One Source May 21 Composite banner 600 edit

Slide background
Slide background
Slide background
Slide background
Slide background
Slide background
Slide background
Slide background

Land-use conflict

The Supreme Court has given an important ruling on the discharge of restrictive covenants. David Sawtell analyses the judgment.

The appeal in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020] UKSC 45 was the first time that either the Supreme Court or the House of Lords had considered the Upper Tribunal’s power to discharge or modify restrictive covenants affecting land under section 84 of the Law of Property Act 1925. The case confirms important principles affecting the interplay between private law property rights, planning and land use. Lord Burrows, giving the only substantive judgment of the Supreme Court, agreed with the Court of Appeal that the Upper Tribunal’s decision was wrong, but disagreed in a number of important respects with the speech of Sales LJ (as he then was) in the Court of Appeal ([2018] EWCA Civ 2679). For a  number of reasons, it is likely that we shall be reading and re-reading this Supreme Court decision for many years to come.

At the heart of the case was what Lord Burrows styled a “dilemma” ([3]). The Alexander Devine Children’s Cancer Trust (‘the Trust’) had built a hospice that enjoyed the benefit of a restrictive covenant preventing building on a plot of land (‘the Application Land’). This covenant afforded the terminally ill children of the hospice privacy in the use of its grounds. Housing Solutions Ltd (‘Housing Solutions’) was the successor in title to a developer that had already build 13 units of much-needed affordable housing on the Application Land, in breach of this restrictive covenant. These homes had been built with planning permission, and in fact were erected to satisfy a requirement imposed by a deed made pursuant to section 106 of the Town and Country Planning Act 1990. Lord Burrows noted at [43] that, “Two competing uses of the land are therefore pitted against each other” in an “land-use conflict”.

Lord Burrows clarified that there are two stages to consider in an application under section 84. The first step is to consider whether the applicant had made out the appropriate jurisdictional gateway. The Court of Appeal had erred by considering questions of the applicant’s ‘cynical’ breach of the restrictive covenant at this point when considering if the public interest test was made out. Instead, this was an issue that fell to be considered at the second, discretionary, stage. Lord Burrows identified that, by building the dwellings in breach of covenant without first making an application under section 84, the applicant had created the public interest quandary in the first place. It would be wrong for the applicant to rely on the fait accompli it had itself created. The application therefore failed.

The case is one in a series of important recent decision on such conflicts which involve the interplay of private law property rights and planning. The Supreme Court has previously considered the same in respect of the tort of private nuisance in Lawrence v Fen Tigers Ltd [2014] UKSC 13; [2014] AC 822. It also follows the Court of Appeal decision on the scope of any ‘private law’ rights to privacy in Fearn and others v Board of the Trustees of the Tate Gallery [2020] EWCA Civ 104, [2020] 2 WLR 1081 (which I discussed here). This trio of cases demonstrates the continuing importance of private law property rights and causes of action such as restrictive covenants or the tort of private nuisance in the development and use of land.

The facts

The Application Land is close to Maidenhead and is designated as Green Belt. The restrictive covenant arose as part of a sale of land that included an overage agreement. The covenant prevented the erection of any structure or building on the Application Land, and prevented it from being used for any purpose other than as an open space for car parking. The overage obligation expired in 1994, leaving the restrictive covenant.

The land with the benefit of the covenant passed to a Mr Barty Smith, who gifted it to the Trust for the purpose of building a hospice together with recreational areas and a wheelchair path. Planning permission was granted for its construction.

A company called Millgate Developments Limited (‘Millgate’) acquired the Application Land. The Upper Tribunal made a finding of fact that the company was always aware of the restrictive covenant, and could always have found out who had the benefit of it. In July 2013, Millgate applied for and in due course obtained planning permission to build 23 affordable housing units on the Application Land. This was linked to its application for planning permission to build 75 housing units on another site for commercial sale. Permission to build the 75 units was made conditional on the provision of affordable housing, and Millgate entered into a deed made pursuant to section 106 of the Town and Country Planning Act 1990 not to make available for sale more than 15 units constructed for commercial sale until 23 units had been transferred to an affordable housing provider.

Lord Burrows recorded at [14] that it was a very important point that Millgate could have chosen to lay out its development of the site differently so that it could honour the restrictive covenant by building a larger block of flats on the unencumbered land. The encumbered Application Land could have been used as a car park. The local planning authority indicated that it would have approved such a proposal. Millgate, however, chose not to pursue this alternative.

Millgate began works in July 2014. Barty Smith became aware of the development of the site in August 2014 and instructed solicitors. Despite objections, Millgate continued to build the houses and bungalows on the application land, completing them in July 2015.

The proceedings

At first instance, the Upper Tribunal allowed Millgate’s application to modify the restrictive covenants under section 84 of the Law of Property Act 1925 to permit the occupation and use of the Application Land. As a condition of the ruling, Millgate was ordered to pay £150,000 compensation to the Trust.

Millgate sold the land to Housing Solutions, including the 13 built housing units that had been built on the Application Land. These dwellings were subsequently occupied by tenants. The Trust appealed to the Court of Appeal, who overturned the Upper Tribunal’s decision and re-made the decision by refusing the application to discharge or modify the restrictive covenant.

The statutory provisions

The general position is that the burden (as opposed to the benefit) of a freehold covenant does not run with freehold land. This was confirmed by the House of Lords in Rhone v Stephens [1994] 2 AC 310 when it rejected the submission that the burden of positive covenants should run with the land. Since the nineteenth century, however, a series of cases starting with Tulk v Moxhay (1848) 2 Ph 774 established that the burden of a freehold restrictive covenant could run with the land in equity. This burden could run with land only where the covenant was restrictive in nature and where it was intended to run with the land; two plots of land were concerned, with one bearing the burden and the other receiving the benefit; and the subsequent owner of the burdened land could not set out a defence that they had purchased the land for value without notice (a situation that has been modified by the modern system of land registration). The benefit of the covenant must also run with the benefited land: it must touch and concern the land; and must have passed to the claimant by annexation, assignment, or a scheme of development.

The development of the enforceability of restrictive covenants against successors in titles took place before the advent of a public law system of planning. It allows an owner of land to impose controls on its development. It arose during the Industrial Revolution in a period of rapid industrialisation to allow for developmental controls to be imposed over a number of plots of land while parting with the ownership of the freehold.

Such covenants, however, can outlive their usefulness, and can impede the useful development of land in a way out of all proportion to their benefit: “restrictive covenants cannot be regarded as absolute and inviolable for all time” (Jaggard v Sawyer [1995] 1 WLR 269, 283 per Sir Thomas Bingham MR). As Martin George and Antonia Layard, the authors of Thompson’s Modern Land Law (7th edition), observe (p.483), “It may also be the case that their continued enforceability is socially detrimental, preventing socially desirable development of the land.” In order to prevent land (which is necessarily finite) from being encumbered by obsolete or unreasonable covenants, section 84 of the Law of Property Act 1925 gives what is now the Upper Tribunal the jurisdiction to wholly or partially discharge or modify such restrictions. There is a two-stage test. The first stage (section 84(1)) gives the Upper Tribunal jurisdiction by reference to one of five gateways, including changed character of the property or obsolescence (section 84(1)(a)), or that no injury would be caused to the person entitled to the benefit of the restriction (section 84(1)(c)).

In the Alexander Devine case, the Upper Tribunal was concerned with the ‘contrary to public interest’ jurisdictional ground (section 84(1)(aa): “the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified so impede such user” and section 84(1A)(b), by impeding some reasonable user, that restriction “is contrary to the public interest”). When considering section 84(1A), the Upper Tribunal must, under section 84(1B), “take into account the development plan and any declared or ascertainable pattern for the grant or refusal of planning permissions in the relevant areas”.

If a party can satisfy the Upper Tribunal that the prescribed ground has been made out, the Tribunal then has a discretion at the second stage whether or not to make an order for modification or discharge of the restrictive covenant (section 84(1): “shall… have power”; Driscoll v Church Commissioners for England [1957] 1 QB 330). It is the separation between the first and the second stages that marks the difference between the approaches of the Court of Appeal and the Supreme Court.

The approach of the Supreme Court

The most important point that emerges from the decision of the Supreme Court is its treatment of Millgate’s behaviour. The Upper Tribunal described its behaviour as “highhanded and opportunistic” ([105], [2016] UKUT 515 (LC)). Lord Burrows described it as a “cynical breach” ([36]), deliberately committing a breach of the restrictive covenant with a view to making profit from so doing.

It was accepted that section 84 requires a narrow interpretation of what is meant by, “contrary to the public interest” in section 84(1A)(b). The test is not whether it would be contrary to the public interest to maintain the restrictive covenant: instead, “the wording requires one to focus more narrowly on the impeding of the reasonable user of the land and to ask whether that impediment, by continuation of the restrictive covenant, is contrary to the public interest.” ([42]). This is a narrow inquiry: the good or bad conduct of the applicant (including any cynical breach) is irrelevant at the jurisdictional stage ([44]). The Upper Tribunal had not, therefore, made an error of law. Differing from the Court of Appeal on this point, the Supreme Court held that the question of a cynical breach was relevant at the discretionary stage only.

The next question was whether the Upper Tribunal had made an error of law in the exercise of its discretion: it was not whether the Supreme Court would have reached the same decision, or even agreed with it. Lord Burrows agreed with Sales LJ that an error of law had been made, although he expressed “some reservations” about how he chose to explain it ([53]). It was not correct (although Lord Burrows was “sorely tempted to agree” at [55]) that there was a principle that an applicant who had committed such a cynical breach should have its application refused. Further, the Upper Tribunal had taken into account Millgate’s behaviour. Instead, Lord Burrows pinpointed two particular factors that should have been taken into account, which were not referred to by the Upper Tribunal.

Firstly, had Millgate respected the Trust’s rights and applied for planning permission for the units on the unencumbered land, it would not have had to have applied to discharge the restrictive covenant. In addition to the cynical breach, Millgate put paid to what would have been a satisfactory outcome: it could have avoided a land-use conflict altogether by submitting an alternative plan

Secondly, had Millgate applied under section 84 before starting to build on the Application Land, it was likely it would not have been able to satisfy the ‘contrary to public interest’ jurisdictional ground. The cynical breach of covenant had fundamentally altered the position in relation to the public interest. Millgate were relying on a state of affairs that they had created by their own deliberate breach, presenting the Upper Tribunal with a fait accompli.

The status of planning permission

In the Court of Appeal, Sales LJ made a number of impactful points about the relative status of planning permission and restrictive covenants. At [43], he made the following general observation:

“43.     The grant of planning permission does not generally have any impact upon private property rights. It is a decision taken regarding what development of a particular site can be regarded as acceptable in planning terms, with reference to the public interest. Actual development in accordance with a grant of planning permission may depend upon the developer being able to negotiate to buy out or overcome any private property rights which stand in the way of the development.”

At [47], Sales LJ then went on to state that, “in interpreting and applying that provision [section 84] it is necessary to bear in mind that it is a private contractual right with property-like characteristics which is sought to be removed or modified, against the objection of the right-holder. That is not something which Parliament intended should occur lightly or without very good reason.” He quoted Carnwath LJ (as he then was) in Shephard v Turner [2006] EWCA Civ 8; [2006] 2 P&CR 28 at [58], where he stated that section 84(1)(aa) “seeks to provide a fair balance between the needs of development in the area, public and private, and the protection of private contractual rights.” Lord Burrows did not criticise this passage, and nothing in his speech undermines it.

There are several reported cases quoted by Preston & Newsom’s Restrictive Covenants Affecting Freehold Land (10th edition) at p416ff to the effect that planning permission, without more, “could not possibly prove more than that the permitted development is not contrary to the public interest” (quoting Re Davies’ Application (1971) 25 P & CR 115 at 135). The ‘public interest’ in SJC Construction Co Ltd v Sutton LBC (1975) 29 P & CR 322 was not proven by the fact of planning permission, but by the fact that works have reached a certain point in the context of a local shortage of land for housing.

The question posed by the Upper Tribunal in the Alexander Devine case was the narrow one of whether, in impeding the use of the Application Land as the site of 13 dwellings which would otherwise be available as social housing, the covenants were contrary to the public interest ([96]). Lord Burrows referred to the fact that, “The waste involved would be a very strong factor indicating that that would indeed be contrary to the public interest” ([43]). While section 84(1B) requires the grant of planning permissions to be taken into account in considering whether a case falls within subsection (1A), nothing in what the Upper Tribunal, the Court of Appeal or the Supreme Court stated means that it should be given any greater weight than was previously the case. Planning permission, without more, is merely permissive: it does not trump private law rights.

Lord Burrows refused to be drawn into a closer analysis of Lord Sumption’s remarks on the interface between private law remedies and planning in the Fen Tigers case. At [161], Lord Sumption reflected in what were self-obviously obiter remarks that, “it may well be that an injunction should as a matter of principle not be granted in a case where a use of land to which objection is taken requires and has received planning permission”. Sales LJ picked up on the fact that none of the other Supreme Court justices endorsed this comment, as well as the difference in context between remedies for the tort of private nuisance and an application under section 84. As Lord Burrows noted at [66], the Upper Tribunal did not in fact apply Lord Sumption’s wider comments. He therefore left them alone without giving any further clue as to his opinion on them. The Trust’s application for prohibitory and / or mandatory injunctions was very much live in separate proceedings: we shall wait and see if this is reported as well.

Conclusion

The Supreme Court has provided useful clarification as to the different tests to be applied at the jurisdictional and discretionary stages of assessing a section 84 application. The effect of a cynical breach should usually be considered at the latter stage.

The case also confirms the narrowness of the ‘public interest’ test. Lord Burrows did not place any greater weight on the fact that planning permission had been granted than earlier cases have done. The ‘public interest’ disclosed by the waste of so many dwellings was itself overpowered by the fact that they need not have been erected in breach of covenant at all.

Martin Dixon, writing about the Court of Appeal decision, reflected that, “The result—the likely demolition of the affordable houses—sounds a warning to those who think that covenants, and those that enjoy their benefit, are just interfering busy bodies who are standing in the way of progress. It also makes it clear that “proprietary” obligations are exactly that and not to be disregarded when they are inconvenient.” (‘A smorgasbord’, [2019] 1 The Conveyancer and Property Lawyer 1-3). Nothing that Lord Burrows stated in the Court of Appeal dampens the relevance of this warning. The litigation therefore confirms the continuing relevance of private law restrictions on the development of land. This should be ignored by developers and subsequent purchasers at their peril.

David Sawtell is a barrister at 39 Essex Chambers.

Sponsored Editorial

Fraser Public Sector 600