1. This is a claim for compensation in an application under Section 90(1)(c) of the Title Conditions (Scotland) Act 2003 (“the Act”). The respondent represents the majority of owners of flats in a sheltered housing development. The applicants had been the managers of the development but the majority owners exercised their new right under section 28 of the Act to replace them and appoint new managers. The majority owners then followed through the procedure (also new) under section 33 (subject to sections 54 and 55) to grant a deed of variation (“the proposed deed”) of the original Deed of Conditions (“the existing deed”). The significant effect of the proposed deed was to impose new burdens restricting the use of the warden’s flat and other ‘residual property’ to use ancillary to the sheltered flats. The ‘residual property’ had not been so burdened under the existing deed. The applicants own the residual property and applied under Section 90(1)(c) to the Tribunal for preservation of the existing deed. The Tribunal decided to refuse that application and gave reasons in an Opinion dated 5 January 2007 (“the Opinion”). In these circumstances the applicants are entitled to apply for compensation in broadly the same way, and subject to the same test, as owners of benefited property who have opposed discharge or variation of a title condition. The applicants have made such a claim on the basis that they will suffer ‘substantial loss or disadvantage’ in consequence of the variation which the Tribunal, having refused their application to preserve, will make. The proposed deed which will now be brought into effect does provide for a form of rental payment to the applicants in respect of the use of the residual property for the purposes of the sheltered flats, but the applicants claim that they will nevertheless suffer a loss. Their claim is that the capital value of the property immediately before the imposition of the new burdens exceeded its value on the basis of capitalizing the payment which they will receive under the proposed deed. They advanced three alternative figures for the capital value before the imposition, resulting in three alternative figures for their claim.
2. The Tribunal has accepted that the applicants will suffer some loss and has decided that it is just to award compensation of £9178, the lowest of the alternatives claimed.
3. The applicants are Sheltered Housing Management Limited, 13 Ward Road, Dundee (“SHML”). The respondent is Margaret Forbes Jack, Flat 8, Dunmail Manor, Dunmail Avenue, Cults, Aberdeen (“the proposer”). Details of the title position, including the salient parts of the existing deed and the proposed deed, and of the issues and earlier procedure, are given in the Opinion. A hearing on the claim for compensation took place on 14 August 2007. The applicants were again represented by Mr Clark, Advocate, and the respondent by Mr MacDonald, Solicitor. Neither side led any fresh oral evidence or asked for any additional or altered findings on the basis of the evidence previously led. Each, however, relied on further reports by the chartered surveyors who had previously given evidence, Mr MacDonald for the applicants and Mr Begg for the respondent. These reports were basically limited to the presentation of fresh calculations involving back-dating of some of the previous figures to what is now recognised as the relevant date and revising of the investment yield figures used.
4. Sections 90(6) and (7) provide inter alia as follows:-
“90(6) … an order discharging or varying a title condition may-
…
(b) where made by virtue of the refusal of an application under paragraph …. (c) of [subsection 1 above], direct the … person proposing to register the … deed of variation or discharge, to pay to any person who in relation to the title condition was an owner of the benefited property or, where there is no benefited property, to any holder of the title condition, such sum as the Lands Tribunal may think it just to award under one, or both, of the heads mentioned in subsection (7) below.
“(7) The heads are-
(a) a sum to compensate for any substantial loss or disadvantage suffered by, as the case may be-
(i) the owner, as owner, of the benefited property; or
(ii) the holder of the title condition,
in consequence of the discharge or variation;
… ”
5. The applicants’ claim is made under Section 90(7)(a). There may be room for question as to whether, in this type of case, they fall under (7)(a)(i) or (ii), but nothing turns on that.
6. The parties were agreed that at the relevant date (which was agreed to be the effective date of the proposed deed, 1 November 2005) the appropriate yield figure would be 7% and therefore that the capital value of the residual property on the basis of the rental payment (“House Managers Apartment Charge”) of £6,000 per annum under the proposed deed was £85,714. The applicants’ three alternative figures for the capital value before the proposed deed were £221,631, £150,750 and £94,892, leading to alternative claims of £135,917, £65,036 and £9178. The respondent contended that no or alternatively only a nominal award was appropriate.
British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London [1912] AC 673 (House of Lords)
Smith v Taylor and Others 1972 SLT (Lands Tr) 34
Re Gaffney’s Application, (1978) 35 P & CR 440 (Lands Tribunal, E and W)
Cumbernauld Development Corporation v County Properties Limited 1996 SLT 1106 (Inner House)
Railtrack plc, Graham group and Union Square Developments Limited v Aberdeen Harbour Board, 29.8.2002, LTS/LO/13-21,28-31
Graham v Brownson, 20.5.2003, LTS/LO/2002/28
George Wimpey East Scotland Limited v Fleming and Others, 5.5.2005, LTS/LO/2004/19
Agnew, Variation and Discharge of Land Obligations, Ch 7
7. The facts earlier found by the Tribunal are narrated at pages 11 to 17 of the Opinion.
8. The valuation evidence earlier given by Mr MacDonald for the applicants and Mr Begg for the respondent is summarized at pages 17 to 20 of the Opinion. Mr MacDonald had taken the seven elements in the residual property, viz. the warden’s flat, warden’s office, guest rooms, garage, potting shed, stores/cleaners stores and electrical stores, and valued them cumulatively on the basis of assuming no planning or title restrictions at the hearing date (August 2006) at £305,000, or alternatively, on the basis that the property was part of a sheltered housing development with an age restriction to residents aged 55 or over, at £236,500. His values for the warden’s flat and garage had been, respectively, with no restriction £160,000 and £10,000 and with such restriction £130,000 and £10,000. Mr Begg for the respondent had arrived at a cumulative valuation of £244,000/£253,000 without restrictions. His values for the warden’s flat and garage had been £175,000 and £15,000. He did not consider that the sheltered housing age restriction would reduce the value of the warden’s flat. He did, however, consider that a further planning restriction limiting use of the warden’s flat to occupation only by the warden would have an adverse effect on value as could any title restriction. He felt unable to quantify this but considered that it would be substantial and pointed to an analogy with occupation of rural dwellings being restricted to agricultural workers which he said would result in a discount of around 40%. Mr Begg had further been of the opinion that the rental value of the warden’s flat on the open market (with no age restriction), on a short assured tenancy, would be £8400/9000 per annum. Mr MacDonald had accepted that valuation as reasonable.
9. In updated evidence for this hearing, Mr MacDonald considered that the capital values of retirement homes in the area increased by around 7.5% between November 2005 and August 2006. Mr Begg’s corresponding figure was approximately 10%. Each valuer also opined that as property yields had been falling the yield figures which they had earlier used required revision upwards, and each took 7% as at November 2005.
10. In our Opinion we recorded and made certain findings on one other area of valuation evidence. Mr Rogers, an estates manager for Peverel Scotland Limited, the company appointed in the proposed deed as managers in place of the applicants, gave evidence (supplementing certain agreed facts) in relation to the percentages used in fixing house managers’ apartment charges at sheltered housing developments in the north and east of Scotland. Such charges had been incorporated into more modern sheltered housing development arrangements. A range of percentages of ‘open market sale values’, which were apparently valuations determined by the developers on the basis of no planning or title restriction on use of the warden’s flats, between 6% and 8.3%, was applied. A lower starting rate of perhaps 3.75% was sometimes taken. These charges generally applied only to the warden’s flat and not to other residual property, for the use of which residents were not charged. Mr Rogers also said that in his experience there was no meaningful evidence of open market rents from let sheltered housing units. Investors who had purchased such flats sometimes found them difficult to let.
11. Mr Clark indicated that he was not seeking to re-open matters of fact or views expressed in the Opinion, and recognised that on the Tribunal’s approach to the merits they may conclude that there was no substantial loss or damage. He accepted that the onus was on the applicants. The Tribunal had, however, in its consideration of the merits referred to the possibility of compensation if any loss could be quantified (Opinion, page 50) and the legislation allowed such a claim. He accepted that a discretion was built into the provisions. He referred to the earlier valuation evidence, the Tribunal’s views (Opinion, pages 42 to 47) and the further valuation evidence. He explained the calculations of the applicants’ alternative claims as follows:-
Mr Clark submitted that each of these alternative claims met the test of ‘substantial loss or disadvantage’. He made a brief initial submission on the Tribunal’s discretion. He adhered to the submissions he had previously made on the planning position. That was simply a question of construction of the terms of the consent, as opposed to speculation as to what it might mean. The 40% reduction was inappropriate. Asked by the Tribunal what, on the material before it, would have happened under the existing deed after the change of managers, Mr Clark accepted that there was not much evidence of that, but there was evidence of a willingness of the applicants to sell at a market value to the new managers or the flat owners. The applicants would have been entitled to sell the property on that basis, although it was accepted that there were complications in the particular circumstances. Mr Clark referred to authorities in relation to what he described as the ‘normal’ approach, i.e. a ‘before and after’ valuation approach: Agnew, Chapter 7; Smith v Taylor; Cumbernauld Development Corporation v County Properties Limited; and British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London. The Tribunal was now simply at the stage of assessing compensation and should do so on that normal basis.
12. Mr MacDonald started by recognising that there was no previous decision in relation to an unburdened property becoming burdened. In relation to section 90(6), he referred to Railtrack plc v AberdeenHarbour Board at page 13 and Agnew, 7-04. There was no distinction between the discretion whether to make an award and the discretion how much to award. In Section 90(7)(a), ‘loss’ referred to pecuniary loss and ‘disadvantage’ to loss which was not easily measurable, but not to general inconvenience. The Tribunal had first to determine whether there was any ‘substantial loss or disadvantage’; then ask whether it was just to award compensation and then, if so, consider how much. There were no statutory criteria for ‘substantial’ loss or disadvantage. Reference was made to Agnew, 7-05, George Wimpey East Scotland Ltd v Fleming at page 9 and Re Gaffney’s Application, where the distinction was made between ‘substantial’ in absolute terms and the degree of depreciation in the value of the property. Mr MacDonald submitted that in the context of the nature of the property and the capital values involved, £9178 would not amount to ‘substantial loss or disadvantage’. He went on to adopt the Tribunal’s reasoning (Opinion, page 46) in relation to aggregation of component parts of the property.
13. If there was ‘substantial loss or disadvantage’, said Mr MacDonald, it was not ‘just’ to award compensation. Five factors were relevant here: the nature of the property, which the existing deed recognised was for the communal benefit of the flats and was always used as ancillary to them; the fact that the property was acquired for no consideration and only because the applicants were the original managers, not for them to use otherwise or for separate commercial gain; the change of circumstances following which the applicants were no longer responsible for management of the development; the fact that the proposed deed provided a ‘house manager’s apartment charge’; and the fact that marketing of the development had made no mention of any alternative development or use of the property and it had been marketed on the basis of a resident warden. It would be simply unjust to require the respondent to pay compensation for using the residual property in its natural, originally intended way. There was no fetter on the Tribunal’s discretion. It was accepted that the extent of loss was a factor. The position had to be looked at in the round.
14. If the question arose as to what award was ‘just’, the same factors, except the fourth, were relevant. Assessment of compensation was not the same as quantifying damage: Railtrack at page 9. If an award was to be made, it should be at a nominal figure of £5,000.
15. On the question as to what would have happened under the existing deed, Mr MacDonald argued that there would have been a property integral to the sheltered housing development owned by a company not responsible for its management. It would not be available with vacant possession. There was no directly comparable valuation evidence. There was a question as to who would want to purchase, or rent, this property. The situation was more complicated than a ‘before and after’ approach: with the passage of time, the property might no longer be needed, e.g. if a resident warden was no longer wished.
16. In a reply, Mr Clark stressed that, as far as compensation was concerned, this was a normal context. Recognition and primacy must be given to the applicants’ entitlement to their property rights arrived at on a voluntary basis. All sorts of speculative factors might come to mind but the applicants had, before the imposition of the burden, the legal entitlement to vacant possession. The reference to the possibility of the property no longer being required ran contrary to the respondent’s whole position. The other factors referred to also did not arise at this stage. Clear evidence as to what would have occurred could be taken into account, but there was no indication in the evidence that the applicants’ legal entitlement to possession would have been frustrated. If there were clear evidence that the applicants’ occupation was temporary, that would be another matter.
17. In this rather unusual type of case, the Tribunal’s order under section 90(1), following refusal of the application to preserve the existing deed, will be to vary the title conditions by, in effect substituting the title conditions in the proposed deed for the whole of the existing deed, with effect from the effective date expressed in the proposed deed, 1 November 2005. This application has focused, both in relation to the merits and in relation to compensation, on the resultant imposition of burdens restricting the use of the residual property which was previously unburdened. The applicants claim thereby to be suffering ‘substantial loss or disadvantage’ and submit that the Tribunal should make an award of compensation. They apply what they refer to as the normal ‘before and after’ valuation approach. Parties are agreed on the ‘after’ figure, £85,714, which is the capitalized amount of the ‘house manager’s apartment charge’ fixed in the proposed deed. We have to decide whether the applicants will have suffered any ‘substantial loss or disadvantage’ and whether, applying Section 90(6) of the Act, they should be awarded compensation and if so how much. We do not require to consider any further the review mechanism imposed by the proposed deed, no point on that having been taken in relation to the compensation claim.
18. It is not in dispute that Section 90(6) involves a discretion. In Railtrack plc, the Tribunal, which was then considering the predecessor provision on compensation which was in substantially similar terms, said at page 13:-
“It is sufficient to note that a test of mere causal connection has been recognised to be insufficient in the search for justice between the parties. We, accordingly, have no difficulty in accepting that the discretion given by section 1(4) allows consideration of the fairness of imposing liability to make compensation. We are not satisfied that a distinction falls to be drawn between the discretion as to whether there should be any award, conferred by the use of the word “may”, and the discretion as to amount to be governed by the word “just”. We would, on any view, be seeking to exercise our discretion to produce a just result. No further limitation is imposed by the Act.”
We propose to follow that approach. The circumstances of that case, as they bore on compensation, were unusual. The same can be said in the present case although it arises in a very different type of situation. As it seems to us, each case threw up the issue whether in the particular circumstances it could really be said fairly that the claimants were suffering loss (by, in one case, the removal of a title condition and, in the other, the imposition of a title condition) when fair regard was had for the position before the removal or the imposition. The discretion is accorded to the Tribunal in the context of the assessment of loss. We do not consider that the Tribunal in Railtrack plc was simply asking, in the broadest sense, whether it was fair in the circumstances to award compensation. Similarly, in the present case we do not think our task is simply to look at the whole circumstances and decide whether we think it would be fair to award compensation.
19. In our earlier opinion, we drew attention to three notional stages: firstly, while the applicants were managers, with of course the existing deed applying (‘Stage 1’); secondly, after the applicants ceased to be managers, but with the provisions of the existing deed, essentially the lack of any burdens on the residual property, still applying (‘Stage 2’); and thirdly, under the proposed deed, under which the residual property is burdened and required to be used for the purposes of the sheltered housing development (‘Stage 3’). The applicants’ approach is to compare the value at ‘Stage 2’ with the value at ‘Stage 3’. Parties are agreed on the ‘Stage 3’ value. In reaching our decision on the merits, we took the view that in our consideration of factors to which the Act requires us to have regard, in particular the purpose of the condition and changes since the condition was imposed, we should properly look at the original position. In other words, under the statutory test, the picture at ‘Stage 1’ had some relevance to the issues under Section 98(b) in the same way as the original purpose of the title condition, and any relevant changes since its creation, are relevant to the issue under Section 98(a) in ordinary applications for discharge or variation. In both cases, however, the issues on the merits are decided in the knowledge that there is power to award compensation in the event of the decision causing the benefited proprietor substantial loss or disadvantage. No doubt it can be said that the new deed merely regularizes the old reality, and we certainly have considered how realistic it is to think of a different use of the property at ‘Stage 2’. However, in assessing whether the applicants are suffering a loss for which they should be compensated, we do not think that consideration of the historical background is as important as looking to see what can be said about the value of the property at ‘Stage 2’, which can then be compared with the value at ‘Stage 3’.If, on such an approach, we arrive at a positive figure, we should still ask ourselves at the end whether it is just to award that (or any other) figure.
20. Some factors relied on by the respondent seem to us to be of limited, if any, relevance. For example, the fact that the applicants obtained ownership of the property without giving any consideration may be thought relevant to the question whether this property really has any positive value, but we think it would be wrong to give weight to any view that because they paid nothing for the property and it was not transferred to them with a view to any purpose other than to enable them to manage the sheltered flats it would not be fair to award compensation now.
21. We accept that the issue is to be approached on the basis that the applicants were, before the new deed, entitled to vacant possession. We also see no reason not to proceed on the basis of division of the property and aggregation of values, if the separate parts truly had value. However, it seems to us important to consider the reality of the situation at ‘Stage 2’. We consider the ancillary nature of the residual property to be highly relevant. We referred to this in our earlier Opinion (at page 35) and expressed doubt as to whether a valuation approach based on ‘divorcing’ the property from its use as ancillary to the flats was appropriate.
22. The ‘Stage 2’ capital valuations before us are on the hypothesis of use other than for the purposes of management of the sheltered flats. There is no evidence of any such other use ever having taken place anywhere. We have not been provided with any evidence that sheltered flat owners anywhere pay for the communal use of residual property other than the warden’s flat. Nor is there any indication of any such property ever having been separately purchased by the flat owners to secure the communal purpose. We see no reason to depart from the view which we previously expressed that the parts other than the flat and the garage are of such an ancillary nature as to have no real value which the applicants are losing.
23. We do accept the possibility, at ‘Stage 2’, of occupation of the warden’s flat other than for the communal purposes, but we would express caution in relation to capital valuation of the warden’s flat on that basis in the circumstances of this case. This is not a case in which the residents have agreed to dispense with the services of a resident warden and therefore to change the arrangements in relation to the warden’s flat. To the contrary, the vast majority at least of the residents wished at the relevant date to continue to have a resident warden and wanted that secured on a long term basis. Occupation of the warden’s flat at Dunmail Manor in November 2005 in the circumstances prevailing would seem quite problematic. It was equipped with the means of communication with all the flats. There might be a question as to the extent of the occupier’s rights in the circumstances in relation to the rest of the building and its management. How such problems would, hypothetically, be resolved, has not been explained. We can accept the possibility that a tenant might live with such concerns, but we would have thought that they would be a serious negative consideration for a potential purchaser. Anyone considering buying into such a situation would surely be advised of potential problems. We think it more likely that the owner would reach agreement with the residents for a continuation of the natural use of the warden’s flat. In the negotiation of the terms of any such agreement, the owner might properly point to the possibility of sale as another sheltered flat but the residents might equally properly refer to the uncertainties facing any potential purchaser of that kind. We also think that agreement with the residents on, in effect, a rent payable along with the management charges would be rather more likely than a sale. We are therefore very doubtful about capital valuations of the warden’s flat based on comparison with sales of either ordinary flats or ordinary sheltered flats.
24. We see the situation of the garage differently, as we can well imagine it being either rented or sold, even with a restriction to use by a resident over 55, and have no difficulty in taking it at a full value.
25. All of this look at what we see as the realities of the situation reinforces the view which we expressed previously (Opinion, page 46) that the valuation exercise in the present case may be the wrong way round. The residual property might at ‘Stage 2’ be seen as more akin to a property investment valued by the application of an appropriate market yield to the rent, as has been done by the parties at ‘Stage 3’.
26. We turn to our assessment of the applicants’ three alternative claims. For reasons which we have already covered , we reject the first alternative figure of £135,917. We do not consider that the applicants have established any value at ‘Stage 2’ for any of the residual property apart from the warden’s flat and the garage.
27. The second alternative figure of £65,036 proceeds on valuations of the warden’s flat and the garage at ‘Stage 2’, each on the basis of accepting a restriction to occupation by persons over 55 but no other discounting of value. As we have indicated, we can accept this approach to valuation of the garage, which is not disputed by the respondent’s valuer, who, indeed, values it higher. As we understand it, the applicants take in a mid-point, as at the valuation date, of £11,125. We can accept that figure. We do not, however, accept the valuation of the warden’s flat at the mid-point of the two capital valuations (Mr Begg’s again higher) of £120,250 and £159,000, each of which reflects an age restriction but no other uncertainties. We do not think such valuation reflects the reality of the situation with which we are dealing here. The applicants argue, as a matter of construction of the planning consent, that there is no condition requiring this flat to be occupied as a warden’s flat. No doubt that is arguable, and we can certainly appreciate the view that whatever the correct construction the planners would be unlikely to consider enforcement in the case of use of this flat as another sheltered flat. So there are valuations which at first sight show the extent of the applicants’ loss on the basis of a possible use. In our view, however, on any fair view, the realities which we considered above must be taken into account. There is no established practice for valuing a warden’s flat used as such on a direct capital basis. There is no indication that anyone has ever purchased, or even occupied, a flat in a situation like this. The market envisaged seems to us in the circumstances to be somewhat speculative, almost theoretical. We consider that in the real world the market would have taken the view that whilst the titles permitted the owner to sell on the open market (albeit with acknowledgement of the age restriction) the practical reality would be restricted to occupation by the warden. The likelihood in our view is that demand for the flat would only be envisaged to come from the residents for use as a flat for their warden either on the basis of lease or purchase, and more likely on the basis of lease. We are not persuaded that the applicants could have sold this particular flat at the figure envisaged.
28. Moreover, there is a large gap between these valuations and the maximum capital figures which would be derived by applying the agreed yield percentage, 7%, to rental values. We earlier arrived at a figure of £6,000 to £8,000 as a range for the fair rental value of the whole of the residual property in November 2005. We set out how we arrived at this range of figures in our earlier Opinion, particularly at pages 46 and 47. The applicants at this hearing made no attempt to establish any different figure or even where in the range the correct figure might lie. Taking a mid-point, £7,000, gives a capital valuation of £100,000, i.e. £14,286 more than the capitalization of the secure annual payment fixed in the proposed deed. Even at the top figure of £8,000, the claim would only be £28,571, still well short of this claim of £65,036. We in fact note that Mr MacDonald in his further report did set out another alternative claim of £28,571 on this basis, but he did not explain why the upper figure would be appropriate and Mr Clark did not place any reliance on it.
29. We appreciate that there is an agreed rental valuation of the flat on the basis of a short assured tenancy assuming an unrestricted residential market in the range £8,400 to £9,000, figures which have not been back-dated to the relevant date but which do not include the garage. Capitalising those figures would give a higher range of values. However, we are not at all sure that comparing this with the likely basis of an agreement with the residents is comparing like with like, particularly in relation to the allocation of repairing and insuring obligations and the security of the covenant. Closer consideration of the appropriate yield figure would also be required: while we are prepared to apply the figure of 7% agreed by the parties in relation to the payment under the proposed deed, we are not at all sure that the same figure would apply to rent under a short assured tenancy. Again, the applicants, on whom the onus lies, did not seek to base their claim on any reliance on these rental figures.
30. In the result, we are unable to hold the claim of £65,036 to be established. The third alternative claim, £9178, is in a different position. Although we have our doubts about the valuation approach, this claim rests on discounting the capital valuation of the flat (not the garage) by 40%. That particular figure has a very uncertain basis, since it proceeded on an assumption that the planning consent restricted use of the flat to use as the warden’s flat and, further, on a very broad comparison with dwellinghouses for persons engaged in agriculture. Nevertheless, it is a substantial discount, which can, we think, be said to make full and fair allowance for the uncertainties surrounding valuation of the warden’s flat. Mr Begg in his further written report gave figures on the basis of higher discounts of 50% or 60%, but his opinion did not go beyond asserting that the effect of the planning restriction would “certainly be greater than 40%”. Mr MacDonald did not press this opinion on us and we do not find it to have any support. We have wondered whether 40% might be too large an allowance in the light of the probable practical planning position, but in all the circumstances think it fairly reflects the overall situation. This is, after all, basically a warden’s flat which has never been occupied in any other way. The figure of £14,286 derived from the mid-point of our attempt at rental valuation provides a form of check. This figure of £9178, although arrived at in a different way, fits in with our assessment on the evidence led at the hearing on the merits: the applicants have not persuaded us that a different level of loss can fairly be said to have been suffered, but we can be satisfied of this figure.
31. We reject the respondent’s submission that a loss of £9178 would not be ‘substantial’. Mr MacDonald referred us in this connection to Re Gaffney’s Application, in which the Lands Tribunal for England and Wales made certain observations about ‘substantial’, not in the context of assessment of a monetary award but in connection with an issue on the merits under the applicable legislation, as to whether the condition in question conferred benefit which was of ‘substantial value or advantage’. It is not clear to us that the same reasoning necessarily applies to the question whether a substantial loss has been suffered: the Tribunal said in that context that it was not a sum of money which had to be ‘substantial’ but the ‘value or advantage’. We can certainly see that in the assessment of ‘substantial’, for which, as Mr MacDonald said, no statutory criteria are supplied, the degree of depreciation in the value of the benefited property may often have a bearing and may help in assessing whether there is a loss of real practical significance, but we do not think that it should be seen as an absolute rule in the application of Section 90(7). Even, however, if we ought only to look at the degree of depreciation, we are satisfied in this case that a reduction of £9178 in a value of £94,892 represents a substantial loss to the applicants. We would mention that in one decision of this Tribunal, to which parties did not refer, viz. Graham v Brownson, a submission, under reference to Re Gaffney, that a 5% depreciation in the value of a building worth around £100,000 was not substantial was rejected.
32. We would also mention that Mr MacDonald referred to some possible relevance of, in effect, reversion to the applicants if in the future any of the property (particularly the warden’s flat) was not required for the purposes of the development. Again, we touched on this possibility in our consideration of the merits (Opinion, page 43), because it seemed relevant that that eventuality could easily be catered for as it would clearly be unfair for the flat owners to take the benefit of that. We do not, however, consider that this is material to the issue of compensation. We have not been provided with any valuation evidence to the effect that such a reversionary right adds to the value of the residual property, which will now be burdened in perpetuity, at ‘Stage 3’. Moreover, while that eventuality is obviously possible, it is, on the evidence (particularly the evidence led for the respondent) unlikely.
33. Finally, it seems appropriate in this case to ‘stand back’ and ask ourselves whether, in the circumstances of this case, an award of compensation at this level in favour of the applicants and against the respondent, is ‘just’. We think it is. The respondent and the large majority of the flat owners who proceeded with this deed burdening this property clearly recognised that it would be appropriate to pay a substantial sum, in the form of a continuing payment in the nature of a rental payment, for the use of the residual property for the purposes of the sheltered flats. We have found the payment to be slightly too low to compensate the applicants for the loss involved to them. There is no criticism of the majority, and indeed it is consistent with the evidence which we heard in the first hearing that if there had been an attempt at the consultation stage to seek a higher figure the applicants may well have been offered slightly more, as the figure inserted in the deed was not based on any formal valuation and may almost have been seen as a starting figure. Divided among the other 43 flat owners, or even only among the majority who entered into the deed, the figure will involve a relatively modest one-off payment by each proprietor. They bought the flats with a title which was not adequate, in the event of a change of manager, to secure the use of the residual property for the purposes of the sheltered flats and it would be reasonable to expect to incur some expense in putting that matter right. On the other side, there is a party who is suffering a loss which we have assessed at £9178
34. Reviewing again the factors referred to by the respondent in relation to the question whether it is just to award compensation, we feel that we have adequately reflected these. The more general arguments seem to come down to a plea that the applicants should not receive a ‘windfall’ because they were never intended to obtain any separate commercial gain. No doubt the primary intention was that they would remain as managers, but as we mentioned in our Opinion (page 39) one possible view of the purpose of the provisions in the existing deed was that it was to secure the property for its owner in the event of a change of management. We have found, applying the statutory test, that the proposed deed undoing these arrangements is fair, but the Act also provides for compensation if this causes substantial loss. We have endeavoured to guard against an award of compensation which ignores the actual situation of this property. Having done so, we see no reason to refuse the claim or reduce it further. We would, however, mention that if we had taken a different view on the applicants’ first alternative claim and assessed a loss of £65,036, i.e. accepting that the warden’s flat could be valued simply on the basis of use as another sheltered flat, we would not have accepted that as a ‘just’ award, because it would not seem fair in all the circumstances to base an award on a hypothetical situation so completely different from the basis on which the existing flat owners purchased.
35. There is admittedly a slight procedural problem in so far as the statutory procedure may result in the respondent being the individual against whom the award will be made. However, she is not obliged to consent, i.e. she has the option of not proceeding further with the proposal to register this deed, and presumably will only do so following such procedure as is necessary to secure the position.
36. For these reasons, we shall direct the respondent to pay the applicants compensation in the sum of £9178. As mentioned, the respondent need not consent (Section 90(9)), and can alternatively choose not to proceed with the proposed deed. At the hearing, Mr MacDonald requested time to consider the technical position as to who would be liable in the event of an award being made. We do recognise that this is the first case of this kind, and if the respondent requires to make any further submission on this, she may do so, in written form.
37. Finally, we note that there appears to be agreement on both sides with the Tribunal’s draft Order implementing our decision on the merits; and also that any motions in relation to expenses can now be addressed in written submissions.
| Representation: | ||
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| for the applicants: | Mr A M Clark, Advocate, instructed by Messrs Miller Hendry, Solicitors, Dundee | |
| for the respondents: | Mr K J MacDonald, solicitor, Messrs Paull & Williamsons, Solicitors, Aberdeen | |
| Heard: | 14 August 2007 | |
| Sitting: | J N Wright, QC I M Darling, FRICS |
|
| Decision issued: | 11 October 2007 | |
LTS/TC/2006/01
Certified a true copy of the Opinion of the Lands Tribunal for Scotland intimated to parties on 11 October 2007.
N M Tainsh – Clerk to the Tribunal