Ignoring restrictive covenants: the consequences for developers
The case of The Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd and another  EWCA Civ 2679 is a useful case for developers to keep in mind when developing land subject to restrictive covenants.
In this case, Millgate Developments Ltd (“Millgate”) managed to get planning permission for a site at Exchange House, Maidenhead for 23 new houses on previously developed land within the green belt. The development started and all was going well. Millgate continued to build and shortly nine houses and four bungalows were ready to be occupied. However, the situation was not as clear cut as one might have thought on the face of it, as lurking on the title was a restrictive covenant not to use part of the land for anything other than the parking of vehicles.
Millgate knew about this restrictive covenant at the time of obtaining planning permission, but commenced development anyway and applied in parallel to the Upper Tribunal (“UT”) to modify the restrictive covenant under Section 84 of the Law of Property Act 1925 so that the development could be considered lawful. Millgate had also entered into a contract to sell the whole development to a social housing provider which was conditional on the outcome of this application.
The land that was unaffected had already been transferred and the 10 units built on that land were occupied. However, the nine houses and four bungalows remained vacant until the outcome of the application was provided by the UT.
The UT gave hope to developers by granting the appeal in Millgate’s favour and allowing modification of the restrictive covenant. The UT decided that the public interest of having available social housing outweighed all other factors and that it was an unconscionable waste of resource for the rest of the houses to remain empty. However, the Alexander Devine Children’s Cancer Trust (“the Trust”) appealed to the Court of Appeal and the appeal was allowed.
Judgment – Court of Appeal
The UT had erred in its judgment for the reasons set out below.
- The Tribunal had erred in the application of the principles set out in Lawrence v Coventry as they failed to give proper weight to the nature of the private rights in issue in that context.
- In applying the “contrary to public interest” test in Section 84(1A)(b) the UT had to have regard to whether the applicant made fair use of opportunities available to it to try and negotiate waiver of the restrictive covenant or to test the public interest arguments in an application made under Section 84 in advance of acting in breach of that covenant.
- In the present case, Millgate could have devised a scheme which, by concentrating the housing units in the unencumbered land at the site, would have satisfied the council’s requirement for provision of affordable housing in the public interest while at the same time respecting the Trust’s rights under the restrictive covenant.
Food for thought?
This case is a useful reminder that if a developer acts in an unlawful manner by building in breach of a restrictive covenant, then it should be prepared to bear the risk that it may have wasted its own resources in building on the affected land. It is not a given that public interest will outweigh those interests of the parties benefitting from a restrictive covenant. Developers should think carefully about how their actions may be interpreted by the courts if they were faced with this type of action before commencing a development in breach of private rights.