Developer in ‘cynical breach’

The Upper Tribunal (Lands Chamber) has the power to discharge or modify a restrictive covenant affecting land (s84 Law of Property Act, 1925). Surprisingly, neither the old House of Lords nor the current Supreme Court has ever been requested to consider this section until now (Alexander Devine Children’s Cancer Trust v Housing Solutions [2020] UKSC 45).

A restrictive covenant, preventing development of a piece of open land, was held in favour of the Trust, which owned neighbouring land. It would enable terminally ill children to benefit from the privacy offered by the open land. A developer, Millgate, obtained the land and despite opposition from the Trust built 13 units of affordable housing in breach of the covenant. It made an application to the Upper Tribunal to have lifted the covenant. Millgate’s application succeeded although the Upper Tribunal ordered Millgate to pay £150,000 to the Trust. The decision was overturned by the Court of Appeal. Millgate, having sold the housing to Housing Solutions, appealed.

The Supreme Court looked at the proceedings below and considered “the central issue on this appeal which is the relevance of Millgate’s cynical breach”. The Court held that whilst the Upper Tribunal could discharge or modify a covenant which impeded a use contrary to the public interest and where money would adequately compensate for loss (s84(1A)), this should be narrowly interpreted. However, Millgate’s cynical breach is not relevant in determining s84(1A) but is “a highly relevant consideration when it comes to the discretionary stage of the decision”. Whilst an appellant court should not interfere with a lower court in exercising its discretion, it can interfere if in so doing, the lower court makes an error law. The Upper Tribunal did make an error in ignoring Millgate’s cynical breach.

The Supreme Court held the Court of Appeal was correct in overturning the Upper Tribunal’s decision and dismissed the appeal. In so doing, it made it clear that nothing said is determinative on how the courts would treat an application by the Trust to enforce the covenant and the decision will strengthen the Trust’s hands in relation to any financial settlement of the case.

Our view is that whilst the courts may not order demolition of the housing units, developers should not believe they can simply ‘buy out’ a restrictive covenant by paying a party damages.

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