The Supreme Court shows why Restrictive Covenants on Land should not be ignored

At the end of 2020, the Supreme Court passed the long-awaited judgement in Millgate Developments/Alexander Devine/Housing Solutions case.

The heart of the issue was section 84 of the Law of Property Act 1925, and whether the public interest ground for discharge of a restrictive covenant was established.

The facts of the case are that Millgate constructed 13 affordable houses on land, in the knowledge that the land was subject to a restrictive covenant preventing any building. No attempts were made to ascertain who may have the benefit (the right to enforce).

Despite having received objections, it was only after exchange of contracts for sale of all the housing in 2014, that an application was made to have the covenant modified/discharged.

Initially, the Tribunal was persuaded by Millgate’s arguments that the development was a reasonable use of the land and that it was in the public interest for the affordable housing to have been built. The Tribunal allowed modification of the covenant, with Millgate required to pay £150,000 compensation.

The sale of the housing was then completed, however, in November 2018, the Court of Appeal were extremely critical of Millgate in deciding that there is public interest in upholding the rule of law and not encouraging breaches of public rights. They overturned the Tribunal, ruling that the modification should not have been allowed.  The Court of Appeal confirmed that when the Tribunal considers the issue, although the first stage was to establish whether there was a statutory ground for modification or discharge (the jurisdictional stage), the Tribunal had then been entitled to consider the conduct of the parties (the discretionary stage).

In dismissing the appeal, the Supreme Corut was critical that the buildings had been constructed without following proper procedure, with full knowledge of the existence of the covenant.

The Supreme Court exercised its discretion and made a fresh decision that the application to modify the covenant was refused. Those with the benefit are now entitled to seek an injunction preventing the houses from being occupied and that the houses should be removed.

This is not the end of the story, if an application is made for an injunction, the Court following the usual principles will need to determine whether damages are an appropriate remedy. However, the discretion of the Judge in determining the level of compensation is wider than that available to the Tribunal when £150,000 was ordered.

This case demonstrates whether you are trying to enforce the benefit to stop development, or try and remove or modify the burden to allow development, the importance of both:

• Assessing the benefit (right to enforce) of restrictive covenants at the earliest opportunity.
• Taking steps to ensure the Court cannot criticise your conduct.

Written By : David Bowers, Associate Solicitor