Housing Solutions v Bartholomew Smith [2023] UKUT 25 (LC)
Martin Dray, instructed by Guy Willetts and Charlotte Doughty of Trowers & Hamlins LLP, acted for the successful applicant in an application made to the Upper Tribunal (Lands Chamber) to modify restrictive covenants under section 84 of the Law of Property Act 1925.
The application was round two of a long running dispute which previously went to the Supreme Court: Alexander Devine Children’s Cancer Trust v Housing Solutions [2020] UKSC 45.
Round one
Housing Solutions acquired land burdened by restrictive covenants against building and which permitted only parking on the land. In breach of the covenants the land had been developed residentially (as affordable housing) by its predecessor in title (Millgate).
The land legally benefitted by the covenants was owned: (a) as to the part closest to the application land, by the Cancer Trust as the site of a hospice for terminally ill children; (b) as to the remainder, by Mr Smith as agricultural land.
In 2015 Millgate and Housing Solutions applied to the Tribunal for modification of the covenants. Mr Smith and the Trust opposed the application. The Tribunal held in 2016 that the covenants secured practical benefits of substantial value and advantage to the Trust’s land but nonetheless the Tribunal granted the modification sought on the basis that preventing the use of the land for housing was contrary to the public interest.
However, in 2018 on an appeal brought by the Trust (not by Mr Smith) the Court of Appeal reversed that decision, and in 2020 (on Housing Solutions’ appeal) the Supreme Court reached the same result. The Supreme Court held that the Tribunal had erred in law and that it should have exercised its discretion against modification of the covenants because: (a) the public interest ground had only been engaged by the houses having been built by Millgate in cynical breach of covenant; (b) the result of that breach (which had not been necessary, in the sense that Millgate could have built an acceptable alternative development without infringing the covenants) had been to generate a land-use conflict with the Trust’s land. The outcome was that the covenants stood unmodified, enforceable by Mr Smith and the Trust.
Round two
In 2021 Housing Solutions and the Trust reached an agreement. In return for a payment the Trust agreed to the presence of the houses and released its rights under the covenants accordingly. Mr Smith was not a party to the agreement.
In 2022, after failed negotiations with Mr Smith, Housing Solutions made a second application to the Tribunal for modification of the covenants. It did so because the continued presence of the covenants (and the associated threat of an injunction) prejudiced its ability to sell the houses with a clean title and impeded the letting of the houses on statutorily protected tenancies. Essentially, the use of the application land for affordable housing continued to be prevented in practice by the covenants, notwithstanding the agreement struck with the Trust.
Mr Smith again opposed the application. He sought to have the application struck out as an abuse of process. He also argued that the doctrine of res judicata prevented the second application. He further contended that Housing Solutions was estopped from making the application. Finally, he maintained that, even if the Tribunal had jurisdiction to entertain the application, his land was benefitted by the covenants in practical terms and, in any event, the Tribunal should refuse to exercise its discretion in favour of Housing Solutions, arguing that it should adopt the line taken by the Supreme Court.
The Tribunal disagreed with Mr Smith on all fronts. It held that:
- The second application was not an abuse of process. Circumstances had changed since the first application – in the light of the Trust’s agreement to the houses.
- There was no res judicata. The previous case concerned the public interest ground in section 84. The present application was very different.
- Housing Solutions was not estopped from pursuing the second application, whether by reason of its having negotiated with Mr Smith, its not having expressly reserved the right to apply again to the Tribunal, or its recognition that any damages claim which Mr Smith might make (a wholly different matter) would be heard in the High Court.
- Mr Smith’s arable land derives no practical benefit at all from the covenants insofar as they preclude the affordable housing. The covenants in preventing the current use of Housing Solutions’ land are of no benefit to Mr Smith. Further, Mr Smith had failed to demonstrate that his land has any development potential and that it has development value that would be diminished by the affordable housing.
- The covenants should be modified. The factors which had led the Supreme Court to decide as it did were not decisive in relation to the second application. There was no land-use conflict so far as Mr Smith’s land was concerned. Also, the second application did not rely on the ‘contrary to public interest’ and thus the jurisdiction to modify was not created by the breach of covenant. Although the cynical breach by Millgate was not to be ignored, it is not the function of the Tribunal under section 84 to punish a covenant-breaker where modification of the covenants will not injure the beneficiary.
Therefore, the Tribunal granted Housing Solutions’ application and exercised its discretion to modify the covenants on both grounds (aa) and (c) in section 84. In the circumstances Mr Smith, who lost nothing by reason of the modification, was awarded no compensation.
A copy of the Tribunal’s decision may be found here.
Back to news listing
