Domus Living Limited v Edward VII Estates Limited

Facts

The King Edward VII Hospital Estate at Midhurst, West Sussex, within the South Downs National Park, is a redevelopment of a former hospital and its grounds, permitted on the basis of "enabling development", whereby development that would not otherwise be permitted funds the conservation of the listed hospital buildings. In 2015 the respondent, Edward VII Estates Limited, then owner of the whole estate with planning permission for its redevelopment (the 2014 permission), transferred a plot, later called Southwood, to BBK Homes Limited subject to two restrictive covenants: a consent covenant requiring the respondent's written consent to build, and a planning covenant requiring any building to be constructed strictly in accordance with the 2014 permission for a four-bedroom house. In December 2016 Mr Andrew Henderson acquired BBK, and Southwood was transferred to the applicant, Domus Living Limited. The applicant later obtained fresh planning permission for a six-bedroom house substantially larger than the 2014 permission allowed, and built it, completing in 2024. A sale agreed in April 2024 fell through when the purchaser discovered the breach of covenant and the respondent's refusal to release it. The applicant applied to the Upper Tribunal (Lands Chamber) under section 84 of the Law of Property Act 1925 to discharge or modify both covenants. The respondent consented to discharge of the consent covenant but resisted discharge of the planning covenant, alleging cynical breach and claiming compensation of £302,223.

Decision

Issues

• Whether the Tribunal had jurisdiction under grounds (a), (aa) and (c) of section 84(1) of the Law of Property Act 1925 to discharge the planning covenant, in particular whether its discharge would injure the respondent or leave it obsolete or of no practical benefit.
• Whether the Tribunal should exercise its discretion against discharge on the basis that the applicant had committed a cynical breach of the covenant.
• Whether compensation was payable to the respondent under either limb of section 84(1) of the Law of Property Act 1925.

Reasoning

Judge Elizabeth Cooke and Mrs Diane Martin MRICS FAAV held that jurisdiction to discharge the planning covenant was made out under grounds (a), (aa) and (c) of section 84(1) of the Law of Property Act 1925. The respondent's objection, as explained in Mr Marner's evidence, was that further development on the estate might prompt the local planning authority to re-assess, to the estate's detriment, the scope of enabling development permitted under section 73 of the Town and Country Planning Act 1990, because Southwood's extra floor area had used up the available "credit". That case was substantially undermined once Edward VII Estates Two Limited, to which most of the prospective development land had been transferred, was refused joinder because the covenant's benefit had never been assigned to it, leaving only an unparticularised assertion about "other areas of potential development". The expert evidence was found deficient: Ms Victoria Seal had not carried out the valuation she was directed to perform, valuing the yard on the assumption that the feared re-assessment had already occurred rather than assessing the risk of it occurring, an approach the Tribunal likened to valuing flood-risk land as though already flooded; Mr Richard Meeson's untested evidence, by contrast, found no material difference in value. Mr Mark Galtrey's "gift card" analogy for enabling development was unsupported by any expert planning evidence and contradicted by Mr Henderson's unchallenged evidence that neighbouring, non-estate houses were of comparable or greater size. Grounds (c) and (aa) accordingly succeeded, and the covenant was also obsolete under ground (a) since the transfer of development land to E7E2 meant the respondent would undertake no further enabling development. On discretion, the Tribunal distinguished Alexander Devine Children's Cancer Trust v Housing Solutions, relied on by the respondent, because there development had proceeded in full knowledge of the covenant; here, although it found it incredible that Mr Henderson's solicitors had not advised him of the covenant, the Tribunal accepted that he had genuinely failed to take in or retain that information, and that the applicant had not concealed its acquisition or development, given its unchallenged contact with City & Country over a wayleave and a gas connection. On compensation, applying Broomhead's application and Re Wards Construction (Medway) Limited's application, the respondent had to show the land could actually have been sold for more absent the covenant; the marketing history, in which the price of £695,000 did not change even after BBK learned of the covenant and no higher offer was ever made, undermined Ms Seal's residual valuation, which the Tribunal also criticised for unreliable comparables and optimistic cost and profit assumptions.

Case history