Supreme Court unanimously dismisses appeal on section 84

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The Supreme Court dismissed an appeal by Housing Solutions Limited and upheld the Court of Appeal’s decision to overturn the Upper Tribunal (Lands Chamber’s) decision in the case of The Alexander Devine Children’s Cancer Trust v Millgate Developments Limited (1) Housing Solutions Limited (2). The Supreme Court confirmed that the Court of Appeal had reached the correct conclusion, though for different reasons.

FACTS

Briefly, the Trust had been gifted land for the construction of a hospice for children who are seriously ill with life limiting conditions. The land benefited from restrictive covenants preventing the development of and use of adjoining land. Millgate built houses and bungalows on the adjoining land in breach of the restrictive covenants. It was aware of the restrictive covenants and of objections by owners of neighbouring property which had the benefit of the covenants but nevertheless proceeded with the development. It did so in line with its affordable housing planning obligations and subsequently sold the development to Housing Solutions. Following completion of the development, Millgate made an application under s.84 of the Law of Property Act 1925 (“s.84”) which gives power to the Upper Tribunal to discharge or modify restrictive covenants affecting land.

The Upper Tribunal held that the restrictive covenants were contrary to public interest, in impeding the continued existence and the occupation of the houses and bungalows (which were built for use as affordable housing, and in order to satisfy a planning obligation in respect of a valuable housing development by Millgate). A decisive factor for the Upper Tribunal was that there was a risk that the houses and bungalows would have to be demolished if it did not accede to Millgate’s application.

KEY FINDINGS BY THE SUPREME COURT

s.84 confers upon the Upper Tribunal power to discharge or modify restrictive covenants on five grounds. The exercise of that 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 modify the restrictive covenants (the “Discretionary Stage”). The relevant ground to this appeal is 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 Supreme Court found that there is no room to consider conduct at the Jurisdictional Stage on a literal interpretation of s.84; and held that this would not have been what Parliament intended when drafting the Act. Rather, Millgate’s conduct should have instead been considered at the Discretionary Stage.

Consideration of Millgate’s conduct

The Court of Appeal had concluded that Millgate’s deliberate breach of the restrictive covenants was relevant to the Jurisdictional Stage (finding that the Upper Tribunal had erred in law in finding that it was not relevant). The Court of Appeal concluded that there is public interest in having private contractual rights respected in dealings between private persons. It interpreted this as meaning that at the Jurisdictional Stage, the Upper Tribunal should have had regard to Millgate’s conduct. Millgate had deliberately circumvented the proper procedures for testing and respecting the Trust’s rights. It had not made fair use of opportunities available to it to try to negotiate a waiver of the restrictive covenants or to test the public interest arguments in an application under s.84 in advance of acting in breach the covenants. Accordingly, the Court of Appeal found that the Upper Tribunal could not be satisfied that it was contrary to the public interest for the covenants to be maintained in place.

The Supreme Court disagreed with this interpretation and held that the “contrary to public interest test” required a narrower interpretation. The question is not whether, in all the circumstances, it would be contrary to the public interest to maintain the covenants, but rather, the question was whether (once it had been found that the proposed use of the land is reasonable) the impediment (of a reasonable user of the land), by the continuation of the restrictive covenants, is contrary to the public interest.

The Court of Appeal should have had regard solely to the “land-use conflict”, which involved weighing the public interest in 13 affordable housing units going to waste against the public interest in allowing the use of grounds for a hospice providing care for children with cancer. As such, Millgate’s conduct, which the Supreme Court described as “cynical” and “deliberate…with a view to making a profit” should have been irrelevant at the Jurisdictional Stage.

The Supreme Court agreed with the Court of Appeal that the Upper Tribunal had failed to properly consider Millgate’s conduct at the Discretionary Stage, albeit for different reasons. The Supreme Court held that the Upper Tribunal erred in law in failing to consider to factors which made this case “exceptional”.

Firstly, the Upper Tribunal did not consider the fact that Millgate could have built on unencumbered land rather than the land affected by the covenants. The Local Authority had indicated that planning permission would have been granted for this proposal, had it been made. The Supreme Court concluded that it is “especially important” to deter a cynical breach where a land-use conflict has been caused which could have been avoided altogether by submitting alternative proposals.

Secondly, the Upper Tribunal did not consider that Millgate would have been unlikely to satisfy the “contrary to public interest” test had it made its application under s.84 before it started building. The Supreme Court concluded that it was not in the public interest to award a wrongdoer presenting a fait accompli to seek to secure modification of a restrictive covenant.

Discussion

This case should act as a serious warning to any developer planning to disregard private property rights. It is contrary to the public interest for the usual protections for a person with the benefit of a restrictive covenant to be circumvented by a developer seeking to obtain an advantage for itself by presenting the Upper Tribunal with a fait accompli in having constructed buildings on affected land without following proper procedure, and then in effect daring the Upper Tribunal to make a ruling which might have the result that those buildings will have to be taken down.

It will be interesting to see what follows this ruling in terms of the enforcement of the restrictive covenant.

RELATED:REAL ESTATE


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