The Court of Appeal has held that a developer, who breached a restrictive covenant which limited use of land to car parking only, could not apply to modify or release that covenant where the development had knowingly been completed in breach.

Millgate Developments built affordable housing on an area of land which was subject to a restrictive covenant preventing use of that particular piece of land as anything other than as car parking. The Alexander Devine Children’s Charity owned adjoining land which benefitted from the restrictive covenant. The charity was building a children’s hospice on its land and it was relying on the restrictive covenant in order to make sure that a peaceful wheelchair path was not overlooked by housing.

The affordable housing was constructed by Millgate in deliberate breach of the restrictive covenant which benefitted the hospice’s adjoining land. Millgate applied to the Upper Tribunal to retrospectively modify the covenant. Although the Upper Tribunal held that Millgate had acted in deliberate breach of the restriction, it allowed the modification as there was sufficient public interest to justify making the affordable housing immediately available.

The charity appealed to the Court of Appeal who overturned the Upper Tribunal’s decision. It held that the public interest in allowing the social housing did not outweigh the public interest in protecting the charity’s contractual rights under the restrictive covenant.

Millgate had not acted in good faith and had deliberately built on the area of land in question in breach of the car parking restriction. The developer could have built all of the affordable housing on land which was unaffected by the restrictive covenant. Instead, Millgate acted in a way which was ‘deliberately unlawful’ and went ahead with the development without heeding to the restriction.

The outcome of this Court of Appeal decision sends out a strong warning to developers to ensure they avoid knowingly developing land in breach of restrictive covenants. Millgate is now at risk of the charity obtaining an injunction ordering removal of the affordable housing or being granted extensive damages in compensation of the breach.

Developers should ensure they secure a release or modification of restrictive covenants at the outset of any development before any construction works are carried out.