Autumn 2020 saw two restrictive land covenant cases reach the Supreme Court. First was Peninsula Securities Ltd. v Dunnes Stores [2020] UKSC 36. The issue was whether the doctrine of restraint of trade applied to a restrictive covenant in a lease granted by Peninsula’s predecessor in title to Dunnes, an anchor store, that any development on the remaining land of a shopping centre would not contain a large unit for sale of food or textiles. The Supreme Court held that the doctrine was engaged both before and after assignment of the lease. It departed from the reasoning of the majority in Esso Petroleum Co. Ltd v Harper’s Garage [1968] AC 269 which applied a “pre-existing freedom” test. Instead it sided with Lord Wilberforce’s “trading society” test. So Peninsula would have to try to get the covenant modified or extinguished under statute if it could. How easy it will be to apply the “trading society” test in practice remains to be seen.

 Alexander Devine Children’s Cancer Trust v Housing Solutions [2020] UKSC 45 pitched the need for social housing against the peace of terminally ill children. In 1972 a farmer sold part of his land (the “red land”) to SSPC which already owned the land next door (the “unencumbered land”). The red land and the unencumbered land together formed a “development site”. SSPC gave restrictive covenants that thereafter (i) no building structure would be built on the red land; and (ii) the red land would only be used for car parking. The farmer’s son Barty later inherited the land next to the development site and gave part of this land (“hospice land”) to the Children’s Cancer Trust to build a children’s hospice.

Soon afterwards, knowing of the restrictive covenants, Millgate Developments acquired the development site. It applied for planning permission to build 23 affordable houses there, in line with its affordable housing planning obligations. Of these 13 were to be built on the red land, in breach of the restrictive covenants. Some would overlook the hospice’s planned gardens and wheelchair walk. Planning permission was granted in March 2014 and Millgate began construction in July 2014.

In September 2014 Barty wrote to Millgate objecting to them building on the application land. Millgate continued regardless and in May 2015 agreed to sell the development site to Housing Solutions. In July 2015, after completing the development, Millgate applied to the Upper Tribunal [“UT”] seeking modification of the restrictive covenants, under s. 84 Law of Property Act 1925. Barty Smith and the Trust objected.

Shortly afterwards, in September 2015, construction of the hospice began. In November 2016 the UT allowed Millgate’s application to modify the covenants, on the condition that it paid £150,000 to the Trust as compensation. In November 2018 the Court of Appeal overturned the UT’s decision.

The Supreme Court unanimously dismissed Housing Solutions’ appeal. Lord Burrows said:

“On the one hand, there is a charitable children’s cancer trust that seeks to maintain the benefit of a restrictive covenant, to which it is entitled, so that terminally ill children in a hospice built on the Trust’s land can fully enjoy, in privacy, the use of the grounds. On the other hand, there is a company that is seeking to ensure that 13 units of affordable housing, built in breach of the restrictive covenant on the application land adjoining the Trust’s land, do not go to waste.”

Section 84 gives the UT power to discharge or modify restrictive covenants on 5 grounds. Exercise of this power has two stages. At least one of the grounds must be satisfied (the “jurisdictional stage”) before the UT can then decide whether to exercise its discretion to discharge or modify the restrictive covenants (the “discretionary stage”). The ground relevant here is whether the restrictive covenants, by impeding a reasonable user of land, are contrary to the public interest: ss. 84(1)(aa), 84(1A)(b).

 The first issue was “Is Millgate’s deliberate and cynical breach of restrictive covenants relevant at the jurisdictional stage? SC said “No”. The “contrary to the public interest” ground requires a narrow interpretation. Good or bad conduct of the applicant is irrelevant at the jurisdictional stage. It tells nothing about the merits of what the land in question is being or will be used for. This narrow interpretation is also in line with the other 4 grounds under s. 84, accords with purpose of s. 84, and reflects the fact that applicant’s conduct can still be considered at the discretionary stage

The second issue was “Did UT fail properly to consider, at the discretionary stage, Millgate’s cynical conduct?” SC said “Yes”. It is only appropriate for an appellate court to interfere in a discretionary decision of a specialist tribunal if that tribunal has made an error of law. Even though the UT took into account Millgate’s conduct, it made an error of law by failing to consider 2 relevant factors at the discretionary stage: (i) Millgate could have built on the unencumbered land, not the red land; and (ii) Millgate would have been unlikely to satisfy the “contrary to the public interest” ground had it applied to modify the covenants prior to building. Millgate could not be rewarded for presenting the UT with a fait accompli.

Paul Ashwell offers expertise across the full range of commercial and property law, including probate and planning and is recommended as a Band 1 practitioner in 2021 by both Chambers & Partners and Legal 500.