Restrictive covenants – lessons learnt from Alexander Devine Children’s Trust v Housing Solutions Ltd  UKSC 45
Restrictive covenants often dictate the use of land and can range from restricting the size and type of the development to, at worst, preventing it entirely.
Section 84 of the Law of Property Act 1925 (“LPA 1925) gives the Upper Tribunal the discretion to modify or discharge restrictive covenants, if one or more of the grounds contained in s84(1) LPA 1925 apply. Given many covenants are historic and created decades and sometimes centuries before the housing situation we are in today, many seek to modify/discharge such covenants by relying on the grounds that:
(a), that the covenant is obsolete, and
(aa) it impedes some reasonable use of the land.
Succeeding on these grounds, however, can be far from easy.
The Alexander Devine Children’s Cancer Trust (‘the Trust’) built a hospice that enjoyed the benefit of a restrictive covenant preventing building on a plot of land (“the Land”). This covenant afforded the terminally ill children of the hospice privacy in the use of its grounds. Housing Solutions Ltd (‘Housing Solutions’) was the successor in title to a developer that had already built 13 units of much-needed affordable housing on the Land, in breach of this restrictive covenant. These homes had been built with planning permission, and in fact were erected to satisfy a requirement imposed by a deed made pursuant to section 106 of the Town and Country Planning Act 1990.
The developer was aware of the restrictive covenant and had applied for planning permission and started the development prior to applying to the Upper Tribunal to modify the covenant. The developer relied on ground (aa) above. To succeed, the developer had to evidence that the restrictive covenant was contrary to the public interest (s84(1A)(b)) and that money would be an adequate compensation for any person who suffers a loss or disadvantage should the restrictive covenant be modified or discharged. The Upper Tribunal must also consider the development plan and any pattern for the grant or refusal of planning permissions in the relevant areas (s84(1B)).
If the developer could satisfy the Upper Tribunal that ground (aa) had been met, the Tribunal then has a discretion to modify or discharge the restrictive covenant.
This developer succeeded in the Upper Tribunal. The decision was overturned by the Court of Appeal, and Housing Solutions, who by then owned the Land, appealed to the Supreme Court.
The Supreme Court considered the following issues to be central to the appeal:
- Did the Upper Tribunal, at the jurisdictional stage, make an error of law by ignoring the developer’s cynical breach while regarding as highly relevant the fact that, by the time of the application, 13 housing units had been built? and
- Did the Upper Tribunal make an error of law by failing properly to take account the developers cynical conduct in the exercise of its discretion?
The Supreme Court held:
- The Upper Tribunal did not make an error of law. It was held that on the correct interpretation of s84 of the LPA 1925, the developers cynical breach of the restrictive covenant was relevant at the discretionary stage only and not when considering if ground (aa) had been met; i.e. if the restrictive covenant was contrary to the public interest.
- When considering the developers conduct the Upper Tribunal failed to consider:
- That the developer could have applied for planning permission to build the development on the unencumbered part of the site thereby avoiding a conflict altogether; and
- Had the developer made an application pursuant to s84 of the LPA 1925 prior to starting the development, it would have been unlikely to satisfy the public interest limb of ground (aa). The developer by breaching the restrictive covenant, created the situation in which it could argue that the continuation of the covenant was contrary to the public interest.
This decision serves as a clear warning to developers not to take a cynical approach to restrictive covenants. Even if planning permission has been obtained and insurance is put in place based on this decision it is clear that the courts will still protect the private rights of individuals even where such a development provides much needed affordable housing. As such, developers should ensure that their application to discharge or modify a restrictive covenant is made prior to starting any development.