In the case of Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd, the Supreme Court considered, for the first time, the removal of a restrictive covenant binding freehold land on grounds of public interest.

This case started as an application by Millgate Developments Ltd (“Millgate”), a housing developer, to have a restrictive covenant prohibiting the erection of buildings removed from land on which they had already built social housing. After the original application was made, and before it had been appealed, Housing Solutions Ltd (“Housing Solutions”), purchased the development. The Alexander Devine Children’s Cancer Trust (the “Trust”) owned the adjacent land, which benefitted from the restrictive covenant, and was planning to build a hospice on it for terminally ill children. This case was the first time the Supreme Court has been required to decide an appeal concerning Section 84 of the Law of Property Act 1925 (the “Act”) under which restrictive covenants can be removed or modified.

The Upper Tribunal granted Millgate’s application to have the restrictive covenant removed. Its decision was appealed to the Court of Appeal and then the Supreme Court. Both senior courts disagreed with the Upper Tribunal and retained the restrictive covenant, with the Supreme Court unanimously dismissing Housing Solutions’ appeal.

Whilst, the legal issues addressed in this appeal will undoubtedly interest lawyers and land-owners, the case also raised more fundamental public interest points, and indeed the Supreme Court took care to recognise this. It said there was a “fundamental dilemma”, as on the one hand were 13 units of affordable housing, which would have to be demolished if the application was not successful – and, on the other, the interests of a hospice for terminally ill children. The Trust was seeking to enforce the restrictive covenant to ensure their residents could fully enjoy the use of the hospice grounds in privacy.

Section 84 of the Act originally laid down four grounds under which restrictive covenants could be removed. The public interest ground concerning this appeal was added in 1967 and provided that a restrictive covenant could be removed if it is “contrary to the public interest” (subject to the other provisions of the Act)

The Court of Appeal emphasised that Millgate had built the houses “with its eyes open and completely at its own risk”. It also considered it contrary to the public interest for a developer to seek to obtain advantage for itself by presenting the Tribunal with constructed buildings on affected land as a ‘fait accompli’, without following proper procedure, and leaving the Court to decide whether the houses should be torn down. The Supreme Court agreed with the Court of Appeal that the cynicism of Millgate’s breach should have been accounted for by the Tribunal, but disagreed with the stage in the proceedings at which it should have been considered.

The Supreme Court said that the ‘cynical breach’ did not fall within the public interest ground, which should be narrowly construed. It found that the Tribunal was correct that the public interest ground was made out by Housing Solutions on the facts. However, the Supreme Court said that the ‘cynical breach’ should have been taken into account when the Tribunal went on to exercise its discretionary powers and choose whether to discharge the covenant or not.

The developer had also chosen not to take an alternative option and build the affordable houses on unencumbered land nearby. This would have been a satisfactory outcome for the developer and would have respected the rights of the Trust. The developer also could have applied to have the restrictive covenant removed before it started construction of the houses. The Supreme Court said that these were all relevant factors that should have been taken into account by the Tribunal when deciding whether or not to exercise its discretion.

This judgment is a warning that a ‘build now, discharge covenant later’ approach will not be tolerated by the Courts, especially if the developer is aware of the restriction concerned at the time and had alternative means by which they could achieve the same aims. It also strengthens the hand of landowners who may be aware that a development has been built in breach of a restrictive covenant, but thought it was too late to do anything about it.

Authors: Joelle Chess, Michael Duncan and James Sutherland