Public interest may trump breach of legal obligations

A housing development has been allowed even though it was built in breach of a restrictive covenant on the land, on the condition that the developer pays a sum of money in compensation to the party with the benefit of the restrictive covenant. The key reason for this decision was that the restrictive covenants were contrary to the public interest and impeded the use of the land for social housing.

Restrictive covenants restrict the way in which land can be used by one person for the benefit of another person’s land. However, a person subject to a restrictive covenant may apply to the Upper Tribunal (Lands Chamber) to remove or modify the restriction under section 84 of the Law of Property Act 1925.

Section 84 allows the Upper Tribunal to use its discretion to discharge or modify a restrictive covenant. In using its discretion the Upper Tribunal will consider whether the covenant impedes the reasonable use of the land, lacks any practical benefit of substantial value or is contrary to public interest. It will also consider whether money would be adequate compensation to the person with the benefit of the restrictive covenant for the discharge or modification of the covenant.

In the case of Millgate Developments Limited v Smith [2016] the developer, Millgate, built social housing on land near Maidenhead in the knowledge it was in breach of restrictive covenants that prevented building on the land. The party with the benefit of the restrictive covenants were the trustees of a charity which owns land immediately adjoining the development. The charity was building a hospice for terminally ill children on their land. The Upper Tribunal agreed to modify the restrictive covenants because, although the restrictive covenants conferred a practical benefit of substantial value on the hospice by providing privacy and seclusion, there was an overriding benefit in the public interest to enable use of the development land for social housing. The Upper Tribunal said: “we consider that the public interest outweighs all other factors in this case. It would be an unconscionable waste of resources for those houses to continue to remain empty”. It also decided that the trustees of the hospice could be adequately compensated by money, in this case £150,000, to plant trees which would provide adequate privacy to the hospice. They were not, however, entitled to a share of the developer’s profit.

This decision should not be seen as a carte blanche to develop land in breach of a restrictive covenant, as it cannot be assumed the Upper Tribunal will readily modify restrictive covenants. However developers should take heart as it does show that an application is more likely to be successful if it is in the public interest and especially where the development includes social housing or provides some other public benefit.