The Millgate case sheds an interesting light on the courts’ view of an intentional breach of restrictive covenants. In Millgate v Smith and Others  UKUT 515, Millgate, received planning permission to build 23 affordable housing residential units on plot A. Despite the grant of planning permission, plot A was subject to a restrictive covenant that restricted approximately half of the land to use as a car park.
On a nearby plot of land, Millgate had also received planning permission for a lucrative development of premium properties. Permission for the lucrative development was conditional on Millgate’s building and releasing for sale affordable housing units.
Tactical approach taken by Millgate
Millgate made a strategic decision to begin building the affordable housing units on plot A, in contravention of the restrictive covenant. Once 10 of the affordable housing units had been completed and occupied and the remaining 13 were almost complete, Millgate applied to the court to have the restrictive covenant discharged. The application was objected to by a number of parties including the Children’s Hospice, on the adjoining property.
The stakes were high. Millgate could not release any more premium properties for sale on the nearby development until the affordable housing was completed and released for sale.
The Upper Tribunal ruled in Millgate’s favour
The decision at the Upper Tribunal was largely based on one issue, that is, whether the discharge would be in the public interest.
Whilst the judge criticised Millgate for making the application after the building work had commenced the judge considered the decisive factor here was the public interest, concluding that the empty houses represented “an unconscionable waste of resources”. Consequently, the judge discharged the restrictive covenant.
This result indicated to developers that a tactical approach to restrictive covenants as part of an overall scheme can pay off.
Decision reversed by the Court of Appeal
However, the owners of the adjoining children’s hospice appealed the decision and it was overturned, with the Court reversing the discharge of the covenant. The Court of Appeal held that the Tribunal should assess the conduct of the applicant seeking to modify the covenant. Rather than trying to negotiate a waiver or release Millgate had deliberately circumvented the proper procedure for testing rights of enforcement acting in “an unlawful and precipitate manner … with its eyes open and completely at its own risk”.
The appeal decision serves as a warning to developers of the dangers of proceeding with developments in breach of a restrictive covenant, even where there is a public interest in carrying out the development. Considering all the options carefully (including obtaining insurance if possible) at the outset, long before breaking ground is always the best approach.
Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.
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