues, but the most common examples tend to include:

• preventing owners from making alterations to a property (such as building an extension or converting a house into flats, for example);
• preventing buildings or other substantial structures from being erected on a section of land; or
• preventing trades or businesses from operating on the land.

Restrictive covenants are designed to uphold certain standards for all residents. For example, to prevent owners from undertaking work or other practices which could impact negatively on a neighbourhood or undermine a desired level of ‘uniformity’ and/or maintenance.

Facts of the case

Alexander Devine Children’s Cancer Trust (the “Trust”) had the benefit of a restrictive covenant  preventing development of an area of open land.  Housing Solutions Ltd sought to discharge or modify the restrictive covenant under section 84 of the Law and Property Act 1925 (the “Act”). The dilemma before the court was that on the one hand there was a charitable children’s cancer trust that was seeking to maintain the benefit of a restrictive covenant, to which it was entitled, so that terminally ill children in a hospice built on the Trust’s land could enjoy, in privacy, the use of grounds.  On the other hand, the developer company was seeking to ensure that 13 units of affordable housing, which had been built in breach of the restrictive covenant on the application land adjoining the Trust’s land, did not go to waste.

Upper Tribunal and Court of Appeal decisions

The land was initially sold to the Housing Solutions Ltd by Millgate Developments Ltd who, before the sale, made an application before the Upper Tribunal (the “UT”) which succeeded and the UT decided that the restrictive covenant should be modified to allow occupation and use of the application land for the 13 housing units built on, provided Millgate pay £150,000 as compensation to the Trust. This decision was subsequently overturned by the Court of Appeal citing various errors in law, in particular by failing to take into account, at the “contrary to the public interest” stage, the “deliberately unlawful and opportunistic” conduct of Millgate and its decision to press ahead with breach of the covenant without first seeking to negotiate with the Trust or a s.84 application. The court also commented that too much weight had been put on the grant of planning permission and emphasised that planning law cannot trump private law rights.

Supreme Court Ruling

There were four grounds of appeal to the Supreme Court, but the key issue related to the extent to which the developer’s (Millgate’s) conduct would be modified on the ground that it was “contrary to public interest”. The point here was that at all material times the developer was aware of the restrictive covenant but chose to pursue the planning permission application regardless and even started building works before applying to the Upper Tribunal to modify the covenant. This conduct was described by the court as being a “cynical breach” and “highhanded and opportunistic” behaviour. The court therefore ruled that the threshold to exercise such discretion under section 84 of the Act had not been satisfied in this case and therefore the primary remedy is an injunction to remove the offending development.

Key take away

Let this be a lesson to developers, this case highlights the importance of seeking to discharge any restrictive covenants prior to commencing works and that the court will look carefully and where necessary, take a dim view of the conduct of developers prior to any application under section 84 of the Act.  This will inevitably lead to serious commercial and reputational implications for the developer concerned.  Therefore, when considering the initial stages of the development strategy, it is essential that care is taken in undertaking proper due diligence at a site and appropriate advice obtained to avoid being conquered by an allegation of misconduct.

If you have any queries about this topic please contact Shams Rahman or any member of the Property & Trusts Litigation team.

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