Property company loses bid to keep affordable housing after Supreme Court rejects application to modify restrictive covenants

The Supreme Court has rejected a property company’s bid to modify restrictive covenants so that 13 affordable houses built in breach can remain in place.

In Alexander Devine Children’s Cancer Trust (Respondent) v Housing Solutions Ltd (Appellant) [2020] UKSC 45 Lord Burrows said the case raised a fundamental dilemma over the use of land.

“On the one side, there is a property company which seeks to ensure that 13 new affordable houses do not go to waste,” he said. “On the other, there is a charitable children’s trust which seeks to ensure that terminally ill children in a hospice can enjoy, in privacy, the use of the hospice grounds without being overlooked, or otherwise detrimentally affected, by the new houses.”

The legal issues before the Supreme Court concerned restrictive covenants over land and the procedure, under section 84 of the Law of Property Act 1925, by which an application may be made to a tribunal for the discharge of a restrictive covenant.

In July 1972 a farmer sold part of his land (the “application land”) to a company that already owned the land next door (the “unencumbered land”). The application land and the unencumbered land together form a rectangular plot (the “Exchange House site”).

As part of the sale, SSPC covenanted that at all times thereafter:

1. no building structure would be built on the application land; and
2. the application land would only be used for car parking (the “restrictive covenants”).

The farmer’s son, Mr Barty Smith, later inherited the land adjacent to the Exchange House site. In 2012 he made a gift of part of this land (the “hospice land”) to the Alexander Devine Children’s Cancer Trust for the construction of a children’s hospice.

Soon afterwards, and with knowledge of the restrictive covenants, Millgate Developments Ltd acquired the Exchange House site. In July 2013 Millgate applied for planning permission to build 23 affordable houses on the site, in line with its affordable housing planning obligations.

Thirteen of these houses were to be built on the application land, in breach of the restrictive covenants. Some of them would overlook the hospice’s planned gardens and wheelchair walk.

Planning permission was granted in March 2014 and Millgate began construction in July 2014. In September 2014 Mr Barty Smith wrote to Millgate objecting to them building on the application land.

Millgate continued regardless and in May 2015 agreed to sell the development at the Exchange House site to Housing Solutions Ltd.

In July 2015, after completing the development, Millgate applied to the Upper Tribunal seeking modification of the restrictive covenants, pursuant to section 84 of the 1925 Act.

Mr Barty Smith and the Trust objected to this application. Shortly afterwards, in September 2015, construction of the hospice began.

On 18 November 2016 the Upper Tribunal allowed Millgate’s application to modify the restrictive covenants, on the condition that it paid £150,000 to the Trust as compensation.

On 28 November 2018 the Court of Appeal overturned the Upper Tribunal’s decision. Housing Solutions appealed to the Supreme Court.

The Supreme Court unanimously dismissed the appeal, though for different reasons to those given by the Court of Appeal.

Lord Burrows, who wrote the judgment, noted that section 84 of the 1925 Act, as amended, conferred upon the Upper Tribunal the power to discharge or modify restrictive covenants on five grounds.

The exercise of this power has two stages. At least one of the grounds must be satisfied (the “jurisdictional stage”) before the Upper Tribunal can then decide whether to exercise its discretion to discharge or modify the restrictive covenants (the “discretionary stage”).

The ground relevant to this appeal was whether the restrictive covenants, by impeding a reasonable user of land, are contrary to the public interest: sections 84(1)(aa) and 84(1A)(b)

The first issue was whether Millgate’s deliberate and cynical breach of the restrictive covenants was relevant at the jurisdictional stage. The Court of Appeal found that it was.

However, the Supreme Court found that it was not. The “contrary to the public interest” ground required a narrow interpretation. Its focus was on the impeding of a reasonable user of the land and “whether that impediment, by continuation of the restrictive covenant, is contrary to the public interest”. The question was not the wider one of “whether in all the circumstances it would be contrary to the public interest to maintain the restrictive covenant”.

This narrow interpretation required weighing the public interest in 13 affordable housing units not going to waste against the public interest in the hospice providing a sanctuary for children dying of cancer, Lord Burrows said.

“Once one appreciates that the relevant wording requires a narrow enquiry and does not involve asking the wide question of whether in all the circumstances it is contrary to the public interest to maintain the restrictive covenant, it is clear that the good or bad conduct of the applicant is irrelevant at this jurisdictional stage. The manner of the breach of the restrictive covenant (ie whether the breach was cynical or not) is irrelevant because that tells us nothing about the merits of what the burdened land is being used for or will be used for,” the Supreme Court judge added.

This narrow interpretation was also in line with the other four grounds under section 84, accorded with the purpose of section 84, and reflected the fact that the applicant’s conduct can still be considered at the discretionary stage.

The second issue was whether the Upper Tribunal failed properly to consider, at the discretionary stage, Millgate’s cynical conduct. The Court of Appeal found that it did. The Supreme Court agreed, but for different reasons.

Lord Burrows said it was only appropriate for an appellate court to interfere in a discretionary decision of a specialist tribunal if that tribunal had made an error of law.

The Supreme Court judge found that in this case, even though the Upper Tribunal took into account Millgate’s conduct, it did make an error of law. The Upper Tribunal had failed to consider two relevant factors at the discretionary stage:

1. Millgate could have built on the unencumbered land, not the application land; and
2. Millgate would have been unlikely to satisfy the “contrary to the public interest” ground had it applied to modify the restrictive covenants prior to building on the application land.

Millgate could not be rewarded for presenting the UT with a fait accompli.

The Supreme Court therefore upheld the Court of Appeal’s decision, but for different reasons. The Upper Tribunal’s decision was re -made and the application to modify the restrictive covenants refused.

This article is an edited version of the Supreme Court’s press summary.