Restrictive Covenants

November 29th, 2018

In Alexander Devine Children’s Cancer Trust v Millgate Developments Limited (2018) EWCA Civ 2679 the Court of Appeal considered the modification of restrictive covenants pursuant to Section 84 of the Law of Property Act 1925.  The covenants in question prevented residential development on an area of open land. The modification applied for would allow such development. The Upper Tribunal had a discretion whether to modify the restrictive covenants or not. The Tribunal will not generally be inclined to reward parties who deliberately flout their legal obligations by deliberately breaching a restrictive covenant.Sales LJ (with whom Underhill and Moylan LJJ agreed) made some observations regarding the interaction of:-

(1) Restrictive covenants affecting land;
(2) The grant of planning permission; and
(3) The operation of Section 84.

Sales LJ said:-

“43. The grant of planning permission does not generally have any impact upon private property rights. It is a decision taken regarding what development of a particular site can be regarded as acceptable in planning terms, with reference to the public interest. Actual development in accordance with a grant of planning permission may depend upon the developer being able to negotiate to buy out or overcome any private property rights which stand in the way of the development. A developer is able to apply for planning permission in relation to land it does not yet own, in which case it would obviously have to acquire the land before it can proceed to develop it. There is no difference in principle where a private contractual or property right in the form of a restrictive covenant stands in the way of a proposed development: the developer has to negotiate to secure release from the restrictive covenant (or make an application under section 84 to have it discharged or modified) if the development is to proceed in accordance with the planning permission.”

“47. Section 84 sets out a power for the Upper Tribunal in certain circumstances to discharge or modify restrictive covenants affecting land. However, in interpreting and applying that provision it is necessary to bear in mind that it is a private contractual right with property-like characteristics which is sought to be removed or modified, against the objection of the right-holder. That is not something which Parliament intended should occur lightly or without very good reason. …”

The Court of Appeal held that the approach regarding the balancing of various interests in the tort of remedies for the tort of nuisance should not be applied by analogy in cases of Section 84 applications.  Sales LJ said:-

“53. …  I consider there is a major difference between what might be appropriate in relation to remedies in respect of the more open-textured sort of private rights which are protected by the law of nuisance (which typically depend on assessments of the nature of the relevant locality and of what might constitute a reasonable use of land in that locality, as well as of the public interest), which arise by inference from background circumstances, and what should be the position in respect of a more hard-edged and specific private right in the form of a binding restrictive covenant agreed with a neighbouring landowner. Although rights protected by the law of nuisance can be regarded as a kind of private property right, they are not based on specific binding contractual terms and are infused with ideas of reasonableness in a way that the rights constituted by restrictive covenants are not. Since the law of nuisance can more readily be said to be concerned with questions of reasonable adjustments between competing interests in the use of neighbouring land, it is easier to regard the grant of planning permission as having a bearing on remedies in that context. Remedial adjustment in relation to rights in nuisance … by saying that it may be reasonable overall to allow infringement of the relevant open-textured rights by the defendant on payment of a fair sum in compensation to the claimant, is much easier to contemplate than the overriding of agreed contractual rights with property-like effects, in the case of restrictive covenants in respect of land. …

54.  … Even if a restrictive covenant is upheld and maintained in place after examination under section 84, the question of whether an injunction should be granted remains to be determined in court proceedings which may be brought to enforce that covenant. Whilst there may be a degree of similarity regarding some of the considerations relevant to the application of section 84 and to a court’s determination whether a restrictive covenant should be enforced by the grant of injunctive relief (or whether damages pursuant to Lord Cairns’ Act might be more appropriate), the issues are not identical. Indeed, the fact that there is scope for a degree of flexibility at the remedial stage in relation to an injunction tends to reinforce the appropriateness of interpreting and applying section 84 more strictly, in recognition of the private contractual/property rights which an applicant seeks to have discharged or modified. …”

“56. The grant of planning permission in relation to the applicant’s proposed use of his land is not at all the same as saying that upholding a restrictive covenant which impedes some reasonable user of land by the applicant is contrary to the public interest. The questions whether planning permission should be granted and whether upholding a restrictive covenant is contrary to the public interest are different. They arise in very different contexts. The question concerning the grant of planning permission does not address what should happen to private rights affecting the land in question (it simply leaves them in place); whereas that is precisely what is in issue in the context of an application under section 84. There is a public interest in having private contractual and property rights respected in dealings between private persons. Further, if private contractual/property rights under a restrictive covenant are to be overridden in the public interest, the Upper Tribunal should be astute to see that the public interest reasons for discharge or modification of the covenant are clearly made out.”

“59. As I have said, enforcement of contractual and property rights is generally in the public interest, so it is relevant when assessing under section 84(1A)(b) whether “the restriction, in impeding [some reasonable user of land], is contrary to the public interest” to see whether an applicant has behaved appropriately in seeking to respect and give due weight to such rights in the course of its dealings with the holder of such rights, so that the question of the public interest has been tested in an appropriate way. If the property developer has bargained for a waiver of the restrictive covenant and it is found that there is a price acceptable to both parties, it could not be said (at any rate, in ordinary circumstances) to be contrary to the public interest that the covenant should be maintained in place unless and until that price is paid. Similarly, if an application under section 84 is made in advance of any conduct by the developer in breach of the covenant, that will allow the public interest to be tested in the context of due weight being given to upholding the public interest as regards respect for property and contract rights, rather than in a context where the developer has unilaterally and unlawfully violated those rights.”

“63. … There may be reasons why, in a particular case, it was not possible or practicable for a person who develops land in breach of a restrictive covenant to make an application under section 84 before doing so; and in such a case I think that section 84, and subsection (1A)(b) in particular, enables the Upper Tribunal to make an assessment of the public interest in the circumstances that then apply. …

“64. … However, it remains the case that in general terms it is in the public interest that contracts should be honoured and not breached and that property rights should be upheld and protected. A property developer which knows of a restrictive covenant which impedes its development of land has a fair opportunity before building either to negotiate a release of the covenant or to make an application under section 84 to see if it can be modified or discharged. That is how the developer ought to proceed. It is contrary to the public interest in ensuring that proper respect is given to contractual or property rights for a property developer to proceed without any good excuse to build in violation of such rights, as contained in an enforceable restrictive covenant, in an attempt to improve its position on a subsequent application under section 84. Put another way, it is contrary to the public interest for the usual protections for a person with the benefit of a restrictive covenant to be circumvented by a developer seeking to obtain an advantage for itself by presenting the tribunal with a fait accompli in terms of having constructed buildings on the affected land without following the proper procedure, and then in effect daring the tribunal to make a ruling which might have the result that those buildings have to be taken down. If the presence on the affected land of a building constructed in breach of the relevant covenant is to be regarded as capable of being relevant to the public interest question under subsection (1A)(b) – as in principle it is, as I have outlined above – I consider that the issue of how that situation arose is also highly relevant to that question.

65. … the issue whether the condition in section 84(1A)(b) has been satisfied, which is a precondition for the Upper Tribunal to have any discretionary power under section 84(1) to discharge or modify a restrictive covenant …  is different in important respects from the distinct issue, … of how such a discretionary power should be exercised, once it is found to have arisen. …

66. In my view, it is appropriate to bring into account the rights-based and procedural dimension of the public interest in the interpretation of section 84(1A)(b), …  in order to secure fuller protection and due respect for the contractual rights with property characteristics which are sought to be overridden on an application under section 84. I do not consider that Parliament intended that section 84 should operate so as to allow those rights to be deliberately ignored by an applicant, with it then being left as a purely discretionary matter for the Upper Tribunal to decide whether to override them.”

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