In the above case, a developer's application was not allowed by the Upper Tribunal, as it was held that the developer had deliberately gone ahead with a development without seeking an agreement with those who had the benefit of a covenant or without making an application to the Tribunal to discharge the covenant first.
The case adopts the same approach in Millgate Developments Ltd and another v Alexander Devine Children's Cancer Trust [2020] 1 WLR 4783 (SC), in that the developer's conduct is significant as to whether the Tribunal will exercise their discretion and allow the discharge or modification of the covenant.
The case emphasises the importance of developers carrying out necessary due diligence checks, and also, if they come across a restrictive covenant and want to use s84 to discharge it, doing so before starting building works, not afterwards.
Background
The Developer, Fosse Urban Projects Limited (Developer), had obtained planning permission to build a house on land which was subject to the following covenant:-
"not to use the land hereby conveyed other than as garden land in connection with the adjoining property"
The Developer built out the scheme, and only then filed an application under section 84(1) of the Law of Property Act 1925 for the Upper Tribunal to discharge the covenant.
The objectors Mr and Mrs O'Raw and Dr Helen Bell (the adjacent landowners) contested the application on the basis that their view had been obstructed and their privacy had been infringed due to the construction of the Developer's new house. They also argued that the new house had caused a decline in the value of their houses.
Two of the grounds on which the Tribunal had jurisdiction to modify the covenant in were in play here. For the developer to succeed, it must not only prove the ground is made out, but it must also persuade the Tribunal that it is fair and reasonable to modify/discharge the covenant. It is not a simple tick-box exercise.
Ground (a)
The Developer's position was that the character of the land had changed considerably from a "small residential area with rural aspects" to "an urban area". Therefore, the restriction not to use land for any other purpose other than "green land" ought to be deemed obsolete.
The Tribunal acknowledged that whilst the purpose of the restriction is likely to have been to reserve the boundary between the developed area and the open farmland, the application land was now completely surrounded by housing development. Therefore, the covenant had become obsolete and so the developer passed the first test on this ground.
Ground (aa)
The factual test under this ground requires the following questions, and the Tribunal determined as follows:-
- Is the proposed user reasonable? – Yes, as planning permission had been granted for a new home and there had been no other complaints that the use was unreasonable.
- Does the covenant impede that user? – Yes, it is clear that the covenant impedes the development for residential purposes.
- Does impeding the proposed user secure practical benefits to the objector? If the answer to question 3 is 'yes' are those benefits of substantial value or advantage? – The Tribunal found that the objectors had experienced a loss of the open aspect and privacy that they previously enjoyed. However, the Tribunal held that these practical benefits that the covenant confers were not of substantial value or advantage to any of the objectors.
Despite all of those findings, the Tribunal decided that it should not exercise its discretion to modify the covenant, on the second test – the exercise of its discretion in these specific circumstances. The Developer's conduct was significant when reaching this conclusion.
Firstly, Tribunal held that the Developer was aware of the covenant, but deliberately proceeded regardless with the development on the assumption that the adjacent landowners would not resist an application.
In this case, the developer did not produce any evidence at all about why it had done the development in full knowledge of the covenant, and so the Tribunal was able to infer from that lack of evidence and from the fact that the Developer was a well-resourced developer with access to legal advice that it knew about the covenant and deliberately flouted it. The tribunal will not look favourably on developers who do not adhere to the correct processes and will expect them to have completed their due diligence before commencing any building works.
As a result, the Developer's application to discharge the covenant failed. The Tribunal has no power to order damages or make a demolition order when it dismisses an application, so the parties are left to go back to the normal courts for a determination about what remedy should be given to the landowners. The Tribunal recommended the parties try and reach an agreement before any ongoing litigation, but they cannot enforce this.
This case illustrates two points (i) it emphasises the Court's disapproval of developers who deliberately breach a covenant – conduct which Lord Burrows described in the Millgate Supreme Court case, "cynical", and (ii) the burden is on the Developer to explain "why they acted as they did and to provide evidence which persuades the Tribunal that their conduct was not cynical". Failure to adequately explain his conduct will tell against him badly.
The case serves as a reminder to developers that they will be punished if they adopted the "build first and apply later approach" when making an application under section 84 (1) of the Law and Property Act 1925.
