The Erosion of Restrictive Covenants in Residential Areas - a signal to Industry to evade Section 84 application cost and 12 month delay of profit?
- Upper Tribunal decisions increasingly conflate planning and property law, undermining protections offered by restrictive covenants
- Private equity-backed care providers exploit legal loopholes to establish profitable children's homes in residential neighborhoods
- Local authorities bear unsustainable financial burden while residential communities face declining property values and neighborhood character
The Coven Care Homes Case: A Watershed Moment for Restrictive Covenants and Children's Care Homes
The recent Upper Tribunal case of Coven Care Homes Ltd v Hockney & Ors [2024] UKUT 384 (LC) represents a significant development in property law with far-reaching implications for residential neighborhoods, the children's care sector, and local government finances. This decision, which modified restrictive covenants to allow a residential property to be used as a children's care home, sits at the intersection of property rights, planning law, social care provision, and commercial interests.
This analysis examines the case in detail, exploring its legal foundations, the growing trend of private equity involvement in children's social care, and the potential consequences for communities, property values, and local authority budgets. It also addresses concerns about the conflation of planning and property law regimes and the possible erosion of protections afforded by restrictive covenants.
Case Background and Legal Framework
Coven Care Homes Ltd v Hockney & Ors involved a four-bedroom house in a cul-de-sac of four similar houses on a small residential estate in Hammerwich, Staffordshire. The property was one of 20 detached homes completed in 1988. In January 2023, the current owner let it to Coven Care Homes Ltd, initially for six months and subsequently for a further two years from June 2023. The applicant operated two small care homes for children with learning difficulties and complex needs, each registered with Ofsted to provide care for up to two children aged between 7 and 18.
The property was subject to restrictive covenants limiting its use to a private dwelling and prohibiting business activities. Coven Care Homes applied to the Upper Tribunal under Section 84 of the Law of Property Act 1925 to modify these covenants to allow the continued operation of the children's care home.
Section 84 of the Law of Property Act 1925 grants the Upper Tribunal power to discharge or modify restrictive covenants on several grounds, including:
- Ground (a): The covenant has become obsolete due to changes in the character of the property or neighborhood.
- Ground (aa): The covenant impedes some reasonable use of the land for public or private purposes.
- Ground (b): The persons entitled to the benefit of the restriction have agreed to its discharge or modification.
- Ground (c): The proposed discharge or modification will not injure the persons entitled to the benefit of the restriction.
In this case, Coven Care Homes relied primarily on grounds (aa) and (c).
The owners of neighboring properties objected to the application, raising concerns about increased traffic, parking issues due to staff visits, potential future development of the house, and changes in activities. They also argued that allowing a business to operate from the house would set a precedent that might significantly alter the neighborhood's character.
Despite these objections, the Upper Tribunal granted the application to modify the restrictive covenants, allowing the property to be used as a children's care home.
The Upper Tribunal's Decision and Reasoning
The Tribunal's decision to modify the restrictive covenants in the Coven Care Homes case appears to follow a growing trend of similar rulings. In the comparable case of Muskwe & Another v Cochrane [2023], the Upper Tribunal also modified a restrictive covenant not to use a property "other than as a single private dwelling house," enabling its use as a residential care home for children.
In that case, the Tribunal heard evidence that many properties in the area were already used for assisted living for adults and children, and expert valuation evidence suggested the change to Class C2 use would have no impact on neighboring property values. The Tribunal found that ground (aa) was satisfied because the restriction impeded a reasonable use of the property, and ground (c) was met because the modification would not injure the respondent or the neighborhood.
These decisions reflect the Tribunal's approach to balancing property rights with social care needs, but they also raise significant questions about the extent to which restrictive covenants can continue to protect residential neighborhoods from commercial encroachment.
Conflation of Planning Law and Property Law
A critical concern arising from the Coven Care Homes case is the potential conflation of two distinct legal regimes: planning law and property law. Planning permission and restrictive covenants operate independently, with different purposes and enforcement mechanisms.
Planning permission is granted by local authorities based on considerations of public interest, while restrictive covenants are private agreements between landowners. As legal experts emphasize, "If you wish to do something on land that is subject to a restrictive covenant, be aware that planning consent does not override the terms of the covenant – they are two separate regimes."
The distinction is important because planning permission reflects a public authority's view that a proposed development is acceptable in planning terms, while restrictive covenants protect the private interests of neighboring property owners. However, the Coven Care Homes decision suggests that obtaining planning permission for a change of use may strengthen an application to modify restrictive covenants, potentially blurring the line between these separate legal frameworks.
This conflation is particularly concerning in the context of C4 use class properties (houses in multiple occupation). If the principles applied in Coven Care Homes are extended, property owners might more easily overcome restrictive covenants preventing business use, even without specific planning permission for change of use. This could lead to significant changes in residential neighborhoods without the usual planning controls or respect for the private property rights protected by restrictive covenants.
As noted by property law experts, "National pressures on housing growth, and the importance for local planning authorities to identify deliverable five-year supply of housing sites, have seen significant changes in the residential pattern and characteristics of towns and villages. This inevitably leads to an increased likelihood of conflict between the private covenants prohibiting certain types of use or development and planning permissions which have determined such use or development acceptable in planning terms."
The Private Children's Care Home Industry: A Profitable Business Model
The children's care home sector in England has undergone a significant transformation in recent decades, with private equity firms and for-profit providers now dominating the market. According to Ofsted data, over 80% of children's homes in England are privately owned, accounting for 8,791 places. The three largest private providers are CareTech Holdings, Nutrius UK Topco Ltd (Polaris), and Compass Community.
The business model is highly profitable. Recent financial data reveals that Compass Community Ltd, owned by private equity firm Cap10 Partners, saw its profit before tax soar to £10.8 million for the year to March 2024, up from £3 million the year before. This dramatic increase in profitability highlights the lucrative nature of the children's care home industry.
The profitability stems from the high fees charged to local authorities. According to a report by the Local Government Association, the top 15 private children's social care providers are making an average profit of 23%. Some placements cost local councils as much as £63,000 per week, or approximately £3.3 million per year, for a single child. Analysis shows that the average cost of placing a child in care was £281,000 a year, five times that of keeping an adult in prison.
Smaller providers often follow a particular business model: they establish children's homes in residential properties, operate them profitably for a period, and then sell to larger providers. This acquisition-based growth strategy has led to significant consolidation in the sector, with major providers expanding their market share through the purchase of smaller operations.
The Coven Care Homes case illustrates how this business model works in practice. By successfully applying to modify restrictive covenants, smaller providers can establish care homes in residential properties that were never intended for commercial use. Once operational and profitable, these homes become attractive acquisition targets for larger providers looking to expand their portfolios.
Strategic Location of Children's Care Homes
A concerning trend in the children's care home industry is the strategic placement of facilities based on property economics rather than children's needs. An investigation by The Guardian revealed that new children's care homes are being disproportionately placed in cheaper and more deprived parts of England.
Over a five-year period, the number of children's care homes located in areas with the cheapest house sale prices rose almost three times faster than in the most expensive places. Regions with significant increases included the north-west, particularly parts of Blackpool and Burnley, and northern cities like Bradford.
This pattern suggests that private companies are locating homes where it is most cost-effective for them, rather than where they are most needed. Almost one in five of the care homes opened in the past decade was located in areas with the cheapest house sale prices, compared to just one in every 17 in the most expensive areas.
The consequence of this economic-driven placement strategy is that vulnerable children often end up being moved hundreds of miles from their families and support networks. As Conservative MP Antony Higginbotham noted, "The only thing that should guide where children in care are placed is where they can best be supported. In the vast majority of cases, except where there is a safeguarding need, that's in the place where they have access to friends, family and a support network. It's clear from these numbers, though, that property prices are taking priority over what is best for those vulnerable children."
The Coven Care Homes decision potentially exacerbates this problem by making it easier for providers to establish care homes in residential areas regardless of restrictive covenants, further enabling profit-driven placement decisions rather than child-centered ones.
Financial Impact on Local Authorities
The proliferation of private children's care homes has significant financial implications for local authorities, which are legally obligated to place children in their care in appropriate settings. With private providers dominating the market and charging premium rates, councils face mounting financial pressure.
In a recent parliamentary debate on children's social care, it was noted that "Years of inaction by previous Conservative Governments have led to vulnerable children feeling forgotten and councils being financially crippled. We have more children in care in this country than ever before. With more and more money following children into the most expensive part of the system, resources are sucked out of preventive services, pushing yet more young people into care. And so the vicious cycle continues: higher costs but poorer outcomes."
The financial strain on local authorities is severe. There are now more than 1,500 children in placements that each cost half a million pounds every single year. This level of expenditure is unsustainable for many councils already facing budget constraints.
Conrad Hall, president of the Society of London Treasurers, questioned whether the government's reforms are addressing the fundamental issue of placement costs. Based on government analysis, a typical placement costing £500,000 per year includes £406,000 in operational costs and £94,000 in profit. Even if profit margins were reduced to around 15%, the annual cost would still be approximately £470,000 per child. Hall asked, "My bigger question is whether, as a nation, we think a placement for a single child costing £470,000 per year is something we find desirable and affordable."
The Coven Care Homes decision, by facilitating the establishment of more private care homes, may inadvertently contribute to this financial burden on local authorities without addressing the underlying issues of cost and quality in children's social care.
Quality Concerns in For-Profit Care Provision
Despite the growth of private for-profit provision in children's social care, evidence suggests that quality may be compromised in the pursuit of profit. A study by the Department of Social Policy and Intervention at Oxford University found that public and third-sector providers consistently outperform for-profit providers on quality measures established by industry regulators.
The research revealed that public and third-sector adult care homes and children's homes show higher regulatory inspection ratings. Simultaneously, for-profit operators experience more frequent involuntary closures and cancellations by the Care Quality Commission (CQC) and Ofsted.
A separate analysis published in Social Science & Medicine concluded that "for-profit providers are statistically significantly more likely to be rated of lower quality than both public and third sector services. For-profit children's homes also violate a greater number of requirements and receive more recommendations compared to other ownership types."
These findings raise serious questions about whether the current market-driven approach to children's social care is delivering the best outcomes for vulnerable children. The Coven Care Homes decision, by potentially facilitating the expansion of for-profit provision, may inadvertently contribute to quality concerns in the sector.
Government Policy and Market Regulation
The current government has expressed concern about profiteering in children's social care and has announced measures to address it. The Department for Education recently introduced new rules and expanded powers for Ofsted to "crack down on exploitative children's care providers," including the ability to issue civil fines.
Under the new regulations, key placement providers will be required to share their financial information with the government, a move designed to "challenge profiteering." The government has also revealed plans to introduce a "backstop law" to cap profits if providers fail to voluntarily curb excessive earnings.
In a parliamentary debate, the government stated its intention to "act decisively, helping children to remain close to the people who love them whenever possible, and ending the reckless profiteering of some providers. We will rebalance and stabilise the placements market, including by establishing a financial oversight scheme for the very first time. We will make the market more transparent, and we will empower local authorities to collaborate on placements, including through regional care co-operatives."
However, these policy initiatives appear to be in tension with legal developments like the Coven Care Homes decision, which potentially facilitates the expansion of private provision in residential areas. This disconnect between government policy and legal precedent may undermine efforts to reform the children's social care market.
Impact on Residential Communities and Property Values
The modification of restrictive covenants to allow children's care homes in residential areas raises concerns about the impact on community character and property values. In the Coven Care Homes case, neighboring property owners objected to the application, citing concerns about increased traffic, parking issues, and potential changes to the neighborhood's character.
While the Tribunal in the Muskwe case heard expert evidence that changing a property to Class C2 use would have no impact on neighboring property values, this may not be universally true. The introduction of commercial operations in residential areas, with associated staff movements, deliveries, and potential disturbances, could affect the peaceful enjoyment of neighboring properties and, consequently, their market value.
Moreover, the precedent set by cases like Coven Care Homes could lead to a proliferation of commercial uses in residential areas, fundamentally altering their character. As one objector argued, allowing a business to operate from the house would set a precedent that might significantly change the neighborhood.
The potential erosion of the protection offered by restrictive covenants is particularly concerning for homeowners who purchased properties with the expectation that such covenants would preserve the residential character of their neighborhoods. As noted in one legal commentary, "This case demonstrates that landowners with the benefit of restrictive covenants are arguably becoming less able to rely on and enforce them, where a modification or breach can be compensated with money."
The Erosion of Section 84 Protections
The Coven Care Homes decision raises broader questions about the erosion of the protections afforded by Section 84 of the Law of Property Act 1925. While the law was designed to provide a mechanism for modifying outdated or unreasonable restrictive covenants, recent cases suggest a trend toward more readily granting modifications, particularly for commercial uses in residential areas.
Legal experts have noted that "The powers of the UT are important to developers because they are often key to unlocking developments of land burdened by restrictive covenants. Restrictive covenants are frequently seized on by objectors to the development who seek to use the covenants to prevent it. Invariably this represents 'round two' of a fight which began at the planning stage, when the developer has successfully faced down the 'nimbys' and has, despite their opposition, managed to secure a valuable planning permission."
While the Supreme Court in the Devine case made clear that the discretion to refuse an application should be used sparingly, emphasizing that "once a jurisdictional ground had been established, the discretion to refuse the application should be 'cautiously exercised'," it also confirmed that the Tribunal "shall have power" but is not obliged to exercise it.
In recent cases, the Upper Tribunal has begun to take a more nuanced approach to discretion. For example, in the Fosse Urban Projects case, the Tribunal rejected an application even after jurisdictional grounds were met, primarily due to the developer's conduct in breaching the covenant before making the application.
However, the Coven Care Homes decision suggests that in the context of children's care homes, the Tribunal may be more inclined to grant modifications, potentially weakening the protection that restrictive covenants provide to residential neighborhoods.
Contradictions in Policy and Practice
The Coven Care Homes case highlights several contradictions between government policy and legal practice in the realm of children's social care and property rights.
First, while the government has expressed concern about profiteering in children's social care and has introduced measures to regulate the market, legal decisions like Coven Care Homes potentially facilitate the expansion of private provision by making it easier to establish care homes in residential areas.
Second, although the government has emphasized the importance of keeping children close to their families and support networks, the economic incentives created by the current system, combined with the ability to modify restrictive covenants, encourage providers to locate homes based on property economics rather than children's needs.
Third, despite the distinction between planning law and property law, decisions like Coven Care Homes suggest a growing conflation of these separate legal regimes, potentially undermining the distinct protections they are designed to provide.
Finally, while restrictive covenants are intended to protect the interests of property owners and preserve the character of residential neighborhoods, the increasing willingness of the Upper Tribunal to modify these covenants for commercial uses raises questions about the continued effectiveness of this protection.
These contradictions highlight the need for a more coherent and integrated approach to children's social care provision, property rights, and community interests.
Conclusion: Balancing Competing Interests
The Coven Care Homes case represents a significant development in the interpretation and application of Section 84 of the Law of Property Act 1925, with far-reaching implications for residential communities, the children's care sector, and local government finances.
While the provision of appropriate care for vulnerable children is undoubtedly a social good, the current system, characterized by private equity involvement, profit-driven decision-making, and the modification of restrictive covenants to facilitate commercial operations in residential areas, raises serious concerns about whether the best interests of children, communities, and taxpayers are being served.
The case highlights the need for a more balanced approach that respects the distinct roles of planning law and property law, protects the character of residential neighborhoods, ensures the quality and appropriateness of children's care provision, and addresses the financial sustainability of local authority children's services.
As the children's social care market continues to evolve, and as legal precedents like Coven Care Homes shape the landscape of property rights and commercial use, policymakers, regulators, and the courts must grapple with these complex and often competing interests to develop a more coherent and effective framework for meeting the needs of vulnerable children while respecting the rights and interests of communities and property owners.
The challenge lies in finding this balance – ensuring that children receive the care they need, in appropriate settings close to their support networks, without imposing undue burdens on local authorities or undermining the residential character of neighborhoods through the erosion of protective covenants. The Coven Care Homes case, while resolving a specific dispute, raises broader questions that will require careful consideration and potentially legislative reform to address effectively.
The property at 2 Redwing Close was a four-bedroom house in a cul-de-sac of four similar houses on a small residential estate in Hammerwich, Staffordshire. The property was one of 20 detached homes completed in 1988. In January 2023, the current owner let it to the applicant, initially for a term of six months, but subsequently for a further term of two years from 30 June 2023. The applicant ran two small care homes for children with learning difficulties and complex needs, each registered with Ofsted, the body responsible for standards in children's homes, to provide care for up to two children aged between 7 and 18.
The application is made under section 84 of the Law of Property Act 1925, specifically grounds (aa) and (c). Under ground (c), the applicant must demonstrate that modifying the covenant would not cause injury to those entitled to its benefit.
The Upper Tribunal shall have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied: (a) that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Upper Tribunal may deem material, the restriction ought to be deemed obsolete, or (aa) that in a case falling within subsection (1A) below the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified so impede such user; or (b) that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction, whether in respect of estates in fee simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed, have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified; or (c) that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction
Section 84 of the Law of Property Act 1925 ('the Act') allows a property owner to apply to the Upper Tribunal (Lands Chamber) for the modification or discharge of a restrictive covenant. The Tribunal may grant such an application on several grounds, including: 1. Obsolete Covenants: Where the covenant is deemed obsolete due to changes in the character of the property or the neighbourhood; and where the covenant 2. Impeding Reasonable Use: Where the covenant unreasonably impedes the applicant's use of the land and does not provide practical benefits of substantial value or advantage. This is known as ground '(aa)' for reasons which will become relevant when we get into the detail in Devine
The Upper Tribunal (UT) has modified a restrictive covenant to allow a house to be used as a residential care home. The house was on a small residential estate. All the houses on the estate were bound by covenants restricting their use to private dwellings and prohibiting the carrying on of any business or trade. After it was let to a care home company, the house began to be used as a home for up to two children with learning difficulties. The owners of a number of houses on the estate objected to the application. They raised concerns about an increase in traffic and parking issues due to the number of staff visiting the property. They also argued that discharging the covenant might result in development of the house or a change in the activities it was used for. It was suggested that allowing a business to be run from the house would set a precedent that might significantly alter the character of the neighbourhood.
In Muskwe & Another v Cochrane [2023] UKUT 00262 (LC), the Upper Tribunal (Lands Chamber) has modified a restrictive covenant not to use the property other than as a single private dwelling house, such as to enable the property to be used as a residential care home. The Applicants were the freehold owners of a residential property in Braintree, Essex. They worked within the childcare sector and wanted to use the property as a residential care home for up to four children/young persons. The property was subject to two restrictive covenants, one from 1997 not to use it "other than as a single private residence", and one from 2000 not to use it "other than as a single private dwellinghouse with usual outbuildings". In 2020, Braintree District Council granted planning permission for a change of use from residential dwelling (C3) to a residential care home (C2) for up to four children/young persons and the Property was used as a care home for two children from January 2022 until November 2022 in breach of the restrictions.
The Upper Tribunal heard evidence that a large number of properties in that part of Essex are used as dwellings for assisted living for adults and children and it is not uncommon for properties to be used in the area as care homes, some without the need for a planning application. The Tribunal also heard expert valuation evidence that changing the Property to Class C2 use would have no impact on the value of the respondent's property. The Upper Tribunal found that ground (aa) was made out and the Tribunal exercised its discretion to modify the restriction as it impeded a reasonable use. The Tribunal also found that ground (c) was made out because the proposed modification would not injure the Respondent or the neighbourhood. This case will be of particular interest to those who operate residential care homes, as it is often the case that properties that may be otherwise suitable for such use are subject to restrictive covenants not to use the property other than as a single private dwellinghouse.
The Upper Tribunal (UT) recently granted modification of a restrictive covenant to allow a house to be used as a children's care home. The house was on a small residential estate. All the houses on the estate were bound by covenants restricting their use to private dwellings and prohibiting the carrying on of any business or trade. After it was let to a care home company, the house began to be used as a home for up to two children with learning difficulties. The company applied to the UT under Section 84 of the Law of Property Act 1925 to modify or discharge the covenant to allow the use to continue. The owners of a number of houses on the estate objected to the application. They raised concerns about an increase in traffic and parking issues due to the number of staff visiting the property. They also argued that discharging the covenant might result in development of the house or a change in the activities it was used for. It was suggested that allowing a business to be run from the house would set a precedent that might significantly alter the character of the neighbourhood.
One of the UK's biggest private fostering firms more than tripled its profits last year as it continued to cash in on the crisis in children's social care. Profit before tax at Compass Community Ltd, which is owned by private equity firm Cap10 Partners, soared to £10.8 million for the year to March 2024, up from £3 million the year before, according to recent accounts filed with Companies House.
Private fostering agencies make money by charging local councils for placing children in foster homes. Industry sources say their fees are double or triple what the cost would be if councils were to make their own placements. Profit-making agencies are contracted by the state to recruit and train foster carers. These carers must undergo an assessment, a home visit and final checks from a fostering panel. They are then matched with a child based on the carer's preferences, experience and training. About 57,000 children in England are in foster care.
Some of England's biggest privately-run children's homes have raked in more than £95million in profit in the past three years, The Mail on Sunday can reveal. The firms, which have been draining millions from the budgets of cash-strapped councils, include outfits controlled by private equity firms, as well as the daughter of a former City stockbroker linked to fraud.
Data from regulator Ofsted shows private firms dominate the sector, with 83 per cent of children's homes under their ownership. The draw is that the industry is lucrative. Last year, a report by news website This House revealed that the average cost of placing a child in care was £281,000 a year, five times that of keeping an adult in prison. It followed a 2023 report from the Local Government Association that showed some councils were paying as much as £63,000 a week to keep a single child in care.
The Department for Education (DfE) announced new rules and expanded powers for Ofsted to 'crack down on exploitative children's care providers'. These powers include the ability to issue civil fines to providers. Under the new regulations, key placement providers will be required to share their financial information with the government, a move designed to 'challenge profiteering'. The DfE also revealed plans to introduce a 'backstop law' to cap profits if providers fail to voluntarily curb excessive earnings.
According to Ofsted data, the three largest private providers of children's homes and independent fostering agencies are CareTech Holdings, Nutrius UK Topco Ltd (Polaris), and Compass Community. Currently, over 80% of children's homes in England are privately owned, accounting for 8,791 places. Of these, CareTech Holdings operates the largest share, with 207 homes.
Conrad Hall, president of the Society of London Treasurers, questioned whether the government's reforms are tackling the 'bigger question' of the cost of placements. Based on the government's own analysis, a typical placement costing £500,000 per year includes £406,000 in operational costs and £94,000 in profit. Reducing profit margins to around 15% would lower the annual cost to approximately £470,000. Hall added: 'My bigger question is whether, as a nation, we think a placement for a single child costing £470,000 per year is something we find desirable and affordable.'
Planning permission is a crucial aspect of property development in the UK. However, obtaining planning permission may not necessarily override a restrictive covenant. A restrictive covenant is an agreement between parties that restricts the use of a property. In this comprehensive UK guide, we will explore the intricate relationship between planning permission and restrictive covenants.
National pressures on housing growth, and the importance for local planning authorities to identify deliverable five-year supply of housing sites, have seen significant changes in the residential pattern and characteristics of towns and villages. This inevitably leads to an increased likelihood of conflict between the private covenants prohibiting certain types of use or development and planning permissions which have determined such use or development acceptable in planning terms.
If you wish to do something on land that is subject to a restrictive covenant, be aware that planning consent does not override the terms of the covenant – they are two separate regimes. It is possible to apply to the Lands Tribunal for the restriction to be modified or discharged, providing you can demonstrate one of the statutory grounds.
When acquiring property for use as a children's home, there are several key points to consider. Buyers intending to acquire a property for use as a children's home may require planning permission. Understanding the use classes (C2 or C3) as defined by planning regulations is crucial for determining planning permission requirements. Regulations distinguish between care homes for adults and children's homes.
Years of inaction by previous Conservative Governments have led to vulnerable children feeling forgotten and councils being financially crippled. We have more children in care in this country than ever before. With more and more money following children into the most expensive part of the system, resources are sucked out of preventive services, pushing yet more young people into care. And so the vicious cycle continues: higher costs but poorer outcomes.
We will act decisively, helping children to remain close to the people who love them whenever possible, and ending the reckless profiteering of some providers. We will rebalance and stabilise the placements market, including by establishing a financial oversight scheme for the very first time. We will make the market more transparent, and we will empower local authorities to collaborate on placements, including through regional care co-operatives.
Private providers are making, in some cases, between 20% and 30% profit. That is way beyond what we would expect in any other area. Crucially, when we think about where they are making that profit, it is off the back of the trauma, abuse and sometimes very difficult early childhood experiences of some of the most vulnerable children in our country.
There are now more than 1,500 children in placements that each cost half a million pounds every single year. We have got to change that. Analysis by the Local Government Association reveals that the top 15 private children's social care providers are making an average profit of 23%. It is frankly unacceptable that private firms are profiting at all from vulnerable children, let alone when the care they provide is so often poor and is funded by public money, pushing councils to the brink.
New children's care homes are being disproportionately placed in cheaper and more deprived parts of England, according to an Observer investigation. Over the past five years the number of children's care homes located in areas with the cheapest house sale prices has risen almost three times faster than in the most expensive places. Among the regions with big increases in homes was the north-west, including in parts of Blackpool and Burnley and other northern cities such as Bradford.
The findings suggest private companies are locating homes where it is cheapest for them to do so, rather than where they are needed. The practice helps them increase profits. However, it also means vulnerable children can end up being moved hundreds of miles for a care place, splitting them from family and support networks that they rely on. Almost one in five of the care homes opened in the past decade was located in areas with the cheapest house sale prices, as opposed to one in every 17 in the most expensive areas.
A review by the Competition and Markets Authority last year found that the average operating profit per child in England was £45,000, with profit margins averaging 22.6%. 'The only thing that should guide where children in care are placed is where they can best be supported,' said Antony Higginbotham, the Tory MP for Burnley. 'In the vast majority of cases, except where there is a safeguarding need, that's in the place where they have access to friends, family and a support network. It's clear from these numbers, though, that property prices are taking priority over what is best for those vulnerable children.'
A new study by the Department of Social Policy and Intervention at Oxford University, funded by the Nuffield Foundation, has shed new light on the extent and impact of outsourcing in England's adult and children's social care sectors. Over the last 30 years, social care services for children and adults in England have been increasingly outsourced to private for-profit providers. However, regulators and commissioners tasked with ensuring quality provision have faced difficulties due to a lack of clear evidence on how these changes have affected care outcomes.
Key Findings: Dramatic increase in outsourcing: Over the past two decades, the outsourcing of residential care services to private providers has surged. In adult social care, 96% of residential services are now outsourced, primarily to for-profit providers, up by over 20 percentage points since 2001. Similarly, more than 80% of children's homes are now run by for-profit companies, a rise of over 20 percentage points since 2010.
Quality concerns: Despite the growth of private for-profit provision, public and third-sector providers consistently outperform for-profit providers on quality measures by industry regulators. Public and third-sector adult care homes and children's homes show higher regulatory inspections ratings. At the same time, for-profit operators experience more frequent involuntary closures and cancellations by the Care Quality Commission (CQC) and Ofsted.
Most residential children's social care services in England, including children's homes, are operated by for-profit companies, but the implications of this development are not well understood. This paper aims to address this gap by undertaking the first longitudinal and comprehensive evaluation of the associations between for-profit outsourcing and quality of service provision among English local authorities and children's homes.
The social care sector in England has adopted a quasi-market commissioning structure that promotes and facilitates the outsourcing of social care services to private providers. As a direct consequence, private providers have become the most prevalent supplier of both children's and adult social care services in England. Advocates argue that this commissioning system counteracts the inefficiency of state monopolies by allowing open competition in service provisions.
Our analysis shows that for-profit providers are statistically significantly more likely to be rated of lower quality than both public and third sector services. For-profit children's homes also violate a greater number of requirements and receive more recommendations compared to other ownership types. These findings are robust to model specification and consistent over the full analysed period.
The powers of the UT are important to developers because they are often key to unlocking developments of land burdened by restrictive covenants. Restrictive covenants are frequently seized on by objectors to the development who seek to use the covenants to prevent it. Invariably this represents 'round two' of a fight which began at the planning stage, when the developer has successfully faced down the 'nimbys' and has, despite their opposition, managed to secure a valuable planning permission. Establishing one or other of the various grounds set out in s.84(1) of the Law of Property Act 1925 may represent the only practical way to secure the development. The chances of buying off the objectors with an acceptable cash offer are usually slim, and by the time the Upper Tribunal application is actually made, if the cash avenue has already been explored unsuccessfully, the chances of settlement are, invariably, next to nil.
The Supreme Court in the Devine case made clear that the discretion to refuse an application should be used sparingly: 'I also accept that the Upper Tribunal in the Trustees of the Green Masjid case was correct to say, at paragraph 129, that once a jurisdictional ground had been established, the discretion to refuse the application should be "cautiously exercised"'. However, the Supreme Court also emphasized that the Tribunal '… shall have power…' to modify/discharge, but is not obliged to exercise its power. Any applicant must first satisfy at least one of the grounds under s.84(1), the 'jurisdictional' stage, before the UT must then decide whether to exercise its discretion to modify. In recent cases, the Upper Tribunal has begun to take a more nuanced approach to discretion. For example, in the Fosse Urban Projects case, the Tribunal rejected an application even after jurisdictional grounds were met, primarily due to the developer's conduct in breaching the covenant before making the application.
When faced with a restriction on freehold and sometimes leasehold land, there are certain circumstances in which the owner of the land may seek to have a restrictive covenant modified or removed. The process of modification or removal involves making an application to the The Upper Tribunal (Lands Chamber). The applicant must satisfy one of the statutory grounds on which a restrictive covenant may be discharged or modified. The statutory grounds for removal or modification are the following: 1. That the covenant is obsolete; 2. That the covenant impedes the reasonable use of the land; 3. The modification or removal would not injure those who are entitled to benefit from the restriction; or 4. Where all parties who benefit from the covenant give their consent to its modification or discharge.
In an application to the Upper Tribunal (Lands Chamber) brought by Mrs Susan Geall, the Tribunal discussed whether a restrictive covenant, which prevented the conversion of an agricultural barn into a residential dwelling, could be modified under the Law of Property Act 1925. The applicant had purchased a cottage in 1987, within the grounds of which there was a barn used for agricultural storage. The applicant wanted to develop the barn into a three bedroom property for her children and so in 2015, an application for planning permission was made. Planning permission was granted in July 2015, together with the necessary approval for a change of use of the land; however, the development could not proceed because of restrictive covenants created in the original transfer of the land back in 1987. A diminution in value in the region of 2.5% was not considered substantial and although £65,000 was generally considered a significant sum of money, it was less so when dealing with an estate worth £2.6 million. As a result, it was considered that the objectors could be adequately compensated with money and the court, therefore, used its discretion to allow the modification of clause 6.1.4 in order for the development to proceed.
This case demonstrates that landowners with the benefit of restrictive covenants are arguably becoming less able to rely on and enforce them, where a modification or breach can be compensated with money. The Tribunal will consider other factors such as how long ago the restrictive covenant was entered into, and whether the parties are the original covenantee/covenantor, but it is unlikely that those additional factors will have any significant effect on the outcome in this type of matter.
The Erosion of Restrictive Covenants in Residential Areas - a signal to Industry to evade Section 84 application cost and 12 month delay of profit?
- Upper Tribunal decisions increasingly conflate planning and property law, undermining protections offered by restrictive covenants
- Private equity-backed care providers exploit legal loopholes to establish profitable children's homes in residential neighborhoods
- Local authorities bear unsustainable financial burden while residential communities face declining property values and neighborhood character
The Coven Care Homes Case: A Watershed Moment for Restrictive Covenants and Children's Care Homes
The recent Upper Tribunal case of Coven Care Homes Ltd v Hockney & Ors [2024] UKUT 384 (LC) represents a significant development in property law with far-reaching implications for residential neighborhoods, the children's care sector, and local government finances. This decision, which modified restrictive covenants to allow a residential property to be used as a children's care home, sits at the intersection of property rights, planning law, social care provision, and commercial interests.
This analysis examines the case in detail, exploring its legal foundations, the growing trend of private equity involvement in children's social care, and the potential consequences for communities, property values, and local authority budgets. It also addresses concerns about the conflation of planning and property law regimes and the possible erosion of protections afforded by restrictive covenants.
Case Background and Legal Framework
Coven Care Homes Ltd v Hockney & Ors involved a four-bedroom house in a cul-de-sac of four similar houses on a small residential estate in Hammerwich, Staffordshire. The property was one of 20 detached homes completed in 1988. In January 2023, the current owner let it to Coven Care Homes Ltd, initially for six months and subsequently for a further two years from June 2023. The applicant operated two small care homes for children with learning difficulties and complex needs, each registered with Ofsted to provide care for up to two children aged between 7 and 18.
The property was subject to restrictive covenants limiting its use to a private dwelling and prohibiting business activities. Coven Care Homes applied to the Upper Tribunal under Section 84 of the Law of Property Act 1925 to modify these covenants to allow the continued operation of the children's care home.
Section 84 of the Law of Property Act 1925 grants the Upper Tribunal power to discharge or modify restrictive covenants on several grounds, including:
- Ground (a): The covenant has become obsolete due to changes in the character of the property or neighborhood.
- Ground (aa): The covenant impedes some reasonable use of the land for public or private purposes.
- Ground (b): The persons entitled to the benefit of the restriction have agreed to its discharge or modification.
- Ground (c): The proposed discharge or modification will not injure the persons entitled to the benefit of the restriction.
In this case, Coven Care Homes relied primarily on grounds (aa) and (c).
The owners of neighboring properties objected to the application, raising concerns about increased traffic, parking issues due to staff visits, potential future development of the house, and changes in activities. They also argued that allowing a business to operate from the house would set a precedent that might significantly alter the neighborhood's character.
Despite these objections, the Upper Tribunal granted the application to modify the restrictive covenants, allowing the property to be used as a children's care home.
The Upper Tribunal's Decision and Reasoning
The Tribunal's decision to modify the restrictive covenants in the Coven Care Homes case appears to follow a growing trend of similar rulings. In the comparable case of Muskwe & Another v Cochrane [2023], the Upper Tribunal also modified a restrictive covenant not to use a property "other than as a single private dwelling house," enabling its use as a residential care home for children.
In that case, the Tribunal heard evidence that many properties in the area were already used for assisted living for adults and children, and expert valuation evidence suggested the change to Class C2 use would have no impact on neighboring property values. The Tribunal found that ground (aa) was satisfied because the restriction impeded a reasonable use of the property, and ground (c) was met because the modification would not injure the respondent or the neighborhood.
These decisions reflect the Tribunal's approach to balancing property rights with social care needs, but they also raise significant questions about the extent to which restrictive covenants can continue to protect residential neighborhoods from commercial encroachment.
Conflation of Planning Law and Property Law
A critical concern arising from the Coven Care Homes case is the potential conflation of two distinct legal regimes: planning law and property law. Planning permission and restrictive covenants operate independently, with different purposes and enforcement mechanisms.
Planning permission is granted by local authorities based on considerations of public interest, while restrictive covenants are private agreements between landowners. As legal experts emphasize, "If you wish to do something on land that is subject to a restrictive covenant, be aware that planning consent does not override the terms of the covenant – they are two separate regimes."
The distinction is important because planning permission reflects a public authority's view that a proposed development is acceptable in planning terms, while restrictive covenants protect the private interests of neighboring property owners. However, the Coven Care Homes decision suggests that obtaining planning permission for a change of use may strengthen an application to modify restrictive covenants, potentially blurring the line between these separate legal frameworks.
This conflation is particularly concerning in the context of C4 use class properties (houses in multiple occupation). If the principles applied in Coven Care Homes are extended, property owners might more easily overcome restrictive covenants preventing business use, even without specific planning permission for change of use. This could lead to significant changes in residential neighborhoods without the usual planning controls or respect for the private property rights protected by restrictive covenants.
As noted by property law experts, "National pressures on housing growth, and the importance for local planning authorities to identify deliverable five-year supply of housing sites, have seen significant changes in the residential pattern and characteristics of towns and villages. This inevitably leads to an increased likelihood of conflict between the private covenants prohibiting certain types of use or development and planning permissions which have determined such use or development acceptable in planning terms."
The Private Children's Care Home Industry: A Profitable Business Model
The children's care home sector in England has undergone a significant transformation in recent decades, with private equity firms and for-profit providers now dominating the market. According to Ofsted data, over 80% of children's homes in England are privately owned, accounting for 8,791 places. The three largest private providers are CareTech Holdings, Nutrius UK Topco Ltd (Polaris), and Compass Community.
The business model is highly profitable. Recent financial data reveals that Compass Community Ltd, owned by private equity firm Cap10 Partners, saw its profit before tax soar to £10.8 million for the year to March 2024, up from £3 million the year before. This dramatic increase in profitability highlights the lucrative nature of the children's care home industry.
The profitability stems from the high fees charged to local authorities. According to a report by the Local Government Association, the top 15 private children's social care providers are making an average profit of 23%. Some placements cost local councils as much as £63,000 per week, or approximately £3.3 million per year, for a single child. Analysis shows that the average cost of placing a child in care was £281,000 a year, five times that of keeping an adult in prison.
Smaller providers often follow a particular business model: they establish children's homes in residential properties, operate them profitably for a period, and then sell to larger providers. This acquisition-based growth strategy has led to significant consolidation in the sector, with major providers expanding their market share through the purchase of smaller operations.
The Coven Care Homes case illustrates how this business model works in practice. By successfully applying to modify restrictive covenants, smaller providers can establish care homes in residential properties that were never intended for commercial use. Once operational and profitable, these homes become attractive acquisition targets for larger providers looking to expand their portfolios.
Strategic Location of Children's Care Homes
A concerning trend in the children's care home industry is the strategic placement of facilities based on property economics rather than children's needs. An investigation by The Guardian revealed that new children's care homes are being disproportionately placed in cheaper and more deprived parts of England.
Over a five-year period, the number of children's care homes located in areas with the cheapest house sale prices rose almost three times faster than in the most expensive places. Regions with significant increases included the north-west, particularly parts of Blackpool and Burnley, and northern cities like Bradford.
This pattern suggests that private companies are locating homes where it is most cost-effective for them, rather than where they are most needed. Almost one in five of the care homes opened in the past decade was located in areas with the cheapest house sale prices, compared to just one in every 17 in the most expensive areas.
The consequence of this economic-driven placement strategy is that vulnerable children often end up being moved hundreds of miles from their families and support networks. As Conservative MP Antony Higginbotham noted, "The only thing that should guide where children in care are placed is where they can best be supported. In the vast majority of cases, except where there is a safeguarding need, that's in the place where they have access to friends, family and a support network. It's clear from these numbers, though, that property prices are taking priority over what is best for those vulnerable children."
The Coven Care Homes decision potentially exacerbates this problem by making it easier for providers to establish care homes in residential areas regardless of restrictive covenants, further enabling profit-driven placement decisions rather than child-centered ones.
Financial Impact on Local Authorities
The proliferation of private children's care homes has significant financial implications for local authorities, which are legally obligated to place children in their care in appropriate settings. With private providers dominating the market and charging premium rates, councils face mounting financial pressure.
In a recent parliamentary debate on children's social care, it was noted that "Years of inaction by previous Conservative Governments have led to vulnerable children feeling forgotten and councils being financially crippled. We have more children in care in this country than ever before. With more and more money following children into the most expensive part of the system, resources are sucked out of preventive services, pushing yet more young people into care. And so the vicious cycle continues: higher costs but poorer outcomes."
The financial strain on local authorities is severe. There are now more than 1,500 children in placements that each cost half a million pounds every single year. This level of expenditure is unsustainable for many councils already facing budget constraints.
Conrad Hall, president of the Society of London Treasurers, questioned whether the government's reforms are addressing the fundamental issue of placement costs. Based on government analysis, a typical placement costing £500,000 per year includes £406,000 in operational costs and £94,000 in profit. Even if profit margins were reduced to around 15%, the annual cost would still be approximately £470,000 per child. Hall asked, "My bigger question is whether, as a nation, we think a placement for a single child costing £470,000 per year is something we find desirable and affordable."
The Coven Care Homes decision, by facilitating the establishment of more private care homes, may inadvertently contribute to this financial burden on local authorities without addressing the underlying issues of cost and quality in children's social care.
Quality Concerns in For-Profit Care Provision
Despite the growth of private for-profit provision in children's social care, evidence suggests that quality may be compromised in the pursuit of profit. A study by the Department of Social Policy and Intervention at Oxford University found that public and third-sector providers consistently outperform for-profit providers on quality measures established by industry regulators.
The research revealed that public and third-sector adult care homes and children's homes show higher regulatory inspection ratings. Simultaneously, for-profit operators experience more frequent involuntary closures and cancellations by the Care Quality Commission (CQC) and Ofsted.
A separate analysis published in Social Science & Medicine concluded that "for-profit providers are statistically significantly more likely to be rated of lower quality than both public and third sector services. For-profit children's homes also violate a greater number of requirements and receive more recommendations compared to other ownership types."
These findings raise serious questions about whether the current market-driven approach to children's social care is delivering the best outcomes for vulnerable children. The Coven Care Homes decision, by potentially facilitating the expansion of for-profit provision, may inadvertently contribute to quality concerns in the sector.
Government Policy and Market Regulation
The current government has expressed concern about profiteering in children's social care and has announced measures to address it. The Department for Education recently introduced new rules and expanded powers for Ofsted to "crack down on exploitative children's care providers," including the ability to issue civil fines.
Under the new regulations, key placement providers will be required to share their financial information with the government, a move designed to "challenge profiteering." The government has also revealed plans to introduce a "backstop law" to cap profits if providers fail to voluntarily curb excessive earnings.
In a parliamentary debate, the government stated its intention to "act decisively, helping children to remain close to the people who love them whenever possible, and ending the reckless profiteering of some providers. We will rebalance and stabilise the placements market, including by establishing a financial oversight scheme for the very first time. We will make the market more transparent, and we will empower local authorities to collaborate on placements, including through regional care co-operatives."
However, these policy initiatives appear to be in tension with legal developments like the Coven Care Homes decision, which potentially facilitates the expansion of private provision in residential areas. This disconnect between government policy and legal precedent may undermine efforts to reform the children's social care market.
Impact on Residential Communities and Property Values
The modification of restrictive covenants to allow children's care homes in residential areas raises concerns about the impact on community character and property values. In the Coven Care Homes case, neighboring property owners objected to the application, citing concerns about increased traffic, parking issues, and potential changes to the neighborhood's character.
While the Tribunal in the Muskwe case heard expert evidence that changing a property to Class C2 use would have no impact on neighboring property values, this may not be universally true. The introduction of commercial operations in residential areas, with associated staff movements, deliveries, and potential disturbances, could affect the peaceful enjoyment of neighboring properties and, consequently, their market value.
Moreover, the precedent set by cases like Coven Care Homes could lead to a proliferation of commercial uses in residential areas, fundamentally altering their character. As one objector argued, allowing a business to operate from the house would set a precedent that might significantly change the neighborhood.
The potential erosion of the protection offered by restrictive covenants is particularly concerning for homeowners who purchased properties with the expectation that such covenants would preserve the residential character of their neighborhoods. As noted in one legal commentary, "This case demonstrates that landowners with the benefit of restrictive covenants are arguably becoming less able to rely on and enforce them, where a modification or breach can be compensated with money."
The Erosion of Section 84 Protections
The Coven Care Homes decision raises broader questions about the erosion of the protections afforded by Section 84 of the Law of Property Act 1925. While the law was designed to provide a mechanism for modifying outdated or unreasonable restrictive covenants, recent cases suggest a trend toward more readily granting modifications, particularly for commercial uses in residential areas.
Legal experts have noted that "The powers of the UT are important to developers because they are often key to unlocking developments of land burdened by restrictive covenants. Restrictive covenants are frequently seized on by objectors to the development who seek to use the covenants to prevent it. Invariably this represents 'round two' of a fight which began at the planning stage, when the developer has successfully faced down the 'nimbys' and has, despite their opposition, managed to secure a valuable planning permission."
While the Supreme Court in the Devine case made clear that the discretion to refuse an application should be used sparingly, emphasizing that "once a jurisdictional ground had been established, the discretion to refuse the application should be 'cautiously exercised'," it also confirmed that the Tribunal "shall have power" but is not obliged to exercise it.
In recent cases, the Upper Tribunal has begun to take a more nuanced approach to discretion. For example, in the Fosse Urban Projects case, the Tribunal rejected an application even after jurisdictional grounds were met, primarily due to the developer's conduct in breaching the covenant before making the application.
However, the Coven Care Homes decision suggests that in the context of children's care homes, the Tribunal may be more inclined to grant modifications, potentially weakening the protection that restrictive covenants provide to residential neighborhoods.
Contradictions in Policy and Practice
The Coven Care Homes case highlights several contradictions between government policy and legal practice in the realm of children's social care and property rights.
First, while the government has expressed concern about profiteering in children's social care and has introduced measures to regulate the market, legal decisions like Coven Care Homes potentially facilitate the expansion of private provision by making it easier to establish care homes in residential areas.
Second, although the government has emphasized the importance of keeping children close to their families and support networks, the economic incentives created by the current system, combined with the ability to modify restrictive covenants, encourage providers to locate homes based on property economics rather than children's needs.
Third, despite the distinction between planning law and property law, decisions like Coven Care Homes suggest a growing conflation of these separate legal regimes, potentially undermining the distinct protections they are designed to provide.
Finally, while restrictive covenants are intended to protect the interests of property owners and preserve the character of residential neighborhoods, the increasing willingness of the Upper Tribunal to modify these covenants for commercial uses raises questions about the continued effectiveness of this protection.
These contradictions highlight the need for a more coherent and integrated approach to children's social care provision, property rights, and community interests.
Conclusion: Balancing Competing Interests
The Coven Care Homes case represents a significant development in the interpretation and application of Section 84 of the Law of Property Act 1925, with far-reaching implications for residential communities, the children's care sector, and local government finances.
While the provision of appropriate care for vulnerable children is undoubtedly a social good, the current system, characterized by private equity involvement, profit-driven decision-making, and the modification of restrictive covenants to facilitate commercial operations in residential areas, raises serious concerns about whether the best interests of children, communities, and taxpayers are being served.
The case highlights the need for a more balanced approach that respects the distinct roles of planning law and property law, protects the character of residential neighborhoods, ensures the quality and appropriateness of children's care provision, and addresses the financial sustainability of local authority children's services.
As the children's social care market continues to evolve, and as legal precedents like Coven Care Homes shape the landscape of property rights and commercial use, policymakers, regulators, and the courts must grapple with these complex and often competing interests to develop a more coherent and effective framework for meeting the needs of vulnerable children while respecting the rights and interests of communities and property owners.
The challenge lies in finding this balance – ensuring that children receive the care they need, in appropriate settings close to their support networks, without imposing undue burdens on local authorities or undermining the residential character of neighborhoods through the erosion of protective covenants. The Coven Care Homes case, while resolving a specific dispute, raises broader questions that will require careful consideration and potentially legislative reform to address effectively.
The property at 2 Redwing Close was a four-bedroom house in a cul-de-sac of four similar houses on a small residential estate in Hammerwich, Staffordshire. The property was one of 20 detached homes completed in 1988. In January 2023, the current owner let it to the applicant, initially for a term of six months, but subsequently for a further term of two years from 30 June 2023. The applicant ran two small care homes for children with learning difficulties and complex needs, each registered with Ofsted, the body responsible for standards in children's homes, to provide care for up to two children aged between 7 and 18.
The application is made under section 84 of the Law of Property Act 1925, specifically grounds (aa) and (c). Under ground (c), the applicant must demonstrate that modifying the covenant would not cause injury to those entitled to its benefit.
The Upper Tribunal shall have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction on being satisfied: (a) that by reason of changes in the character of the property or the neighbourhood or other circumstances of the case which the Upper Tribunal may deem material, the restriction ought to be deemed obsolete, or (aa) that in a case falling within subsection (1A) below the continued existence thereof would impede some reasonable user of the land for public or private purposes or, as the case may be, would unless modified so impede such user; or (b) that the persons of full age and capacity for the time being or from time to time entitled to the benefit of the restriction, whether in respect of estates in fee simple or any lesser estates or interests in the property to which the benefit of the restriction is annexed, have agreed, either expressly or by implication, by their acts or omissions, to the same being discharged or modified; or (c) that the proposed discharge or modification will not injure the persons entitled to the benefit of the restriction
Section 84 of the Law of Property Act 1925 ('the Act') allows a property owner to apply to the Upper Tribunal (Lands Chamber) for the modification or discharge of a restrictive covenant. The Tribunal may grant such an application on several grounds, including: 1. Obsolete Covenants: Where the covenant is deemed obsolete due to changes in the character of the property or the neighbourhood; and where the covenant 2. Impeding Reasonable Use: Where the covenant unreasonably impedes the applicant's use of the land and does not provide practical benefits of substantial value or advantage. This is known as ground '(aa)' for reasons which will become relevant when we get into the detail in Devine
The Upper Tribunal (UT) has modified a restrictive covenant to allow a house to be used as a residential care home. The house was on a small residential estate. All the houses on the estate were bound by covenants restricting their use to private dwellings and prohibiting the carrying on of any business or trade. After it was let to a care home company, the house began to be used as a home for up to two children with learning difficulties. The owners of a number of houses on the estate objected to the application. They raised concerns about an increase in traffic and parking issues due to the number of staff visiting the property. They also argued that discharging the covenant might result in development of the house or a change in the activities it was used for. It was suggested that allowing a business to be run from the house would set a precedent that might significantly alter the character of the neighbourhood.
In Muskwe & Another v Cochrane [2023] UKUT 00262 (LC), the Upper Tribunal (Lands Chamber) has modified a restrictive covenant not to use the property other than as a single private dwelling house, such as to enable the property to be used as a residential care home. The Applicants were the freehold owners of a residential property in Braintree, Essex. They worked within the childcare sector and wanted to use the property as a residential care home for up to four children/young persons. The property was subject to two restrictive covenants, one from 1997 not to use it "other than as a single private residence", and one from 2000 not to use it "other than as a single private dwellinghouse with usual outbuildings". In 2020, Braintree District Council granted planning permission for a change of use from residential dwelling (C3) to a residential care home (C2) for up to four children/young persons and the Property was used as a care home for two children from January 2022 until November 2022 in breach of the restrictions.
The Upper Tribunal heard evidence that a large number of properties in that part of Essex are used as dwellings for assisted living for adults and children and it is not uncommon for properties to be used in the area as care homes, some without the need for a planning application. The Tribunal also heard expert valuation evidence that changing the Property to Class C2 use would have no impact on the value of the respondent's property. The Upper Tribunal found that ground (aa) was made out and the Tribunal exercised its discretion to modify the restriction as it impeded a reasonable use. The Tribunal also found that ground (c) was made out because the proposed modification would not injure the Respondent or the neighbourhood. This case will be of particular interest to those who operate residential care homes, as it is often the case that properties that may be otherwise suitable for such use are subject to restrictive covenants not to use the property other than as a single private dwellinghouse.
The Upper Tribunal (UT) recently granted modification of a restrictive covenant to allow a house to be used as a children's care home. The house was on a small residential estate. All the houses on the estate were bound by covenants restricting their use to private dwellings and prohibiting the carrying on of any business or trade. After it was let to a care home company, the house began to be used as a home for up to two children with learning difficulties. The company applied to the UT under Section 84 of the Law of Property Act 1925 to modify or discharge the covenant to allow the use to continue. The owners of a number of houses on the estate objected to the application. They raised concerns about an increase in traffic and parking issues due to the number of staff visiting the property. They also argued that discharging the covenant might result in development of the house or a change in the activities it was used for. It was suggested that allowing a business to be run from the house would set a precedent that might significantly alter the character of the neighbourhood.
One of the UK's biggest private fostering firms more than tripled its profits last year as it continued to cash in on the crisis in children's social care. Profit before tax at Compass Community Ltd, which is owned by private equity firm Cap10 Partners, soared to £10.8 million for the year to March 2024, up from £3 million the year before, according to recent accounts filed with Companies House.
Private fostering agencies make money by charging local councils for placing children in foster homes. Industry sources say their fees are double or triple what the cost would be if councils were to make their own placements. Profit-making agencies are contracted by the state to recruit and train foster carers. These carers must undergo an assessment, a home visit and final checks from a fostering panel. They are then matched with a child based on the carer's preferences, experience and training. About 57,000 children in England are in foster care.
Some of England's biggest privately-run children's homes have raked in more than £95million in profit in the past three years, The Mail on Sunday can reveal. The firms, which have been draining millions from the budgets of cash-strapped councils, include outfits controlled by private equity firms, as well as the daughter of a former City stockbroker linked to fraud.
Data from regulator Ofsted shows private firms dominate the sector, with 83 per cent of children's homes under their ownership. The draw is that the industry is lucrative. Last year, a report by news website This House revealed that the average cost of placing a child in care was £281,000 a year, five times that of keeping an adult in prison. It followed a 2023 report from the Local Government Association that showed some councils were paying as much as £63,000 a week to keep a single child in care.
The Department for Education (DfE) announced new rules and expanded powers for Ofsted to 'crack down on exploitative children's care providers'. These powers include the ability to issue civil fines to providers. Under the new regulations, key placement providers will be required to share their financial information with the government, a move designed to 'challenge profiteering'. The DfE also revealed plans to introduce a 'backstop law' to cap profits if providers fail to voluntarily curb excessive earnings.
According to Ofsted data, the three largest private providers of children's homes and independent fostering agencies are CareTech Holdings, Nutrius UK Topco Ltd (Polaris), and Compass Community. Currently, over 80% of children's homes in England are privately owned, accounting for 8,791 places. Of these, CareTech Holdings operates the largest share, with 207 homes.
Conrad Hall, president of the Society of London Treasurers, questioned whether the government's reforms are tackling the 'bigger question' of the cost of placements. Based on the government's own analysis, a typical placement costing £500,000 per year includes £406,000 in operational costs and £94,000 in profit. Reducing profit margins to around 15% would lower the annual cost to approximately £470,000. Hall added: 'My bigger question is whether, as a nation, we think a placement for a single child costing £470,000 per year is something we find desirable and affordable.'
Planning permission is a crucial aspect of property development in the UK. However, obtaining planning permission may not necessarily override a restrictive covenant. A restrictive covenant is an agreement between parties that restricts the use of a property. In this comprehensive UK guide, we will explore the intricate relationship between planning permission and restrictive covenants.
National pressures on housing growth, and the importance for local planning authorities to identify deliverable five-year supply of housing sites, have seen significant changes in the residential pattern and characteristics of towns and villages. This inevitably leads to an increased likelihood of conflict between the private covenants prohibiting certain types of use or development and planning permissions which have determined such use or development acceptable in planning terms.
If you wish to do something on land that is subject to a restrictive covenant, be aware that planning consent does not override the terms of the covenant – they are two separate regimes. It is possible to apply to the Lands Tribunal for the restriction to be modified or discharged, providing you can demonstrate one of the statutory grounds.
When acquiring property for use as a children's home, there are several key points to consider. Buyers intending to acquire a property for use as a children's home may require planning permission. Understanding the use classes (C2 or C3) as defined by planning regulations is crucial for determining planning permission requirements. Regulations distinguish between care homes for adults and children's homes.
Years of inaction by previous Conservative Governments have led to vulnerable children feeling forgotten and councils being financially crippled. We have more children in care in this country than ever before. With more and more money following children into the most expensive part of the system, resources are sucked out of preventive services, pushing yet more young people into care. And so the vicious cycle continues: higher costs but poorer outcomes.
We will act decisively, helping children to remain close to the people who love them whenever possible, and ending the reckless profiteering of some providers. We will rebalance and stabilise the placements market, including by establishing a financial oversight scheme for the very first time. We will make the market more transparent, and we will empower local authorities to collaborate on placements, including through regional care co-operatives.
Private providers are making, in some cases, between 20% and 30% profit. That is way beyond what we would expect in any other area. Crucially, when we think about where they are making that profit, it is off the back of the trauma, abuse and sometimes very difficult early childhood experiences of some of the most vulnerable children in our country.
There are now more than 1,500 children in placements that each cost half a million pounds every single year. We have got to change that. Analysis by the Local Government Association reveals that the top 15 private children's social care providers are making an average profit of 23%. It is frankly unacceptable that private firms are profiting at all from vulnerable children, let alone when the care they provide is so often poor and is funded by public money, pushing councils to the brink.
New children's care homes are being disproportionately placed in cheaper and more deprived parts of England, according to an Observer investigation. Over the past five years the number of children's care homes located in areas with the cheapest house sale prices has risen almost three times faster than in the most expensive places. Among the regions with big increases in homes was the north-west, including in parts of Blackpool and Burnley and other northern cities such as Bradford.
The findings suggest private companies are locating homes where it is cheapest for them to do so, rather than where they are needed. The practice helps them increase profits. However, it also means vulnerable children can end up being moved hundreds of miles for a care place, splitting them from family and support networks that they rely on. Almost one in five of the care homes opened in the past decade was located in areas with the cheapest house sale prices, as opposed to one in every 17 in the most expensive areas.
A review by the Competition and Markets Authority last year found that the average operating profit per child in England was £45,000, with profit margins averaging 22.6%. 'The only thing that should guide where children in care are placed is where they can best be supported,' said Antony Higginbotham, the Tory MP for Burnley. 'In the vast majority of cases, except where there is a safeguarding need, that's in the place where they have access to friends, family and a support network. It's clear from these numbers, though, that property prices are taking priority over what is best for those vulnerable children.'
A new study by the Department of Social Policy and Intervention at Oxford University, funded by the Nuffield Foundation, has shed new light on the extent and impact of outsourcing in England's adult and children's social care sectors. Over the last 30 years, social care services for children and adults in England have been increasingly outsourced to private for-profit providers. However, regulators and commissioners tasked with ensuring quality provision have faced difficulties due to a lack of clear evidence on how these changes have affected care outcomes.
Key Findings: Dramatic increase in outsourcing: Over the past two decades, the outsourcing of residential care services to private providers has surged. In adult social care, 96% of residential services are now outsourced, primarily to for-profit providers, up by over 20 percentage points since 2001. Similarly, more than 80% of children's homes are now run by for-profit companies, a rise of over 20 percentage points since 2010.
Quality concerns: Despite the growth of private for-profit provision, public and third-sector providers consistently outperform for-profit providers on quality measures by industry regulators. Public and third-sector adult care homes and children's homes show higher regulatory inspections ratings. At the same time, for-profit operators experience more frequent involuntary closures and cancellations by the Care Quality Commission (CQC) and Ofsted.
Most residential children's social care services in England, including children's homes, are operated by for-profit companies, but the implications of this development are not well understood. This paper aims to address this gap by undertaking the first longitudinal and comprehensive evaluation of the associations between for-profit outsourcing and quality of service provision among English local authorities and children's homes.
The social care sector in England has adopted a quasi-market commissioning structure that promotes and facilitates the outsourcing of social care services to private providers. As a direct consequence, private providers have become the most prevalent supplier of both children's and adult social care services in England. Advocates argue that this commissioning system counteracts the inefficiency of state monopolies by allowing open competition in service provisions.
Our analysis shows that for-profit providers are statistically significantly more likely to be rated of lower quality than both public and third sector services. For-profit children's homes also violate a greater number of requirements and receive more recommendations compared to other ownership types. These findings are robust to model specification and consistent over the full analysed period.
The powers of the UT are important to developers because they are often key to unlocking developments of land burdened by restrictive covenants. Restrictive covenants are frequently seized on by objectors to the development who seek to use the covenants to prevent it. Invariably this represents 'round two' of a fight which began at the planning stage, when the developer has successfully faced down the 'nimbys' and has, despite their opposition, managed to secure a valuable planning permission. Establishing one or other of the various grounds set out in s.84(1) of the Law of Property Act 1925 may represent the only practical way to secure the development. The chances of buying off the objectors with an acceptable cash offer are usually slim, and by the time the Upper Tribunal application is actually made, if the cash avenue has already been explored unsuccessfully, the chances of settlement are, invariably, next to nil.
The Supreme Court in the Devine case made clear that the discretion to refuse an application should be used sparingly: 'I also accept that the Upper Tribunal in the Trustees of the Green Masjid case was correct to say, at paragraph 129, that once a jurisdictional ground had been established, the discretion to refuse the application should be "cautiously exercised"'. However, the Supreme Court also emphasized that the Tribunal '… shall have power…' to modify/discharge, but is not obliged to exercise its power. Any applicant must first satisfy at least one of the grounds under s.84(1), the 'jurisdictional' stage, before the UT must then decide whether to exercise its discretion to modify. In recent cases, the Upper Tribunal has begun to take a more nuanced approach to discretion. For example, in the Fosse Urban Projects case, the Tribunal rejected an application even after jurisdictional grounds were met, primarily due to the developer's conduct in breaching the covenant before making the application.
When faced with a restriction on freehold and sometimes leasehold land, there are certain circumstances in which the owner of the land may seek to have a restrictive covenant modified or removed. The process of modification or removal involves making an application to the The Upper Tribunal (Lands Chamber). The applicant must satisfy one of the statutory grounds on which a restrictive covenant may be discharged or modified. The statutory grounds for removal or modification are the following: 1. That the covenant is obsolete; 2. That the covenant impedes the reasonable use of the land; 3. The modification or removal would not injure those who are entitled to benefit from the restriction; or 4. Where all parties who benefit from the covenant give their consent to its modification or discharge.
In an application to the Upper Tribunal (Lands Chamber) brought by Mrs Susan Geall, the Tribunal discussed whether a restrictive covenant, which prevented the conversion of an agricultural barn into a residential dwelling, could be modified under the Law of Property Act 1925. The applicant had purchased a cottage in 1987, within the grounds of which there was a barn used for agricultural storage. The applicant wanted to develop the barn into a three bedroom property for her children and so in 2015, an application for planning permission was made. Planning permission was granted in July 2015, together with the necessary approval for a change of use of the land; however, the development could not proceed because of restrictive covenants created in the original transfer of the land back in 1987. A diminution in value in the region of 2.5% was not considered substantial and although £65,000 was generally considered a significant sum of money, it was less so when dealing with an estate worth £2.6 million. As a result, it was considered that the objectors could be adequately compensated with money and the court, therefore, used its discretion to allow the modification of clause 6.1.4 in order for the development to proceed.
This case demonstrates that landowners with the benefit of restrictive covenants are arguably becoming less able to rely on and enforce them, where a modification or breach can be compensated with money. The Tribunal will consider other factors such as how long ago the restrictive covenant was entered into, and whether the parties are the original covenantee/covenantor, but it is unlikely that those additional factors will have any significant effect on the outcome in this type of matter.