The Court of Appeal reversed the decision of the Upper Tribunal and held that, where a developer had built in breach of a restrictive covenant, an application for modification of the covenant on the grounds that it impeded a reasonable use of the land and was contrary to the public interest would not be successful.
Facts
Millgate Development Ltd (’Millgate’) built 13 housing units (nine two story houses and four bungalows) on a site encumbered by restrictive covenants. The units were built pursuant to a Town and Country Planning Act, s106 obligation, undertaken by Millgate, to provide affordable housing in consideration for a scheme at another site.
Those covenants provided that:
“1. No building or structure or other erection of whatsoever nature shall be built erected or place on the land.
2. The land shall not be used for any purposes whatsoever other than as an open space for the parking of motor vehicles.”
It was held before both the Upper Tribunal and the Court of Appeal that Millgate knew of, or at least recklessly shut its eyes to, the restrictive covenants.
The land benefitting from the covenants was to be used for the construction of a hospice for terminally ill children. When built, the housing units on the encumbered land overlooked the hospice land, and particularly those areas that were to be landscaped as quiet recreational areas.
Upon completion of the building of the housing units, Millgate applied to the Upper Tribunal for a modification of the restrictive covenants to allow for the already completed development. It was only as a result of the application that the hospice became aware that its land benefitted form the covenants, and it objected to the application.
Relevant law
Modifications and discharges of restrictive covenants are governed by the Law of Property Act 1925, s84. That section provides:
“Section 84 – Power to discharge or modify restrictive covenants affecting land
(1) The Upper Tribunal shall … have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied-
(a) …
(aa) that in a case falling within subsection (1A) below 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; or
(b) …
(c) that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction;
…
(1A) Subsection (1)(aa) above authorises the discharge or modification of a restriction by reference to its impeding some reasonable user of land in any case in which the Upper Tribunal is satisfied that the restriction, in impeding that user, either
(a) does not secure to persons entitled to the benefit of it any practical benefits of substantial value or advantage to them; or
(b) is contrary to the public interest;
and that money will be an adequate compensation for the loss or disadvantage (if any) which any such person will suffer from the discharge or modification..
(1B) In determining whether a case is one falling within subsection (1A) above, and in determining whether (in any such case or otherwise) a restriction ought to be discharged or modified, the Upper Tribunal shall take into account the development plan and any declared or ascertainable pattern for the grant or refusal of planning permissions in the relevant areas, as well as the period at which and context in which the restriction was created or imposed and any other material circumstances.”
Upper Tribunal
Millgate relied upon s84(1)(aa) read in conjunction with s84(1A)(a), s84(1)(c) or, in the alternative, s84(1)(aa) read in conjunction with s84(1A)(b).
The Upper Tribunal held that the covenants had a practical benefit and were of substantial value or advantage to the trust. In particular, the covenants ensured a secluded, private and attractive environment for the hospice garden. Accordingly, the Upper Tribunal dismissed Millgate’s application for modification based on s84(1)(aa) read in conjunction with s84(1A)(a), as well as that based on s84(1)(c).
However, the Upper Tribunal allowed Millgate’s application for modification under s84(1)(aa) read in conjunction with s84(1A)(b). It was held that impeding the reasonable user of the land for the occupation of the 13 affordable housing units, for which planning permission had been granted, was contrary to the public interest, and that money would be adequate compensation for any loss or disadvantage suffered by the hospice. Accordingly, the covenants were modified to allow for the development of the housing units, and Millgate was ordered to pay the hospice the cost of undertaking remedial planting and landscape works to mitigate the visual impact of the development (£150,000).
Court of Appeal
The hospice appealed on four grounds (see paragraph 41):
- The Upper Tribunal erred in applying dicta offered by Lord Sumption in Coventry v Lawrence [2014] UKSC 13 to the present case;
- The Upper Tribunal erred in interpreting the ‘public interest’ by considering the fact that the 13 housing units had been built at the time of the application, thus incentivising the ignoring of restrictive covenants;
- The Upper Tribunal erred when assessing the ‘public interest’ by failing to have regard to the fact that Millgate had agreed to make a payment of £1,639,904 in lieu of the provision of the housing units if the restrictive covenant was in fact enforced;
- The Upper Tribunal erred in when exercising its discretion to modify the covenant by failing to attach proper weight to the fact that Millgate deliberately and knowingly breached the covenants.
The Court of Appeal, in a unanimous decision delivered by Sales LJ, found that the discretion to modify the covenant had not arisen, and allowed the appeal.
Ground 1
The hospice submitted that the Upper Tribunal erred when treating Lord Sumption’s comments in Coventry v Lawrenceas applicable in the present case. In paragraphs 155-161 of Coventry, Lord Sumption suggested that, in a case where activities that obtained planning permission created an actionable private nuisance, the activity should be allowed to continue and the objecting landowner compensated financially for the diminished vale of his property. It is of note that the other Justices in Coventry did not endorse Lord Sumption’s comments; it was felt that proper weight was not given to the private interests of the objecting landowner, and injunctive relief was preferred.
The Court of Appeal took the view that Lord Sumption’s view in Coventry could not be applied by analogy in Millgate. This finding was made for three reasons.
First, s84(1B) gives statutory guidance regarding the interaction of planning permission and private rights. Lord Sumption’s comments were given in a different context and are not compatible with the statutory regime. As such, they should not be applied.
Second, the private rights in question in Millgate were specific contractual terms, unlike the rights concerned in the nuisance action in Coventry. As such, the question in Millgate was less about making reasonable adjustments between competing ‘open-textured’ interests, and more one of upholding hard-edged and defined rights. Accordingly, Lord Sumption’s comments should not be applied.
Third, Lord Sumption’s comments were made in the context of the court exercising its discretion in deciding which remedy to grant. In contrast, question in Millgate is concerned with whether the court’s discretion to modify a covenant even arises.
Ground 2
Whilst the grant of planning permission should be considered under s84, it is by no means determinative of the question as to whether a restrictive covenant impedes a reasonable use of the land, or whether its discharge would be in the public interest. Whilst both the planning process and s84 involve considerations of the ‘public interest’, the questions to be asked in each exercise are different, and arise in a different context.
Furthermore, there is a public interest in having private contractual and property rights respected in dealings between private persons. In addition, a court should have regard to whether an applicant has made fair use of opportunities to try and negotiate a waiver of the covenant or, if necessary, to test the public interest arguments in a s84 application before acting in breach of those covenants.
It was held that Millgate had deliberately circumvented the proper procedures for respecting the hospice’s rights and testing the public interest, and that Millgate could not benefit from presenting the court with a fait accompli. Indeed, it emerged that Millgate could have built out its scheme in an alternative way that would not have breached the covenants, and had the public interest arguments been tested before building, the alternative scheme would have been preferred.
Ground 3
This ground was argued in two ways. First, it was argued that Millgate’s agreement to pay a monetary sum in lieu of providing the housing units should have been considered as part of the public interest test when the Upper Tribunal was deciding whether its discretion to modify the covenant arose. Second, if the discretion to modify did arise, the same payment should have been considered when the discretion to modify was being exercised. The Court of Appeal found that the payment should have been considered at both stages; consequently, the Upper Tribunal erred in its analysis.
Ground 4
The Court of Appeal held that the public interest in delivering 13 affordable housing units did not outweigh the fact that Millgate had acted in a high-handed way. Millgate had proceeded to build in full knowledge of the covenants, and the Upper Tribunal had been unable to find any evidence of good faith on the part of Millgate, or any desire to do anything other than force the hand of the hospice.
Comment
The decision in Millgate should be welcomed. The Court of Appeal sent a clear statement to developers: they cannot behave in a high-handed way and force the hands of the courts and those who benefit from restrictive covenants. The Court stopped short of saying that all s84 applications should be made before the commencement of development in breach of a restrictive covenant (paragraph 63) but, nonetheless, the decision is a welcome departure from a modern trend toward the public interest.
Redressing the balance of public and proprietary rights
In the early stages of their studies, undergraduate law students are introduced to Lord Wilberforce’s infamous statement in National Provincial Bank Ltd v Ainsworth [1975] AC 1175 at p1248: property rights are ‘definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence and stability’. Property lawyers could be forgiven for feeling that the modern law has forgotten the strength and stability that once characterised the property right. For example, attempts to balance public and private interests in cases such as Coventry v Lawrence to some extent betray the primacy of the property right, as does legislation such as the Infrastructure Act 2015, s43 by removing the ability of a landowner to sue in trespass for incursions to his land below a 300m depth.
The decision in Millgate will to some extent heal the wounds inflicted by the invasion of public rights into the proprietary domain. The case is a clear statement by the Court of Appeal that the courts should uphold proprietary rights and contractual agreements. Furthermore, that public interest is so strong that it can outweigh other more ‘public’ oriented considerations; in particular, the statement delivered by the Court of Appeal is incredibly strong when it is considered that the housing units built in breach of covenant were affordable housing units. Given the social, economic and political context, it was a very bold move for the Court of Appeal to hold that the public interest in upholding private rights outweighed the delivery of the housing scheme.
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