Developer suffers substantial losses in 'cynical' breach of restrictive covenant


Five years after completing the works, a developer has lost its appeal to the Supreme Court and the affordable housing units it built may now be taken down under a mandatory injunction.

In the first case to reach England’s highest Court under the 1925 law regulating the procedure for modifying restrictive covenants, the Supreme Court refused the developer’s application and clarified the legal rules which developers should follow.

What happened in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd?

Millgate Developments Ltd acquired and developed a site, part of which is burdened by restrictive covenants enabling quiet enjoyment of the adjacent land. Millgate applied for planning permission to build 23 affordable houses on the site, in line with its affordable housing planning obligations. 13 of the houses were to be built on the land burdened by the following restrictive covenants:

“No building structure or other erection of whatsoever nature shall be built or erected or placed on [the land]”; and 

“[The land] shall not be used for any other purposes whatsoever other than as an open space for parking of motor vehicles”.

Planning permission was granted in March 2014 and Millgate began construction in July 2014. The owner of the adjacent land had made a gift of part of this land to the Alexander Devine Children’s Cancer Trust for the construction of a hospice for terminally ill children. In September 2014, the Trust wrote to Millgate to object to its development in breach of the covenants, however Millgate continued to build.

In July 2015, after completing the development, Millgate applied to the Upper Tribunal seeking modification of the restrictive covenants. During November 2016, the Tribunal allowed Millgate’s application on the condition that it paid £150,000 compensation to the Trust.

The Trust appealed the decision, which was reversed. Millgate appealed to the Supreme Court. On 6 November 2020 the Supreme Court refused Millgate’s application to modify the restrictive covenants.

This decision opens the possibility of the Trust obtaining a prohibitory injunction to enforce the restrictive covenants by stopping the 13 housing units being occupied or a mandatory restorative injunction ordering the removal of the units.

Comment

Where a developer becomes aware of restrictive covenants burdening the development site, they should explore all realistic options at an early stage. Both appellate courts held that the proper time to make an application to discharge the restrictive covenants is before commencing building.

It would not be in the public interest to allow a developer who had built on land without following proper procedure to benefit from a fait accompli - in effect daring the tribunal to make a ruling which would result in the buildings being taken down.

Where a land-use conflict can reasonably be avoided, for example by submitting an alternative plan, developers should consider doing so. In this case an alternative plan was possible and the local authority indicated they would have approved it. There would then have been no need to apply to discharge the restrictive covenants and the children’s hospice would have been unaffected. The Supreme Court observed that the developer could indeed have built on the portion of the site which was not encumbered by the restrictive covenants but chose not to do so. This appears to have been a costly decision.

Finally, developers must avoid committing a ‘cynical’ breach, defined by the Supreme Court as “the act of deliberately committing a breach of restrictive covenants with a view to making profit”.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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