Author: Jerome Temme, Trainee, Real Estate Dispute Resolution, London

Take a hospice, a restrictive covenant preventing development next door which, at the time of the development, served to protect the privacy of the sick children, their families and visitors, and a developer in knowing breach of that restrictive covenant. Usually, parties acting in deliberate breach of their obligations will not find favour in the courts. Yet, in the recent case of Millgate Developments and another v Smith and another [2016] UKUT 515 (LC) a Tribunal used its discretion to modify the restrictive covenants and effectively let the developer keep its building up. So what made the difference in this case?

A key factor appears to be the need for more social housing. This was the purpose for which the developer's building was put up. The development had been granted planning permission even though the site was in the green belt and the development was contrary to the development plan. If the restrictive covenants were not modified but were enforced, the resulting demolition would be a waste of much needed housing. In these circumstances, the Tribunal agreed that the public interest in housing 13 families outweighed the interest of enforcing the hospice's amenity. The Tribunal indicated that it wouldn't have used its statutory discretion if the houses (or some of them) had not been intended for social housing.

However, this will be no carte blanche for developers of social housing, and the mere fact that a development is finished will not suffice. Two further facts may have been in the developer's favour here: firstly, the developer had planning permission, which the Tribunal interpreted as a demonstration of the public interest, and the hospice had not objected during the planning stage.  Secondly, the developer had made an offer covering more than the price of additional landscaping to restore the hospice's privacy which the hospice had rejected.

Developers might be tempted to delay an application to modify covenants to avoid alerting the counterparty and to make it more burdensome to undo the breach. But simply relying on the public interest by referring to the demand for social housing is a dangerous game, and the potential consequences (ie having to tear down finished buildings) are costly. Moreover, dealing with the issue early on by making an offer can be beneficial: if accepted, it avoids the costs of a court application; if (unreasonably) it is rejected, it may tip the balance in the developer's favour.

For a fuller discussion of this case, see our analysis here.

For further information please contact:

Judith Smyth
Judith Smyth
Associate, Real Estate Dispute Resolution, London
+44 20 7466 2531
Rhian Arrenberg
Rhian Arrenberg
Professional Support Lawyer, Real Estate Dispute Resolution, London
+44 20 7466 2594