Don’t be So Cynical! An overview of Devine v Housing Solutions [2020]

This article looks at the recent Supreme Court decision in Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd [2020], which concerned the modification of restrictive covenants. The case has provided particularly important guidance on the correct application of section 84(1A)(b) of the Law of Property Act 1925 (“the 1925 Act”) – commonly referred to as the “public interest limb”.

What is a restrictive covenant?

A restrictive covenant is an agreement, by deed, that one party’s use of land will be restricted in a specific way for the benefit of another party’s land. Once agreed, a restrictive covenant will bind the burdened party’s land (and not simply both parties to the agreement). This means that a restrictive covenant may be enforceable against the burdened party’s successors-in-title by the benefitting party’s successors-in-title.

Does a restrictive covenant bind land forever?

Not necessarily. Section 84 of the 1925 Act entitles a person with an interest in land that is burdened by a restrictive covenant to apply to have that restrictive covenant discharged or modified. The application is made to the Upper Tribunal and the grounds under which an application can be made are given in s84(1)(a).

Devine v Housing Solutions

In Devine, there were two restrictive covenants affecting the burdened land, which was a piece of open land adjoining a children’s hospice (the benefiting land). The burdened land was part of a larger plot of land (“the Plot”). The first restrictive covenant (“Covenant 1”) prevented development of the burdened land. The second restrictive covenant (“Covenant 2”) prevented onlookers situated on the burdened land from observing the children playing in the hospice.

A development company purchased the Plot and applied for planning permission to build 23 affordable homes. In full knowledge of both restrictive covenants, the developer subsequently built 13 of those homes on the burdened land – a clear breach of Covenant 1. Once people moved into the newly built houses, the continuous breach of the Covenant 2 was inevitable. The developer then applied to modify the restrictive covenants under s84, before transferring the land to Housing Solutions.

The developer’s application to modify the restrictive covenants was made under ss.84(1)(aa) and 84(1A)(b), which specify that the Upper Tribunal may modify a restrictive covenant upon being satisfied:-

(1)(aa) that in a case falling within subsection 1(A) below the continued existence [of the restrictive covenant] 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;

(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) …; or

(b) is contrary to public interest;

and that money will be an adequate compensation for the loss or disadvantage (if any) which any person will suffer from the discharge or modification.”

In assessing applications made under these sections, the Upper Tribunal must undertake a two-stage analysis. First, it must determine whether the restrictive covenant satisfies sections 84(1)(aa) and 84(1A)(b). To pass this stage, the applicant must show that (a) the restrictive covenant impedes the reasonable use of its land, (b) the impediment is contrary to public interest and (c) any person who would suffer from a modification of the restrictive covenant would be adequately compensated by money. Then, the Upper Tribunal must exercise its discretion to decide whether to modify a restrictive covenant or not.

The Upper Tribunal in Devine granted the developer’s application. It was held that (a) developing 13 affordable homes was a reasonable use of the burdened land and was impeded  by the restrictive covenant, (b) impeding the use of 13 already-built homes would be contrary to public interest and (c) a £150,000 payment would adequately compensate the Hospice were the restrictive covenants modified. The Upper Tribunal felt the public interest outweighed the developer’s cynical conduct and accordingly exercised its discretion to modify the restrictive covenant.

The Hospice appealed the Upper Tribunal’s decision to the Court of Appeal, which subsequently decided in the Hospice’s favour on four grounds – two of which played an important role in the subsequent appeal in the Supreme Court. Those two grounds were: (1) in assessing whether the restrictive covenant was contrary to public interest under s84(1A)(b), the Upper Tribunal ought to have considered the developer’s cynical breach of the restrictive covenants; and (2) the developer’s cynical conduct was also not given proper weight at the discretionary stage of the Upper Tribunal’s analysis. The developer’s application to modify the restrictive covenants was therefore refused by the Court of Appeal.

The Supreme Court agreed with the Court of Appeal that the Upper Tribunal had made an error in law – but for different reasons. With respect to public interest under s84(1A)(b), the Supreme Court held that the developer’s cynical conduct was not relevant at this stage; the important question was whether the use of the burdened land for 13 affordable homes was of public interest and, if so, whether such a use outweighed the public interest (secured by the restrictive covenants) of providing terminally ill children with privacy. With respect to the discretionary stage, however, the developer’s conduct was relevant. The Supreme Court held that the Upper Tribunal had fundamentally erred in the exercise of its discretion by failing to take two factors into account. First, the developer’s cynical conduct was entirely unjustified; the 13 affordable homes could have been developed on a section of the Plot that did not include the burdened land (and was therefore not restricted by the restrictive covenant). Second, had the developer sought to apply to modify the restrictive covenant before commencing the development, the application was likely to fail for not being in the public interest (again, because the affordable homes could have been developed on unburdened land).

The Supreme Court therefore “re-made” the Upper Tribunal’s decision, refusing the developer’s application to modify the restrictive covenants. It remains to be seen whether the Hospice will apply for an injunction or an alternative financial remedy to rectify the breach.

Conclusion

This case was the first time the Supreme Court had determined an appeal relating to s84(1) of the 1925 Act and the decision provides important guidance on the application of s84(1) – particularly where an applicant cynically breaches a restrictive covenant before seeking its modification or discharge.

As Devine illustrates, restrictive covenants can prove a real (and mightily expensive) hurdle to any commercial development. Proper due diligence before embarking on a commercial development of land is therefore essential.

Contact our specialist land development and restrictive covenants solicitors today

To discuss your commercial and land development dispute please contact a member of our team on 03456 381381. Alternatively please send an email with your name, contact information and brief details of your property dispute to propertydisputes@ibblaw.co.uk and one of our team will be able to help you.