Discharge first, develop later

Section 84(1)(aa) of the Law of Property Act 1925 provides for the discharge of restrictive covenants when their existence impedes some reasonable use of the relevant land. 

Before a covenant can be discharged under 84(1)(aa) however there are some further conditions that must be satisfied namely: (1) the restrictive covenant does not provide any 'practical' benefits; or its existence is contrary to the public interest; and (2) money will be adequate compensation for any disadvantage suffered as a result of the covenant being discharged.

These rules were examined recently by the Court of Appeal in The ADCC Trust v Millgate Developments [2018] EWCA Civ 2679. 

This was an interesting case, as the developer built on the land in question, before trying to discharge the restrictive covenants that prohibited the development. Further, in light of the public interest test above, it was of note that the buildings erected were intended to be used as social housing (13 dwellings in total).

In summary, the developer's application to discharge the restrictive covenants was unsuccessful. The Court of Appeal found that:

1. the rights of the parties benefitting from the restrictive covenants had not been given enough weight;
2. the developer was "high-handed" in the way it had proceeded to build without first trying to go through the procedure for discharging the restrictive covenants;
3. it would be contrary to the public interest if restrictive covenants could be circumvented by a 'develop first, discharge later' approach;
4. the benefits of providing social housing should be taken into account when considering  the public interest - however these did not outweigh the importance of upholding the restrictive covenants and ensuring that proper procedure was followed if they were to be discharged; and
5. the possibility of social housing being provided using other land (i.e. that was not subject to restrictive covenants) had not been properly considered.

The lessons from this case are clear. First, developers should expect applications to discharge restrictive covenants to fail, if in advance they have carried out works in breach of the relevant covenants. Second, when considering whether development is in the public interest or not, the mere fact that planning permission has been granted is not conclusive - the tribunal will take a wide view and consider a range of factors, including the availability of other property for development.

It is worth remembering the section 84(1)(aa) provides just one of the bases on which restrictive covenants can be discharged.  If you require advice on the other bases, do get in touch.