Supreme Court punishes “cynical” development
In the first ever appeal of section 84(1) of the Law of Property Act 1925 (LPA 1925) to be heard by the Supreme Court, developers have been reminded in no uncertain terms to seek to modify or vary any restrictive covenants before carrying out building works, not after they have already carried out the works in full knowledge of the covenant.
In Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd  UKSC 45, the Respondent ran a children’s hospice on land which benefitted from a restrictive covenant preventing development of neighbouring land to ensure that the children could play in the grounds in privacy.
Millgate Developments Limited (Millgate) acquired the neighbouring land and its surrounding land with full knowledge of the covenant. It then obtained planning permission to build 23 affordable houses: 13 of which were on the neighbouring land, the remaining 10 on the surrounding land. Millgate completed its development of the houses and only then sought to modify the restrictive covenant under section 84 of the LPA 1925 before transferring the land to the Appellant.
The Upper Tribunal allowed Millgate’s application to amend the restrictive covenant on the condition that it paid £150,000 to the Respondent as compensation, largely on the basis that stopping the already built houses from being used would not be in the public interest, although it did accept that Millgate had acted in bad faith.
Court of Appeal
The Court of Appeal overturned the Upper Tribunal’s decision however, most notably on the basis that the Tribunal failed to take proper account of Millgate’s cynical breach i.e. deliberately committing a breach of the restrictive covenant with a view to making a profit from so doing.
When the case came before the Supreme Court, Lord Burrows emphasised that the core question on the facts was whether the public interest in the 13 housing units going unused outweighed the public interest in the hospice providing a protected sanctuary for children dying of cancer.
He found that a satisfactory outcome could have been achieved if Millgate had built all 23 houses on the surrounding land, with the neighbouring land being used as a car park and there was therefore no justification at all for the cynical breach. This being the case, Millgate would have been unlikely to satisfy the public interest requirement if it had applied to modify the restrictive covenants prior to building on the neighbouring land, as the houses could have just been built on the surrounding land instead.
The Supreme Court therefore re-made the Tribunal’s decision and disallowed Millgate’s application under section 84 to modify the covenant. It is therefore now open to the Respondent Trust to apply for an injunction in respect of the built houses, to either prevent these from being used or indeed to have them demolished.
It is worth noting that the Supreme Court was less than impressed with Millgate’s conduct in building the houses first in order to effectively force the hand of the Respondent and/or the Upper Tribunal. Developers are therefore reminded that if there are restrictive covenants on land to be developed, these should be dealt with upfront so as to avoid similar issues in the future.