Restrictive covenants revisited

In a recent case before the Upper Tribunal (Lands Chamber) Housing Solutions v Smith [decision 27 January 2023] the Tribunal allowed the applicant's application for the modification of restrictive covenants which restricted use of a site to parking of cars so as to permit housing development.

Mr John Smith (founder of the Landmark Trust) owned a large area of agricultural land just outside Maidenhead. Adjoining it was a small industrial estate, whose owner, Stainless Steel Profile Cutters Limited (“SSPCL”) wanted to construct a car park; the layout of the estate provided a convenient triangle, and in 1972 Mr John Smith sold to SSPCL a further triangle so as to make a rectangle, known as the “Exchange House site”. In the conveyance SSPCL gave restrictive covenants for the benefit of Mr John Smith’s adjoining land which provided that (1) No building structure or other erection of whatsoever nature shall be built erected or placed on the land and (2) that the land would not be used for any purposes whatsoever other than as an open space for the parking of motor vehicles.

Mr John Smith died in 2007 and Mr Barty Smith, his son and the objector to the application, inherited his substantial acreage of farmland. In 2011 he generously gave 6 acres of land to the Hospice Trust so as to provide a site for a hospice to be built for terminally ill children and building commenced in 2014.

Meanwhile Millgate Developments Limited bought the Exchange House site half of which was burdened by the covenants. In 2013 Millgate applied for and obtained planning permission to build 23 affordable houses on it. The houses were completed in 2015 despite Barty Smith repeatedly telling them to stop as they were in breach of covenant. Millgate applied to the Upper Tribunal for the covenants to be discharged from the application land, on which it had built nine houses and four bungalows!

The Exchange House site was transferred to Housing Solutions after the Tribunal’s decision in Millgate’s favour. The decision was overturned on appeal.

Agreement was then reached between Housing Solutions and the Hospice Trust and the Trust agreed to the release of the covenants. However agreement could not be reached with Barty Smith and in 2022 a second application was made to the Tribunal by Housing Solutions, retrospectively, for the modification of the covenants so as to permit the building of the houses.

Mr Smith objected to the application claiming that the houses built were in breach of the covenants.

The Tribunal found that the covenants should be modified as the covenants preventing the use of land other than for parking were of no benefit to the objector Barty Smith. In addition it said that the Mr Smith had failed to demonstrate that his land had any development potential or that it had development value that would be diminished by the applicant's affordable housing. Furthermore, there was no land-use conflict and the affordable housing did not do him any harm. Therefore, the Tribunal exercised its discretion to modify the covenants.

Under the Law of Property Act 1925 the Tribunal can award compensation for any loss or disadvantage suffered as a consequence of the discharge or modification or it can award: “a sum to make up for any effect which the restriction had, at the time when it was imposed, in reducing the consideration then received for the land affected by it.” The Tribunal concluded that Mr Smith was not injured by the modification and there was no evidence that the price paid by SSPCL in 1972 was depressed because of the covenants. In other words it thought Mr Smith had lost nothing.

The outcome seems rather harsh doesn’t it? The developer consciously acted in breach of a restrictive covenant and the owner of the benefiting land ended up with no compensation. From the developer’s perspective this was an expensive way of getting around restrictive covenants.

For any help and advice regarding restrictive covenants or any other litigation matter please contact Johanne Spittle, Director & Head of Litigation at Ware & Kay on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email johanne.spittle@warekay.co.uk.