The recent case of Millgate Developments Limited and another v Smith and another, Re: Exchange House, Woodlands Park Avenue, Maidenhead provides an insight into the factors considered by the Upper Tribunal in deciding whether a restrictive covenant should be modified or discharged following the development of land in breach of covenant.
Case Summary: Millgate Developments Limited (the Developer) proposed to commence work on a social housing development consisting of 23 residential properties. The Developer was aware that part of Exchange House (the Land) on which the proposed development was to be built was burdened by a restrictive covenant not to use the land for building or for any purpose other than a car park. The land which had the benefit of the restrictive covenant was owned by Mr Smith and the trustees of the Alexander Devine Children’s Cancer Trust (the Cancer Trust). During the planning application process, Mr Smith objected to the proposed development on the basis that he was the registered proprietor of the benefiting land, along with the Cancer Trust which was in the process of building a children’s hospice. Despite Mr Smith’s objection, planning permission was granted and building works commenced. Mr Smith sought to prevent the works by asking the Developer to provide an undertaking that it would stop work on the development however the Developer refused to do so. The development was completed, resulting in a total of 13 of the social housing properties being built on the Land. The Developer did not transfer these properties to the Housing Association and the properties were left vacant on account of the breach of restrictive covenant. The Developer made an application to the Upper Tribunal (Lands Chamber) to modify the restrictive covenant prohibiting the development of the Land in order that the residential properties could be occupied.
Decision: by virtue of section 84(1) of the Law of Property Act 1925, the Upper Tribunal has the power to discharge or modify restrictive covenants affecting land if the continued existence of a covenant would impede some reasonable use of the burdened land and the Upper Tribunal is satisfied that the restriction, in impeding that use, either: (a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or (b) is contrary to the public interest; and (c) that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification.
In exercising its discretion, the Upper Tribunal held that:
(a) The restrictive covenant prohibiting development of the Land did secure a practical benefit of substantial value to the Cancer Trust however, it did not secure a practical benefit to Mr Smith. The Upper Tribunal considered that the land owned by the Cancer Trust, on which the hospice was being built, lost its right to privacy and seclusion, and the cost of mitigating this was estimated to be in the region of £37,000 to £70,000 which was a substantial value;
(b) The restrictive covenant was contrary to public interest as it is not in in the public interest that social housing properties required to meet a pressing housing demand should be left vacant. The public interest in social housing outweighed the private rights of the Cancer Trust;
(c) The Upper Tribunal acknowledged that the Cancer Trust would suffer loss if the restrictive covenant was modified, but held that money would be adequate compensation and that the compensation received could be used to maintain the boundary between the Cancer Trust land, and the land on which the social housing development was built to mitigate the loss of privacy and seclusion.
The Upper Tribunal granted an order modifying the restrictive covenant and directed the Developer to pay the Cancer Trust compensation in the sum of £150,000 to make up for any loss of disadvantage suffered by the Cancer Trust in consequence of the discharge.
Commentary: although the Upper Tribunal strongly refuted the Developer’s suggestion that a landowner in deliberate breach of covenant, but who could demonstrate one of the statutory grounds set out in section 84(1) LPA 1925, could assume that the Upper Tribunal would exercise its discretionary power to discharge or modify a restrictive covenant, the Upper Tribunal found in favour of the Developer and granted an order modifying the restrictive covenant so that the social housing properties could be occupied despite the Developer’s wilful breach. It would appear that a great deal of weight is afforded to the public interest argument and the nature of a development will be crucial to the decision-making process. The ratio of this case seems to be that where a development is carried out in breach of restrictive covenant but is in the public interest such as for social housing then the restrictive covenant will be modified or discharged, however it is likely that the benefitting landowner will be awarded compensation.
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