The case of Millgate Developments Limited v Bartholomew Smith considers the potentially emotive issue of the breach of restrictive covenants protecting the peace and tranquillity of a neighbouring children’s hospice and the wider public interest of affordable housing.
The developer, Millgate, had purchased land burdened by restrictive covenants which prevented them from building on the land or using it for any purpose other than as a car park. The existence of these restrictive covenants was known to Millgate when it bought the land. The beneficiaries of the covenants included the Alexander Devine Children’s Cancer Trust, which was building a hospice for terminally ill children on the neighbouring land. In breach of the covenants and as part of a larger development, Millgate built 13 properties on the burdened land. These were to be transferred to a housing association as affordable housing. Millgate then applied to the Upper Tribunal requesting that the Tribunal use its discretion under section 84 of the Law of Property Act 1925 to modify the restrictive covenants to allow their development on the burdened land.
The Tribunal held that even though the covenants provided a valuable benefit in the form of enhanced privacy and seclusion for the hospice, they should be modified to allow for the development on public interest grounds. The Tribunal considered the public interest argument in allowing the properties to be used was “so important and immediate as to justify the serious interference with private rights and the sanctity of contract”. The fact that the properties were intended for social housing with “tenants who are likely to have been waiting for such accommodation for a very long time” was a material consideration to the Upper Tribunal and it was held to be an unconscionable waste of resources if the properties were left unoccupied having been built. The Tribunal did however direct Millgate to pay £150,000 to the hospice trustees as compensation for the loss of the restrictive covenants.
The ruling shows that the public benefit of the intended use of land, particularly in relation to social housing, can tip the scales towards restrictive covenants being modified. However, the ruling does not provide carte blanche for developers to ignore restrictive covenants. The Tribunal emphasised that it was “not inclined to reward parties who deliberately flout their legal obligations in this way” and that too great a readiness to exercise its discretion under section 84 “would be liable to undermine the protection which restrictive covenants afford”.