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Restrictive Covenants on land and the perils of ignoring them

Nov 19, 2020

We have previously reported on the dangers of assuming that if you get your planning permission, you can disregard the restrictive covenants preventing building; on the basis that if anyone does make a fuss while you carry on with the building work you can make an application to the Tribunal and present it with a fait accompli. Surely at worst you will just get an order to pay some relatively minor compensation to the owner of the land entitled to the benefit of the covenant?

That was the approach taken by Millgate Developments Ltd when they embarked on building their development in 2013/14. The dispute reached the Supreme Court in July 2020 and Judgement was given in November 2020. By that time Millgate had dropped out and it was Housing Solutions Ltd who had bought the houses built by Millgate, who were pursuing the Appeal.

Housing Solutions Ltd -v- Alexander Devine Children’s Cancer Trust [2020] UKSC 45.

In 2013 Millgate acquired land adjacent to that owned by the Trust to add to land it had acquired for the purposes of development. The Trust had been gifted its land for the development of a hospice for terminally ill children. Millgate was aware there was a restrictive covenant dating back to the 1970’s covering the adjacent land that prevented building of any sort. It had made no attempt to identify the party having the benefit of the covenant; sought and secured planning permission for the whole site and then built on the affected land 13 affordable houses. Objections were raised on covenant grounds but dismissed by Millgate. It exchanged contracts with Housing Solutions Ltd for the sale of the affordable housing in 2014 and only then applied to have the covenant modified.

Its position before the Tribunal was that the development was a reasonable use of the land and no harm had been caused to the Hospice. Further that it was in the public interest for the affordable housing to have been built. The Tribunal was persuaded by the public interest argument and allowed a modification and ordered Millgate to pay £150,000 compensation for the fact the development overlooked the hospice gardens.

Housing Solutions Ltd now owned the houses that had been built in breach of covenant and they were occupied by tenants. It had tried to reduce the somewhat risky decision to exchange and complete the purchase by including an indemnity in the contract should ultimately the Tribunal decision be overturned; but bizarrely it completed the sale before the time allowed for the Trust to Appeal had elapsed.

The Trust duly appealed, and the Court of Appeal decided in November 2018 that the modification should not have been allowed. It was extremely critical of Millgate’s behaviour – not helped by the fact Millgate had completed the sale of the affordable units during the period the Trust had to decide to appeal. It regarded Millgate’s actions as having been highly opportunistic; was not at all happy that the houses had been built before any application was made to modify the covenant and took the view that there is public interest in upholding the rule of law and not encouraging breaches of public rights. It also acknowledged that whilst there was an interest in not allowing needed affordable housing to go to waste, that was not a sufficient reason for disregarding the other considerations.

The Trust was now able to apply for an Injunction to require the houses to be demolished. Housing Solutions Ltd appealed the Court of Appeal decision to the Supreme Court and the Trust agreed not to make the injunction application until the Supreme Court Appeal had been concluded.

The Supreme Court was equally unimpressed with the arguments. Firstly, an applicant had to establish that there was a statutory ground for modification or discharge and secondly, even if that had been established, the Tribunal had been entitled to consider the conduct of the parties.

It concluded in dismissing the Appeal, that Millgate had attempted to present the Tribunal with a fait accompli; in that it had constructed buildings without following proper procedure and having had full knowledge of the existence of the covenant. It had effectively dared the Tribunal to make a ruling that might cause the buildings to be taken down. That behaviour should not be rewarded, and the Supreme Court exercised its discretion and made a fresh decision that the application to modify the covenant was refused.

It is now open to the Trust to seek an Injunction preventing the houses from being occupied and that they be removed. Interestingly the Court that hears that application is still required to consider whether the injunction should be granted or whether a monetary remedy would suffice. However, the legal basis for considering what a monetary remedy would look like, is significantly wider than was available to the Tribunal when it awarded £150,000 in compensation.

No doubt Housing Solutions Ltd and Millgate are rueing taking the decision to assume the worst that would happen would be a Tribunal Order to pay a little bit of compensation. They will have paid substantial sums in legal fees and having lost before the Court of Appeal and the Supreme Court, that would include a large chunk of the legal costs incurred by the Trust.

They face the stark reality of either having to demolish the houses and not being able to build on the land or being required to pay a significantly larger sum in compensation than could ever have been ordered by the Tribunal.

Even if Millgate had approached the Trust before building and not been able to agree anything; it certainly should have applied to modify the covenant before it started work on that piece of land. An application to modify made at that point may well have been looked upon more favourably.

If you are concerned about enforcing a restrictive covenant that benefits your land or whether you can get a covenant burdening your land removed or modified contact Frankie Tierney in our Dispute Resolution team on drteam@herrington-carmichael.com.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter. 

Frankie Tierney

Partner, Disputes and Claims  

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