Test Case – The power of Restrictive Covenants

You may own a property outright (freehold is as good as outright as you can get in England) but that doesn’t mean you can do with it exactly as you choose – not if there are any restrictive covenants attached to it.

Restrictive covenants are binding conditions that are written into a property’s deeds or sale contract as you will see in the Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd case below.

They are set by a seller to determine what a new owner can or cannot do with the land or buildings in question, under particular circumstances. They can cover a wide range of issues, but the most common examples include preventing certain actions such as:

• the making of alterations to a property – for example, extending or converting a house into multi-occupied (HMO)
• building or erecting substantial structures on the land
• operating trades or businesses on the land
• the parking of commercial vehicles, caravans, boats, trailers.
• the keeping of chickens or other livestock
• the neglect of gardens etc.

Covenants are often designed to uphold certain standards or amenities for all residents. Developers and property management companies often add restrictive covenants to prevent owners from undertaking work or other practices which would change the uniformity or otherwise have a negative impact on a neighbourhood.

Covenants may also be applied to protect value, minimise damage and retain a degree of control by the seller.

A recent case, Alexander Devine Children’s Cancer Trust v Housing Solutions Ltd (6 November 2020) came before the Supreme Court for a judgement by Lord Burrows and with whom Lord Kerr, Lord Lloyd-Jones, Lord Kitchin and Lord Hamblen agreed.

This is the first case in which the highest court in the land (whether the House of Lords or Supreme Court) has been required to decide an appeal on section 84 of the Law of Property Act 1925. That section confers on the Upper Tribunal a power, in specified circumstances, to discharge or modify restrictive covenants affecting land.

The party in the dispute entitled to the benefit of a restrictive covenant, preventing the development of an area of open land, was the Alexander Devine Children’s Cancer Trust. The party seeking a discharge or modification of the restrictive covenant under section 84 of the 1925 Act was Housing Solutions Ltd which is a property company concerned with the provision of affordable housing.

Housing Solutions Ltd the developer owned the land which was subject to the restrictive covenant.

The covenant was in favour of the adjoining children’s hospice owned by the Trust, that stipulated that the land could only be used as a car park. The covenant was to ensure that the hospice remained private and was not overlooked for the sake of the children.

However, in full knowledge of the covenant and of its breach, the developer nevertheless went ahead and built 13 affordable homes. It then applied to modify the covenant under section 84 of the Law of Property Act 1925 to permit in retrospect the new development on the covenanted land.

Although the affordable housing development was deemed to be in the public’s interest, and the developer had obtained planning permission for the affordable housing, the Supreme Court held that all this did not outweigh the hospice’s contractual rights.

The court refused the application to modify the covenant – the Supreme Court reasoned that a developer should not be entitled to rely on its own unlawful conduct as a justification for the modification of a covenant.

This case demonstrates the narrowness of the ‘public interest’ test. Lord Burrows in his judgement did not place any greater weight on the fact that planning permission had been granted. The ‘public interest’ and the waste of so many dwellings was “overpowered” by the fact that the houses need not have been erected, and the contractual rights of the respondent.

This result, and the likely demolition of the affordable homes, puts out a wake-up call to anyone who thinks that covenants may be antiquated and of no account in today’s dealings. The case confirms the continuing relevance of contract law restrictions on the development of land, to be ignored by property developers, and any subsequent purchasers at their peril.

Alexander Devine Children’s Cancer Trust (Respondent) v Housing Solutions Ltd (Appellant)

You Tube Summary by Lord Burrows https://youtu.be/sjo3BlKtX8I

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