“A Cynical Breach” Of Covenant Backfires On Housing Developer Who Ignored Restrictive Covenant Held By Children’s Charity

The Supreme Court’s decision in Alexander Devine Children’s Cancer Trust v Housing Solutions Limited [2020] UKSC 45 was handed down last week and  is a must-read for all developers and their advisors, according to the Real Estate Disputes team at national law firm Irwin Mitchell.

The case relates to a restrictive covenant on land which prevented the development of land adjoining the Alexander Devine Children’s Cancer Trust hospice in Maidenhead. The children’s’ charity sought to impose the covenant “so that terminally ill children in a hospice built on the Trust’s adjoining land could enjoy, in privacy, the use of the grounds”.  The other party, Housing Solutions Limited had bought the development land from Millgate Developments Limited and was seeking to ensure that 13 units of affordable housing, built in breach of the restrictive covenant, did not “go to waste”.

The developer succeeded in the Upper Tribunal. However, that decision was reversed in the Court of Appeal. 

There were four grounds of appeal to the Supreme Court, but the key issue related to the extent to which the developer’s (Millgate’s) conduct should be take into account when deciding whether or not the covenant should be modified on the ground that it was “contrary to public interest” (section 84 (1)aa), 84 (1A)9b).

According to Irwin Mitchell, the decision needs to be read in the context of the developer’s conduct: The developer was at all relevant times aware of the existence of the restrictive covenant, but it nonetheless chose to apply for planning permission and start building before applying to the Upper Tribunal to modify the covenant.  The Supreme Court described this conduct of the developer as a “cynical breach”.

The Supreme Court found that, whilst the cynical breach of the developer was not relevant to a narrow interpretation of what is meant by “contrary to the public interest”, it was highly relevant in the exercise of the Upper Tribunal’s wider discretion as to whether or not to order a modification of the covenant.

The Supreme Court also said the developer had, by applying for planning permission and starting to build before seeking to modify the covenant, fundamentally altered the position in relation to public interest.  The Supreme Court agreed with Counsel for the Trust when he said that it would be wrong to allow a developer “to secure the modification of the covenant in reliance on the state of affairs created by their own deliberate breach”. The decision on this ground of appeal alone was said to be sufficient for the dismissal of the appeal.

Tim Rayner, Joint Head of Real Estate Disputes at Irwin Mitchell said, “The obvious implication from the Judgment is that developers who seek to modify a covenant on “public interest” grounds should ensure that their application is certainly made before they start to build and possibly even before planning permission is sought. An otherwise successful application might well be refused if the application is made too late.

Interestingly, the Supreme Court was “sorely tempted to agree” with the principle that a developer which commits a cynical breach should have its application refused.  However, it declined to do so on the basis that it would be too rigid a rule.  That comment should however weigh heavily on the minds of developers when considering how best to try to overcome restrictive covenants which impede reasonable use and are otherwise contrary to public interest.

Because the developer’s conduct allowed the Supreme Court to refuse the appeal, the Supreme Court did not need to delve too far into the much wider (and potentially politically sensitive) issue which many thought this Judgment might cover – that of whether the need for housing, particularly the affordable housing which this country so badly needs, should trump private rights where they impede that reasonable use of land.”