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Ignore restrictive covenants at your peril! - Intentional breaches may jeopardise retrospective s84 applications for their modification

View profile for Brendon Lee
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The Court of Appeal has fired a shot across the bows of housing developers who attempt flout the terms of restrictive covenants which prevent construction on certain sites. Such covenants are regularly knowingly breached by development, particularly if they are historic and obscure in their nature upon the auspice of insurance protection.

In a recent case, the Court of Appeal in The Alexander Devine Children's Cancer Trust v Millgate Developments Ltd & Ors [2018] EWCA Civ 2679 highlighted the severe risks of this approach and potential consequences should developers wish to gamble on such approach.

Section 84 of the Law of Property Act 1925 provides discretionary powers to the Upper Tribunal (Lands Chamber), upon application, to modify or discharge a restrictive covenant provided relevant statutory criteria are satisfied. Section 84 (1A) is a commonly relied upon criteria for developers which enables discharge or modification where the restrictive covenant either:

  1. does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or 
  2. is contrary to the public interest;

and 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 the Millgate Case, the development concerned 13 affordable housing units which had been built and were ready for immediate occupancy, in the knowledge of their contravention of the restrictive covenant, prior to the making of a section 84 application to modify the said restrictive covenant.  In the first instance, the Upper Tribunal found that the restrictive covenant was contrary to the public interest due to the demand for affordable housing units and, while cautious of exercising its discretion due to the intentional breach, granted a modification of the covenant.

The Court of Appeal found that the Upper Tribunal had misinterpreted the legal test of ‘public interest’ within section 84(1A). However, more pointedly, they were extremely critical of the behaviour of the developer and its deliberate attempts to force the hand of the tribunal members by daring them to prevent affordable housing ready for immediate occupation.

Specifically, the Court stated that there is ‘public interest’ within the context of section 84(1A) in having private contractual and property rights respected in dealings between private persons. This must be tested and weighed against the ‘public interest’ of the planning permitted affordable housing. However, the Court went further to say that the ‘public interest’ in respecting the private contractual and property rights includes consideration of the applicant’s behaviour and summarised the general position as:

“In general, if the applicant has not made fair use of opportunities available to it to test the position in a way which affords proper recognition to the contractual/property rights of the beneficiary of the restrictive covenant, it will not be contrary to the public interest for the restriction (i.e. the restrictive covenant) to be allowed to continue to impede the applicant's proposed user of the restricted land.”

However, the lessons of the Millgate case do not stop here. The powers under section 84 are discretionary, and the Court of Appeal was critical of the Upper Tribunal’s exercise of such discretion, given the deliberate behaviour of the developer. Specifically, even if the ‘public interest’ test was not required upon reliance of another qualifying criteria under section 84, the Court was of the opinion that the members of the tribunal should not have exercised their discretion due to the deliberate disregard of the covenant rights by the developer.

This judgement should be a clear warning signal to developers as to the high risk in flouting a restrictive covenant in a belief that it can be later dealt with by way of a section 84 application.