In Millgate Developments Limited (and another) v Bartholomew Smith and the Alexander Devine Children's Cancer Trust [2016] UKUT5150 (LC) the Upper Chamber prioritised public interest in housing development over a private landowner's rights. This approach is likely to become common.

In this case Millgate Developments Limited knew that restrictive covenants prohibited development of its site. It did not attempt to negotiate the release of these before seeking planning permission for 13 affordable homes, and building them. The covenants benefitted neighbouring land on which a hospice was being built. Millgate built the homes to satisfy its affordable housing obligation at another site so it could sell more valuable private residences. Having erected the housing, Millgate applied to discharge or modify the covenants.

One might have thought that the deliberate breach of the restrictive covenants would have prevented Millgate succeeding in its application. It did not. The Tribunal accepted that it had no power to modify the covenants under the Law of Property Act 1925 s84 (1A) (1aa) (a) because they secured a practical benefit of substantial value or advantage to the hospice but determined that the covenants could be discharged because they were contrary to public interest pursuant to s84 (1A) (1aa) (b). It awarded the hospice owner 150,000 compensation.

The Tribunal mentioned Lord Sumption's view in relation to public interest in Lawrence v Fen Tigers [2014] AC 822 that "The obvious solution to this problem is to allow the activity to continue but to compensate the claimant financially for loss of amenity and the diminished value of his property. In a case where planning permission has actually been granted for the use in question, there are particularly strong reasons for adopting this solution".

The Tribunal commented that the existence of planning permission for the use of the land for housing is significant when it is suggested a covenant operates contrary to public interest. Since a decision to grant planning permission does not normally take account of private rights, this will assist developers in proving a public interest case.

In reaching its decision, the Tribunal noted it was highly material that the fact that the housing was social housing intended for occupation by tenants who had been waiting for a very long time. It said the houses were attractive, well made and were currently standing empty because of the restriction imposed by the covenants. This overlooked the fact that Millgate could instead have exercised an option it had negotiated with the planning authority to pay 1.6m to have the affordable housing obligation commuted. This alternative solution would presumably also have been deemed to be in the public interest since the local authority could use the payment in relation to affordable housing elsewhere.

What does this decision mean for developers and landowners in the future?

  • Courts and tribunals will be more inclined to give more weight to public interest than private rights in disputes concerning land particularly where injunctions are sought to restrain housing development. This is likely to extend beyond affordable housing.
  • Owners of land near proposed developments who benefit from restrictive covenants against development will become more active in opposing planning applications.
  • Planning decisions will be scrutinised in detail in private claims to consider public interest.
  • Developers may become more relaxed about building housing on land which is subject to restrictive covenants and paying compensation to modify or release them.