Zenith CC&P Current Awareness

Tightening up on restrictive covenants

16 May 2019

John Collins

1.    Our Victorian ancestors were enthusiastic about restrictive covenants.  In an age when there was little or no planning control on development, they performed an extremely useful function.  However, the result was – and it became increasingly obvious – that restrictive covenants which no longer had any useful function to perform remained on the titles of properties.  So, the Law of Property Act 1925 by s.84 introduced the power, which was in 1949 given to the Lands Tribunal, to discharge or modify such covenants on three grounds, basically:

a)   The restriction ought to be deemed obsolete;

b)   Everyone agreed that the covenant should be discharged or modified; or

c)   That the proposed discharge or modification would not injure those entitled to the benefit of the restriction.

2.    But then, by Law of Property Act 1969 s.28, an additional ground was introduced, namely that the continued existence of the restrictive covenant would impede some reasonable user of the land for public or private purposes, or would, unless modified, so impede such user.  That ground was hedged about, so as not to give carte blanche for removal of all restrictive covenants.  Either the person applying for the discharge or modification had to satisfy the Lands Tribunal that the restriction did not secure to the persons entitled to the benefit of it any practical benefits of substantial value or advantage to them or the restriction was contrary to the public interest and, in either case, that money would be adequate compensation for the loss or disadvantage which any person entitled to the benefit of the restriction would suffer from the discharge or modification.  The Lands Tribunal was required to take into account the development plan and any pattern for the grant or refusal of planning permissions in the relevant area and the Tribunal could impose restrictions on the user or the building on the land which was affected by restrictive covenants.  (I have summarised the provisions, I hope without over-simplifying them to any great extent).

3.    The new provision was seized upon and used in the overwhelming majority of cases on the basis that it could be argued that the restriction did not secure to any objector any practical benefits of substantial value or advantage to the objector.  The Tribunal, now the Upper Tribunal, has found that any benefit to those entitled to enforce the restriction was such that it was of no substantial value and accordingly very modest compensation could be paid for the discharge or modification of the covenant to the satisfaction of the applicant.

4.    But there are cases where it is quite clear that there is significant advantage to the objectors to maintain the restrictive covenants.  In those circumstances it has been tempting for applicants to try to establish that the restriction was contrary to the public interest.  The argument went that the development in question had obtained planning permission and was necessary for increasing the housing stock of the neighbourhood.  However, the Lands Tribunal was concerned that this provision should not be used save in the most extreme cases.  Sir Douglas Frank QC, the President of the Tribunal, in Re Brierfield’s Application (1976) 35 P & CR 124, said that the argument from public interest “must be so strong that it overrides all objections to the proposal” and in Re Collins’ Application (1974) 30 P & CR 527 that for such an application to succeed it must be shown that the public interest is “so important and immediate as to justify the serious interference which such discharge or modification would evolve with private rights and sanctity of contract”.

5.    In Re SJC Construction Co Limited’s Application (1974) 28 P & CR 200, however, the same President did apply the public interest provision.  A building had been erected in breach of covenant up to the first floor pursuant to planning permission.  There was a local shortage of land for housing and it was held that the adverse effects upon the land of the objectors would not be serious.  Furthermore, if the modification was not granted the work already done would be wasted.  However, there had to be very substantial compensation paid.  That case, although it was against the run of decisions at the time, was subsequently followed and a new approach tended to arise in such cases that if possible where the development was in the public interest, permission might be given subject to substantial compensation. 

6.    That was clearly the view of the Upper Tribunal in the recent case of Millgate Developments Ltd v Alexander Devine Children’s Cancer Trust [2019] 1WLR 2729.  That case concerned a piece of land which enjoyed the benefit over neighbouring land under a restrictive covenant designed to keep the land as open land.  This was clearly to the advantage of the Trust, which was providing a hospice for children who were seriously ill with life-limiting conditions and for their carers.  Millgate obtained planning permission to develop the burdened land with houses and bungalows for use as social housing, that is to say, affordable housing.  It was part of a scheme whereby Millgate would have a very valuable housing development nearby, but it would meet the conditions laid down by the local authority.  Millgate then proceeded to start building the houses in breach of covenant on the burdened land.  Following the protests of both the charity and the nearby landowner who had given the land to the charity, Millgate made an application for modification of the restrictive covenants to allow the development.  The Upper Tribunal granted that application, making use of the contention that the restriction was contrary to the public interest in impeding the use of the land for residential development.  They supported their decision by reference to the judgment of Lord Sumption JSC in Lawrence v Fen Tigers Ltd [2014] AC 822, where in the context of a claim for noise nuisance, he held that an injunction should as a matter of principle not be granted in a case where the use of land to which objection is taken requires and has received planning permission and that damages were ordinarily an adequate remedy for the nuisance.  As the Court of Appeal pointed out, that really was of no assistance in a case where one was dealing with a contractual obligation undertaken by Millfield with knowledge of the restrictive covenant.  Sales LJ held (at para 53) “To apply Lord Sumption JSC’s guidance in the context of deciding whether restrictive covenants should be discharged or overridden pursuant to s.84, as the Upper Tribunal did, fails to give proper weight to the nature of the private rights in issue in that context”.

7.    The Court of Appeal had no hesitation in reversing the decision of the Upper Tribunal not simply because it was clearly not shown that the restrictive covenant was “contrary to the public interest”, but because in any event the fact that Millgate had deliberately circumvented the proper procedures for testing and respecting the rights of the objectors under the restrictive covenants that in itself was a ground for dismissing the application by Millgate.

8.    The Court of Appeal went further and gave guidance to all those who would wish to make use of the procedure under s.84.  What should happen is that where there is a restrictive covenant, the person who wishes to develop in a manner which would be in breach of that covenant should first of all try to negotiate a waiver of the restrictive covenant.  If such negotiations fail, then an application should be made to the Court.  There should be no attempt to commence building or other works on the burdened land until there had been proper investigation by the Upper Tribunal of the issues.  Of course, if, due to some error which was in no way negligent, the person who is proposing to develop the land was entirely unaware of the existence of the restrictive covenant before actually commencing such development, the Upper Tribunal might well, as in Winter v Traditional and Contemporary Contracts Ltd [2018] 1EGLR 80, legitimately allow an application to go forward, though obviously still it will be necessary to prove the grounds and the mere fact that there was a building built or partly built would not be a matter which would be crucial, but would be part of the general circumstances of the case.

9.    So it is now clear that the Upper Tribunal should look at the whole conduct of the applicant in the circumstances as part of the basis upon which the Tribunal should exercise its discretion in this type of case.  The pressure is upon, in particular, the applicant to try to get an agreed solution to the problem rather than to barge into an application without negotiation or, worse, to try to steal a march on the objectors by going ahead with the development before the matter has been adjudicated upon by the Upper Tribunal.  The mere fact that planning permission has been obtained is no guidance as to whether or not the effect of the restrictive covenant is contrary to the public interest.  That is still subject to the strict limitations laid down in the early days of this provision by Sir Douglas Frank.

JOHN M. COLLINS

15th May 2019

Current Awareness

By the CC&P team