What is the position if a developer knowingly breaks restrictive covenants while developing land? Re George Wimpey Bristol Ltd’s application [2011] UKUT 91 (LC) suggested that, faced with an application to modify or discharge covenants under section 84 of the Law of Property Act 1925, the tribunal would refuse to reward parties who have deliberately flouted their legal obligations in this way. So, the decision in Re Millgate Developments Ltd’s application [2016] UKUT 515 (LC) raised several legal eyebrows.
In that case, a developer knowingly broke a restrictive covenant while constructing affordable housing in order to comply with an obligation in a section 106 agreement. Even so, it subsequently made a successful application to modify the covenant on ground (aa) of section 84(1) of the 1925 Act (a restriction impedes some reasonable use of land and does not secure to those entitled to the benefit of it any practical benefits of substantial value or advantage, or is contrary to the public interest, and a monetary payment will provide adequate compensation for the discharge or modification of the covenant). The Upper Tribunal considered that it would be an unconscionable waste of resources if the houses were to remain empty, and was satisfied that the public interest in the provision of affordable housing justified its decision in the developer’s favour.
The Court of Appeal has overturned the decision: Alexander Devine Children’s Cancer Trust v Millgate Developments Ltd [2018] EWCA Civ 2679; [2018] PLSCS 209. Lord Justice Sales, who spoke for the court, explained that it is in the public interest to ensure that private contractual and property rights are respected in dealings between private persons. Therefore, if an applicant has not, before knowingly breaking a restrictive covenant, made fair use of the opportunities available to try to negotiate a waiver of the covenant or, if necessary, to test the public interest arguments in an application under section 84, it will not, in general, be contrary to the public interest to allow the covenant to continue to impede the applicant’s proposed use of land.
The developer had unlawfully violated the covenant in this case – even though it could have redesigned the development to locate the housing on unencumbered land within the site, thereby respecting the covenants while satisfying the planning authority’s requirements for affordable housing. The developer had acted with its eyes wide open and at its own risk – and it was appropriate and in line with public interest that it should bear the risk that it may have wasted its own resources by building on the application land.
The Upper Tribunal had wrongly postponed consideration of the developer’s conduct to the discretionary stage of its jurisdiction. It should have considered this while addressing the question of whether the statutory conditions for modifying the covenant had been satisfied. Furthermore, there was an alternative way to meet the requirement for affordable housing – the developer could pay £1.64m to the local authority to provide equivalent affordable housing elsewhere – which should have been taken into account and would mean that the public interest could be satisfied without having to override the restrictive covenant.
Therefore, no discretion arose under section 84(1) that would have enabled the Upper Tribunal to modify the restrictive covenant. And, even if the discretion had arisen, the developer’s application should have been refused for similar reasons.
Allyson Colby, property law consultant
