Modification of restricted covenants

The Upper Tribunal (Lands Chamber) has recently considered whether a restrictive covenant should be modified to allow development which was knowingly carried out in breach of the covenant.

In “Millgate Developments Limited and another v Smith and another, Re: Exchange House, Woodlands Park Avenue, Maidenhead [2016] UKUT 515 (LC)”, the developer applied to modify restrictive covenants that prohibited development on a plot of land, having built properties intended for social housing on that land, knowing that this was in breach of the covenants.

The Upper Tribunal (Lands Chamber) (UT) exercised its discretion, under (section 84(1), Law of Property Act 1925), to modify the restrictive covenants that prevented building on the burdened land. The houses overlooked the benefitting land, which was being developed as a hospice for terminally ill children.

In exercising its discretion, the UT found that the loss of privacy to the owners of the benefitting land was outweighed by the public interest in housing families in need of affordable accommodation, some of whom may have been waiting for a very long time to be housed.

In these circumstances, the UT decided that money was adequate compensation for the loss of the private rights enjoyed by the benefitting land. The UT therefore required the developer to pay £150,000 to the trustees, as a condition of the modification. The money could be used for planting along the boundary to offset the loss of privacy and seclusion. The trustees were only entitled to compensation for the loss of the covenant's benefit; they were not entitled to any share of the profit from the development.

PLC note in their coverage of this case that “although the UT reiterated the warning given in George Wimpey Bristol Ltd.’s Application [2011] UKUT 91 (LC) that the UT was "not inclined to reward parties who deliberately flout their legal obligations…", this, in effect, is the outcome of the instant decision.

The message to developers could be seen as "do not assume that the UT will modify covenants if you build in breach, but you have a better chance of modification if the properties are for social housing".

Please contact us if you would like more information about the issues raised in this article, or any of the legal aspects of property development on 0208 290 0333, or make an online enquiry at http://www.judge-priestley.co.uk/site/contact/make-an-enquiry/