The Supreme Court refused to modify covenants forbidding building on open land beside a children’s hospice, so that 13 affordable homes already built there in deliberate breach could lawfully remain and be occupied. The Upper Tribunal had been entitled to find that blocking that use was contrary to the public interest, but it had wrongly exercised its discretion by overlooking two consequences of the developer’s conduct. The covenants therefore remain, although the Court did not decide whether the homes must be emptied or removed.
The hospice land and the broken covenant
The Alexander Devine Children’s Cancer Trust was entitled to the benefit of restrictive covenants over open land near Maidenhead, in the Green Belt. A conveyance of 31 July 1972 provided that nothing was to be built on that land and that it was to be used only as an open space for parking. The covenants benefited neighbouring land then belonging to the vendor, John Smith. His son later gave part of that neighbouring land to the Trust for a hospice for children with terminal cancer. Planning permission for the hospice was granted in December 2011, and the gift was made in March 2012.
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In 2013 Millgate Developments Ltd bought a larger site comprising the restricted land and adjoining land free of the covenants. It knew of the covenants. The Upper Tribunal found that its solicitors could readily have identified those entitled to enforce them, and inferred that Millgate either made no enquiry or knew who some or all of them were and chose not to raise the covenants before building.
In March 2014 Millgate obtained permission for 23 affordable homes on the combined site. That permission was linked to a commercial development at another site, Woolley Hall: Millgate could not sell more than 15 homes there until the 23 affordable homes had been transferred to an affordable-housing provider. Millgate placed 13 of the affordable homes — nine two-storey houses and four bungalows — on the restricted land. The Upper Tribunal recorded that, had Millgate instead sought permission for all 23 homes on the unrestricted land, leaving the restricted land as a car park, the planning authority had indicated that it would have approved that layout.
The Trust learned that the new housing affected land protected for the benefit of its planned hospice. The developer proceeded despite knowing of the covenants.
A later variation of the planning obligation offered an alternative if the covenants could not be modified. The application nevertheless proceeded after the homes had been built.
Opening the door, then choosing whether to modify
Section 84 of the Law of Property Act 1925 gives the Upper Tribunal power to discharge or modify a restrictive covenant, but only where the applicant establishes one of the specified grounds. Those grounds concern jurisdiction. Even then the Tribunal has a discretion: the Act says that it shall have power to make an order, not that it must. This was the first appeal to the highest court on section 84.
The relevant ground was that the covenant impeded a reasonable use, that the impediment was contrary to the public interest, and that money would adequately compensate the person entitled to the benefit. The Upper Tribunal held the ground made out. Affordable housing was agreed to be a reasonable use; it was not in the public interest for the finished homes to stand empty; and £150,000 would cover screening and some loss of amenity. It described Millgate’s conduct as high-handed and opportunistic. Lord Burrows used “cynical breach” as shorthand for deliberately breaking the covenant with a view to profit. The Tribunal nevertheless modified the covenants because it considered the public interest more important than that conduct. The Court of Appeal, in a judgment of Sales LJ with which Underhill and Moylan LJJ agreed, held that the Tribunal had erred in law on four grounds and refused the application.
Conduct was irrelevant to jurisdiction
Lord Burrows, with whom Lord Kerr, Lord Lloyd-Jones, Lord Kitchin and Lord Hamblen agreed, held that the public-interest question is narrow. It is not whether, in all the circumstances, keeping the covenant would be contrary to the public interest. It is whether the covenant’s blocking of a reasonable use is contrary to the public interest. Here the waste of 13 unusable homes had to be set against the public interest in preserving a private sanctuary for dying children. That was a conflict between uses of land, and the Tribunal made no legal error in resolving it in favour of modification at the jurisdictional stage.
The manner of the breach was irrelevant at that stage. It says nothing about the merits of the proposed use, and it is considered, where relevant, when the Tribunal decides whether to exercise its power. Lord Burrows therefore disagreed with the Court of Appeal’s view that a developer which builds before negotiating or applying under section 84 fails the public-interest test. He also held that the Tribunal had not unlawfully applied wider observations in the nuisance case of Lawrence v Fen Tigers Ltd: it had said that it was unnecessary to pursue that thought. The Tribunal had considered Millgate’s ability to pay for housing elsewhere, but had treated the waste of homes already built as more important. Its failure to address any wider pattern of planning permissions was not, given the permission actually granted, a serious enough error to overturn its decision.
Two consequences left out of the discretion
The appeal nevertheless failed because of the way the discretion was exercised. An appeal court may not intervene merely because it would have given a factor different weight, and a discretion to refuse an application should be exercised cautiously. Lord Burrows was not willing to treat every cynical breach as automatically requiring refusal. The Tribunal had considered Millgate’s conduct. What it had not taken into account were two consequences of that conduct, both connected with the alternative layout which the planning authority would have accepted. Lord Burrows regarded their presence as making the facts exceptional.
First, had Millgate sought permission to put all the affordable homes on the unrestricted land, there would have been no need to apply under section 84, and the hospice would have been unaffected. The breach did more than defy the Trust: it prevented an outcome that could have secured the housing while respecting the covenant. Deterrence was especially important where the land-use conflict could reasonably have been avoided.
Second, had Millgate applied before building, it would probably have failed the public-interest ground, because affordable housing could have been provided on the unrestricted land. By building first, it created the finished but empty homes on which the Tribunal later relied. Lord Burrows agreed that it is not in the public interest for someone who deliberately breaks a covenant to obtain its modification by relying on the situation created by that breach. Because the Tribunal assesses the public interest at the hearing, such conduct can reward the wrongdoer. A warning in the Tribunal’s reasons that developers should not press on in the hope of an easier modification was, he accepted, lip service: the decision itself contradicted it.
Omitting either factor was an error of law. That was enough to dismiss the appeal, although Lord Burrows reached that conclusion by a different route from Sales LJ.
Why the Supreme Court decided the application itself
The application had been issued on 20 July 2015, more than five years earlier. Given the uncertainty for the parties, residents and those at the hospice, Lord Burrows treated sending the case back as a last resort. Had the two omitted factors been considered, the Tribunal would surely have refused the application. Exercising the discretion afresh, he held that refusal was the correct decision.
Verdict: The Court unanimously dismissed Housing Solutions’ appeal and refused modification of the covenants. It did not order demolition, prevent occupation or award damages. Any enforcement or other remedy for the Trust was a separate question.
Source: Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45
