This is an application under Sections 34(3) and 90(1)(c) of the Title Conditions (Scotland) Act 2003 (“the Act”) to preserve unvaried the title conditions in a 1986 deed of conditions in relation to a sheltered housing development. The applicants were the managers of that development; they were the superiors; and they are the owners of ‘residual property’ including the warden’s flat, warden’s office, guest bedrooms and other facilities in the building. A two-thirds majority of the flat proprietors have, however, exercised their right under Section 28 of the Act to appoint different managers and have also executed a new deed replacing the deed of conditions. This ‘proposed deed’ sets out a new set of conditions bringing the title position up-to-date and changing the basis of arrangements between the managers and the flat owners. Generally, the applicants do not object to these parts of the proposed deed. They do, however, object to new provisions restricting the use of the residual property owned by them to use ancillary to the sheltered flats. That property was previously unburdened. They also complain of the level fixed in the proposed deed of a ‘rental’ payment by the flat owners to them in respect of use of their property. The applicants submit that certain of the burdens sought to be imposed are not valid real burdens or ‘community burdens’, making the deed and the procedure to impose it incompetent. They also invoke the tests set out in Section 98(b) of the Act for preserving the existing deed. The respondent is the ‘proposer’ of the new deed, being a representative flat owner who is also a resident and the Chairman of the Residents’ Committee.
In short, the Tribunal has decided that the proposed deed does create valid real burdens which are ‘community burdens’ and is competent; and that the applicants have failed to establish either of the conditions in Section 98(b). The application for preservation accordingly fails.
The applicants are Sheltered Housing Management Limited, 13 Ward Road, Dundee (“SHML”). They are proprietors of a warden’s flat, warden’s office, guest bedrooms, a garage, potting shed and certain store rooms, etc. (all described as the “residual property”) at a sheltered housing development known as Dunmail Manor, Dunmail Avenue, Cults, Aberdeen. Their subjects are registered in the Land Register of Scotland under title number ABN 73794. They were also until 28 November 2004 superiors of all the property at the development. The ‘existing deed’ is a Deed of Conditions by Esson Properties Limited (“EPL”) dated 26 September and registered in the Division of the General Register of Sasines for the County of Aberdeen on 20 November 1986. The respondent is Margaret Forbes Jack (“the proposer”), Flat 8, Dunmail Manor, who intimated a proposal under Section 33 of the Act to register a deed of variation or discharge of community burdens contained in the existing deed. This ‘proposed deed’ imposes new burdens.
The Tribunal heard evidence on 21 to 23 September 2006 and inspected the property and heard legal submissions on 2 October 2006. Parties also entered into a Joint Minute agreeing certain facts. The applicants were represented by Alistair Clark, Advocate, instructed by Messrs Miller Hendry, Solicitors, Dundee, who called the following witnesses:-
The respondents were represented by Mr Kenneth J MacDonald, Solicitor, of Messrs Paull & Williamsons, Aberdeen, who called the following witnesses:
The representatives helpfully provided the Tribunal with, and exchanged, written outlines of their submissions in advance of the hearing of submissions.
Parties were agreed that following the abolition of the feudal system of tenure the existing deed was now partly unenforceable but was also partly still enforceable. However, it was not considered necessary to explore the precise extent of such enforceability, and the Tribunal has not expressed any opinion on that in this particular case.
The preamble of the existing deed narrates the granters’ ownership of the ground and then narrates inter alia:-
“CONSIDERING that we have erected or are about to erect on the said area of ground a Sheltered Housing Development (hereinafter referred to as ‘the Development’) comprising sheltered flats (as hereinafter defined), Warden’s Office, Warden’s flat, Common Room, Kitchen, Toilets, Guest Rooms, Stores and such other structures and facilities considered necessary by us for the communal benefit of the proprietors of the sheltered flats, together with such roads, car parking areas, footpaths, landscaped amenity areas, paved areas and others as are considered necessary by us; FURTHER CONSIDERING that we are about to feu off the individual sheltered flats into which the said Development has been divided and that we are about to execute Feu Dispositions in favour of the Feuars (as hereunder defined); FURTHER CONSIDERING that it is our intention when the Development is completed and all the sheltered flats are feued off to convey any remaining parts of the Development and the Superiority of the Development to Sheltered Housing Management Limited incorporated under the Companies Acts and having their Registered Office at Thirteen Ward Road, Dundee so that they shall administer and manage the Development (we and our successors being hereinafter referred to as ‘the Superiors’); and CONSIDERING that we intend to enter into a contract with the said Sheltered Housing Management Limited to administer and manage the Development on our behalf until such time as the said Superiority and others are conveyed to the said Sheltered Housing Management Limited …”
The provisions of the existing deed are summarised as follows:-
(Clause First) Sheltered flats to be occupied only by persons over 55 years or as allowed by Superiors;
(Second) Various burdens and prohibitions, e.g. no sub-division and no additions or alterations without Superiors’ consent; no trade, business or profession; no nuisance or disturbance; no livestock and no more than one dog or cat;
(Third) Extent and definition of common property;
(Fourth) use of ground not occupied by buildings, prohibition of plates, advertising notices, etc; no vehicles within amenity ground, etc.
(Fifth) free ish and entry for Feuars to sheltered flats and for Superiors to residual property and common parts;
(Sixth) burden on each sheltered flat to uphold and maintain main fabric, common parts and residual property, each sheltered flat liable to one forty-third share of cost;
(Seventh) duty of Feuars to prevent damage, nuisance, hazards, infestation, etc.;
(Eighth) Superiors’ decisions on renewals, repair, maintenance, etc., final and binding, without consultation with Feuars;
(Ninth) Superiors exclusively responsible for management, maintenance and administration of development; insurance; appointment and employment of warden or wardens; payment by Feuars of monthly service charge, initially £48.92 per month reviewable by Superiors at any time on one month’s notice; Residents’ Association; warden’s duties; right of access by Superior and warden to any flat in emergency or for essential repairs;
(Tenth) Sales or disposals of sheltered flats subject to Clause (first) or otherwise as approved by Superiors;
(Eleventh) power of Superiors to alter or depart entirely, and no jus quaesitum tertio in favour of feuars;
There is a conventional irritancy clause in respect of contraventions or breach; a declaration of real burdens, and appointment to record and insert and validly refer to in all dispositions, etc.
The terms of the existing deed are incorporated by reference into the title of each of the 43 individual sheltered flats within the development.
The proposed deed is described as a ‘constitutive deed and conditions and other provisions’. It was executed by proprietors of 38 of the 43 flats and also on behalf of Peverel Scotland Limited (“Peverel”) on various dates of October and November 2005. It starts with the proposer’s certificates that the provisions of Section 34 and 55 of the Act have been complied with, and then narrates:-
“WE, the parties who have executed this deed and being not less than two-thirds of the Proprietors of the total number of units within the Development as at the last date of execution hereof, for the purposes of section 54(5)(b)(i) of the 2003 Act CONSIDERING that the provisions of the 1986 Deed of Conditions do not make adequate provision for the management of the Development, certain of the provisions of the 1986 Deed of Conditions have been rendered obsolete with effect from 28th November 2004 by virtue of the provisions of the 2000 Act and in this Deed, we wish to incorporate the core and other burdens from the 1986 Deed of Conditions which have not been rendered obsolete as aforesaid, expand upon them and to introduce new provisions for the management of the Development all in a single and comprehensive constitutive deed, therefore WE HEREBY PROVIDE …”
Clause 1, ‘Definitions and Interpretation’, includes definitions as follows:-
‘Residual Property’ is defined in line with the previous provisions, including the ‘House Manager’s Apartment and Office’, i.e. the warden’s flat and office ‘available for occupation and use by the House Manager’, and the ‘Guest Rooms’, i.e. the guest bedrooms ‘available for occupation and use by occasional visitors to and guests of the Proprietors or occupiers of Flats.’
‘House Manager’s Apartment Charge’: an annual sum payable in respect of use of the residual property to its proprietor, fixed at £6,000 from the ‘Effective Date’, 1 November 2005, reviewed for each succeeding year, upwards or downwards, by application of the Retail Price Index.
‘Common Charges’ includes all the common charges previously covered, plus the House Manager’s Apartment Charge, such contingency fund as is considered necessary by the Factor, plus any other expenses ‘which should properly be borne by all the Proprietors’.
‘Common Parts’ includes the whole development, including the common parts and the residual property.
‘Proprietor’ is defined as ‘the owner for the time being of a Flat or of the Residual Property’.
‘Factor’ means Peverel Scotland Limited (“Peverel”) or such other person or company appointed from time to time.
The deed goes on to provide:-
“The following community burdens in clauses 2 to 10 inclusive are imposed on the Development in substitution for those imposed by the 1986 Deed of Conditions.”
The provisions thus described as community burdens are summarised as follows:-
Clause 2, ‘Obligations of the Proprietors’, provides that each flat and the residual property is to be held subject to the conditions of the deed. There follows a series of obligations, mostly on the flat proprietors but some on all of the proprietors, re-stating many of the terms of Clauses (First), (Second), and (Seventh) of the existing deed.
Clause 3, ‘Residual Property, ancillary buildings and communal ground’, provides as follows in relation to use of the residual property:-
“3.1 The House Manager’s Apartment and Office shall not be used otherwise than for occupation and use by the House Manager.
“3.2 The Guest Rooms shall not be used otherwise than for occasional occupation by guests of or visitors to the Proprietors or occupiers of Flats. Such occupation of the Guest Rooms shall be on such financial terms and subject to such conditions as the Factor shall from time determine having regard to the good estate management of the Development as a sheltered housing development.
“3.3 Without prejudice to the immediately sub-clauses 3.1 and 3.2 (sic), any compartments in the Building which are not used exclusively as residences … shall be used in all time coming as ancillary buildings …”
The clause goes on to make various provisions for use of the car park, garden areas, etc. and for peaceful and quiet exercise of servitude rights of access, etc.
Clause 4, ‘Common Parts’, imposes repair and maintenance obligations on the flat proprietors; authorises the Factor to instruct such works, subject to a requirement of obtaining majority flat proprietor consent for major works; makes each flat proprietor liable to a one-forty-third share of the costs; provides that the proprietor of the residual property is not liable to contribute; and then sets out the mechanism of charging and collecting common charges, including requirements on the Factor to estimate common charges and adjust after the end of the year and to produce audited accounts.
Clause 5 provides for ‘Insurance’.
Clause 6 provides for ‘Interest on overdue payments’.
Clause 7, ‘General management and administration’, makes the factor responsible for general management and administration of the development as a sheltered housing scheme.
Clause 8, ‘The Factor’, sets out generally the Factor’s powers and discretion, and provides for replacement, and also fixing terms and conditions, etc., by simple majority of proprietors.
Clause 9, ‘House Manager’, requires the Factor to endeavour to provide and maintain the services of a full-time resident House Manager, with various provisions in relation to terms and conditions and duties.
Clause 10, ‘Voting, quorum and majority’, sets out the system of voting on matters arising, and specifically provides that the community burdens in Clauses 2 to 10 may be varied or discharged by deed under section 33 of the 2003 Act granted on behalf of owners of not less than 22 flats, or 21 if the owner of the residual property is also a granter.
Clause 11 lists ‘Servitudes’ imposed on the development, in favour of various classes of person, e.g. flat proprietors, all proprietors, flat proprietors and Factor, etc.
Clause 12, ‘Appointment of Factor’ narrates the termination of the appointment of SHML as manager and appointment of Peverel and that Peverel have executed the deed signifying their acceptance of appointment on the terms and conditions of a relative Management Agreement.
Section 1 of the Abolition of Feudal Tenure Etc. (Scotland) Act, 2000, abolished the feudal system of land tenure with effect from 28 November 2004. Section 17 of that Act extinguished superiors’ rights, subject to various provisions of that Act and the Title Conditions (Scotland) Act 2003 in relation to enforceability and interpretation of existing deeds.
Section 3(6) of the 2003 Act provides:-
“(6) A real burden must not be contrary to public policy as for example an unreasonable restraint of trade and must not be repugnant with ownership (nor must it be illegal).”
Parts 2 and 4 of the 2003 Act contain a number of provisions in relation to ‘community burdens’, including the following:-
“25 (1) Subject to subsection (2) below, where –
(a) real burdens are imposed under a common scheme on two or more units; and
(b) each of those units is, in relation to some or all of those burdens, both a benefited property and a burdened property, the burdens shall, in relation to the units, be known as ‘community burdens’.
(2) Any real burdens such as are mentioned in section 54(1) of this Act are community burdens.”
“26 (1) Without prejudice to section 2 of this Act, community burdens may make provision as respects any of the following –
(a) the appointment by the owners of a manager;
(b) the dismissal by the owners of a manager;
(c) the powers and duties of a manager;
(d) the nomination of a person to be the first manager;
(e) the procedures to be followed by the owners in making decisions about matters affecting the community;
(f) the matters on which such decisions may be made; and
(g) the resolution of disputes relating to community burdens.
(2) In this Act ‘community’ means-
(a) the units subject to community burdens; and
(b) any unit in a sheltered or retirement housing development which is used in some special way as mentioned in section 54(1) of this Act.”
“27 Where, in relation to any real burden, the constitutive deed states that the burdens are to be community burdens, each unit shall, in relation to those burdens, be both a benefited property and a burdened property.”
Section 28 confers rights on the owners of a majority of units in a community (subject to Sections 54(5)(a) and 63(8)(a)) to appoint, dismiss, confer or revoke powers, etc., on the manager of the community.
“33 (1) A community burden may be varied (‘varied’ including imposed), or discharged, by registering against each affected unit a deed of variation, or discharge, granted –
(a) where provision is made in the constitutive deed for it to be granted by the owners of such units in the community as may be specified, by or on behalf of the owners of those units; or
(b) where no such provision is made, in accordance with subsection (2) below.
(2) A deed is granted in accordance with this subsection if it is granted-
(a) where no such provision as is mentioned in subsection (1)(a) above is made, by or on behalf of the owners of a majority of the units in the community (except that, where one person owns a majority of those units, the deed must also be granted by at least one other owner); or
(b) where the manager of the community is authorised to do so (whether in the constitutive deed or otherwise), by that manager.
…
(5) This section is subject to section 54(5)(b) and (c) of this Act.”
Section 34 provides for intimation to other unit owners who did not grant a deed executed under section 33(2) of a proposal to register the deed. Any such other person may then apply to the Lands Tribunal for preservation, unvaried, of the community burden.
“54 (1) Where by a deed (or deeds) registered before the appointed day real burdens are imposed under a common scheme on all the units in a sheltered or retirement housing development or on all such units except a unit which is used in some special way, each unit shall be a benefited property in relation to the real burdens.
…
(4) Any real burden which regulates the use, maintenance, reinstatement or management –
(a) of –
(i) a facility; or
(ii) a service,
which is one of those which make a sheltered or retirement housing development particularly suitable for such occupation …;
is in this section referred to as a ‘core burden’.
(5) In relation to a sheltered or retirement housing development –
…
(b) section 33 of this Act, in relation to core burdens, applies with the following modifications –
(i) in subsection (1), the reference to varying or discharging shall, in relation to a deed granted in accordance with subsection (2) of the section, be construed as a reference only to varying; and
(ii) in subsection (2)(a) the reference to the owners of a majority of the units shall be construed as a reference to the owners of at least two thirds of the units of the development.”
Section 55 provides a requirement of ‘community consultation’ where in relation to a sheltered or retirement housing development it is proposed to grant a deed of variation or discharge under section 33(1)(a) or (2). The proposal is intimated to all the owners in the community, who have a period, not less than 3 weeks, to comment.
Part 9 of the 2003 Act gives certain powers to the Lands Tribunal. Section 90(i)(c) gives power to preserve, as mentioned in Section 34(3), a community burden. Where such an application is refused, the Tribunal is to vary or discharge the community burden accordingly. Under section 90(6) and (7), the Tribunal may in such a case award compensation.
Section 98(b) (as amended by the Tenements (Scotland) Act 2004) provides that the Tribunal is only to grant an order of preservation
“if they are satisfied, having regard to the factors set out in section 100 of this Act, that –
(b)… the variation or discharge in question –
(i) is not in the best interests of all the owners (taken as a group) of the units in the community; or
(ii) is unfairly prejudicial to one or more of those owners.”
Section 100 (a) to (g) sets out the list of factors to which the Tribunal is to have regard in determining such an application.
Moir’s Trustees v McEwan (1880) 7R 1141
Earl of Zetland v Hyslop (1881) 8R 675
George Wimpey East Scotland Limited v Fleming and Others 2006 SLT (Lands Tr) 2
Church of Scotland General Trustees v James Crawford McLaren and Another 2006 SLT (Lands Tr) 27
Ord v Mashford and Others 2006 SLT (Lands Tr) 15
Rennie, Land Tenure and Tenements Legislation (2nd Ed’n)
Reid, The Law of Property in Scotland
Reid, The Abolition of Feudal Tenure in Scotland
On the evidence, Joint Minute and submissions, and also on the basis of our visual inspection, we found the following facts admitted or proved.
Subjects. Dunmail Manor is a good quality sheltered housing development situated just off North Deeside Road in Cults, a residential area lying about 4 miles west of Aberdeen City Centre. The scheme, which was developed and built by EPL in 1986, is constructed part over 3 and part over 4 floors and comprises 9 two-bedroomed and 34 one-bedroomed units. Also within the development is a warden’s flat, warden’s office, a residents’ lounge with kitchenette, 2 guest bedrooms with ensuite bathrooms, various store rooms and cleaners’ cupboards, and a potting shed, refuse store and garage outside. There is a tarmacadamed parking area to the east and garden ground to the south and west. A local authority owned public car park lies to the north separating the subjects from the North Deeside Road. Each flat has an entrance hall, one or two bedrooms, living room, fitted kitchen and bathroom. All are wired for audio contact with the warden and there are also emergency pulls throughout each flat linked to the warden’s office and warden’s flat. A separate security phone system is installed in each flat; heating is by way of electric radiators and a lift, suitable for the disabled, serves all floors.
With each flat was conveyed a right to the common parts, the details of which are defined in the existing deed and include the residents’ lounge, kitchen, main walls, roof etc. The residual property is made up of all those parts of Dunmail Manor which had not been included in the sales to individual flat owners and comprises the warden’s flat and office, the guest rooms, the garage and potting shed together with various stores and cupboards. The warden’s flat is a two bedroomed flat situated on the ground floor. It has its own access and is a two-bedroomed flat, albeit somewhat larger than the other flats within the development. The kitchen requires some work. All the various alarms from the individual sheltered flats are connected to the warden’s flat. The warden’s office is located on the ground floor, next to the entrance foyer and close to the front entrance. It is about 10 square metres and contains all the control panels for the alarm systems serving the residents’ flats. The two guest bedrooms are furnished and each has an ensuite bathroom. They are available to rent by visiting family and friends. The rooms are used relatively infrequently and the cost of managing the rooms largely equates with the room charges to visitors. They are of particular utility if a resident is unwell for any protracted period and a friend or relative wishes to be close by. Outside there is a potting shed about 11 sq. metres and an integral garage about 18 sq metres. On each floor there is a cleaner’s cupboard complete with Belfast sink and on each floor there is an electrical cupboard with a limited amount of wall mounted switchgear.
All of the residual property has always been used for purposes ancillary to the individual sheltered flats. Warden services could be provided by a non-resident warden. The wishes of residents on this matter varies at different sheltered developments. The residents at Dunmail generally value and wish to retain the services of a resident warden. There was no indication that any resident wished to dispense with such services. The warden’s flat, although not designed as a sheltered flat, could, subject to the planning position, be let as a sheltered flat or as a flat for ordinary occupation. The garage could probably be let to one of the residents. Residents would be unlikely to be interested in lets of any of the warden’s office, potting shed and stores, etc. forming part of the residual property.
Marketing. EPL’s marketing of the flats in the development was based on a brochure describing the property and setting out the advantages of living in a retirement flat there as opposed to a traditional house. Amongst the features highlighted were, ‘Resident Warden and Deputy’. It was stated that ‘a key figure in each development is the resident Warden’, whose flat had direct audio contact with, and was linked to emergency pull cords in, each flat. The Warden would be ‘responsible for all aspects of the day to day running of the communal facilities and will prove of great assistance’. It was also stated that ‘the fully furnished guest bedrooms are available for use by visiting friends or relatives’. Another document, entitled ‘The benefits of moving to a private retirement apartment’, was circulated to potential purchasers. This also highlighted the appointment of a ‘Resident Manager’, who would be ‘on hand in case of difficulty or emergency’, etc. The first item in a summary of management services was the appointment of a Resident Manager and Relief Manager. It was stated that “the services can be varied following consultation, to suit the needs of the residents.” There was no mention of any potential alternative development or use of any of the residual property.
Management. It was never EPL’s intention to manage the development themselves. SHML were identified from the outset as managers. They advised on the appropriate arrangements but did not have any substantial input to the design of the building. They assisted in the preparation of a ‘management letter’ required by the planning authority and in the preparation of the marketing details. There was apparently no formal agreement at the outset between EPL and SHML, but it was always envisaged that there would be a management agreement; that the residual property, together with the superiority in respect of the whole development, would be transferred to SHML once all the flats were sold to enable them to operate as managers; and that the titles of the flats would be on that basis. Pro forma missives for the sale of each flat provided as follows:-
“It is understood that on the sale of the last flat in the Development the superiority together with ownership of the wardens flat, offices and the guest rooms shall be transferred from our clients to Sheltered Housing Management Limited or such nominees. The Management of the Development will be under control of the said Sheltered Housing Management Limited or other Housing Association registered under the Industrial and Provident Societies Act enforced from time to time with which the said Sheltered Housing management Limited may amalgamate or from time to time be associated.”
The first sales took place in 1986. The existing deed was also executed in 1986. The ‘Management Scheme Regulations’ referred to in the existing deed were never drawn up. It was not until 1990 that the last flat was sold. EPL delayed transferring the property to SHML because, in their view, they had not been managing the development properly. However, under threat of legal action the transfer of the residual property and the superiority, as originally envisaged, was completed in 2003 with no money changing hands, the consideration being for “certain good and onerous causes”.
SHML continued to manage the flats until 31 October 2005. The framework under which the management was carried out is set out in the conditions of the existing deed. The sheltered flat owners are responsible financially for maintaining the main fabric of the development and the common parts and also specifically the warden’s flat, warden’s office, guestrooms and stores, with each flat owner being responsible for a one/forty-third share of the maintenance costs. These maintenance costs incurred by the managers on behalf of the residents were recovered through a monthly service charge payable to Sheltered Housing Management Limited whilst they were managers. SHML had absolute discretion as to how the development was managed and the extent of maintenance expenditure. There was no requirement to prepare an annual budget and SHML had total control as to the amount of the monthly service charge payable by residents. This latter feature, which distinguished the arrangements from a ‘factoring’ arrangement under which managers act as agents for the owners, account for expenditure and charge a known management fee, was a source of friction between SHML and many of the flat proprietors.
Change in Managers. Many of the residents were unhappy with SHML’s management. They were advised that, following changes in legislation effective from 28 November 2004, there would be an opportunity to replace SHML as managers and introduce a new deed of conditions that would address the perceived weaknesses of the original deed. SHML’s interest as superiors, although not as owners of the residual property, was extinguished on 28 November 2004. The proposed deed, effectively both replacing the existing deed and exercising the power under Section 28 of the Act to terminate the appointment of SHML as managers and appoint Peverel as factors, was prepared by Paull and Williamsons acting on behalf of the respondent. A ‘Community Consultation Notice’, under Section 55 of the Act, was intimated to all the owners of the sheltered flats and to the applicants as owners of the residual property, regarded as one unit within the community, on about 9 September 2005. That invited comments by 6 October in relation to the proposed deed. Some comments were received from residents or their solicitors, but none from the applicants. The proposed deed was signed by proprietors of 38 of the 43 flats, being more than a two thirds majority of the 44 units, and by Peverel to signify their acceptance of appointment as managers. SHML was advised that their management contract would cease from 31 October 2005. There had been limited discussion between Peverel and SHML in October 2005 but no agreement on transitional arrangements were reached. Peverel took occupation of the warden’s flat and office on 1 November 2005, employing the warden previously engaged by SHML from that date, and agreed with the residents to provide their management services on the basis of the Proposed Deed of Conditions.
A draft service charge budget was prepared by Peverel which included inter alia a sum of £6,000 per annum against apartment rental, i.e. the House Manager’s Apartment Charge, the annual sum payable in terms of the proposed deed to the owners of the residual property in respect of use of all the residual property. Cheques were subsequently tendered by Peverel in respect of the house manager’s apartment charge but these were returned by SHML. There was some discussion of the possibility of an agreement for sale or lease of the residual property to the residents as a group, but no such agreement was reached. There was no consultation with SHML on the amount of the House Manager’s Apartment Charge. The figure of £6,000 was arrived at in consultation between the proposer’s solicitor and Peverel’s regional director, Jill Robertson, in July 2005. The value of the warden’s flat and office and the guest rooms, on an unrestricted basis, was thought to be around £150,000, discounted to £100,000 in view of their location within a sheltered development, and a yield of 6% per annum applied. Some evidence of sales of sheltered flats and guest room incomes, along with a notional rental for the office, was also considered. Expert valuation advice was not obtained at this time.
Planning. Conditional planning permission was granted in June 1985 for the “Erection of a sheltered housing development comprising of 43 flats plus warden’s flat, two guests bedrooms and a common room” in accordance with plans submitted. Condition 10 was as follows:-
“10. that the building shall in perpetuity be used for sheltered housing purposes only and for no other purposes without the prior consent of the Planning and Building Control Committee”
The reason stated for this condition was:-
“in order to preserve the amenity of the neighbourhood.”
Sheltered Housing Developments Elsewhere. The arrangements for the management of new sheltered housing developments similar to Dunmail Manor have developed considerably in recent years. The most prominent developers appear to be McCarthy & Stone plc. Peverel, a company which was originally but is now no longer associated with McCarthy & Stone, manage many such developments as well as other housing situations. Peverel takes on the management of sheltered housing developments on the ‘factoring’ basis, and would not take on management of such a development on the basis of arrangements such as those incorporated in the existing deed.
The pattern of ownership of common parts and ‘residual property’ differs among developments. With the exception of one unit at a development being occupied as a shop, there was no evidence of any use of such parts other than use ancillary to that of the development.
Older practice, continuing under arrangements which have not tended to be subject to alteration, was not to identify any separate charge payable by the individual flat owners in respect of the occupation of the warden’s flat to its owners, or of any of the other common property not owned by the flat proprietors. In such situations, which account for about half of the sheltered housing developments in Scotland, the developer has received no direct return for the cost of construction of these parts of the development. More recent practice has been to fix such a charge, commonly described as ‘House Manager’s Apartment Charge’, in respect of the warden’s flat. This appears to reflect a recognition of the appropriateness of showing transparently what the flat owners are paying for in the common charges. There was no evidence of any such rental charge in respect of any other ‘residual property’, but the guest bedrooms at McCarthy & Stone developments are owned by the residents.
Seven developments at which such residual property is still owned by McCarthy & Stone provide examples of the more modern arrangements. Deeds of conditions, apparently similar to the proposed deed, regulate the position. The managers of each development pay the developers as owners of the house manager’s apartment, i.e. warden’s flat, a house manager’s apartment charge. At Weavers Court in Hamilton, the charge is fixed at “such sum as represents 8.3% of the open market sale value of the House Manager’s Apartment with vacant possession as between a willing buyer and a willing seller”, subject to upwards only annual review to the higher of such value at the review date and the figure produced by applying a Retail Price Index increase. Such valuation determined by the developer is apparently carried out on an unrestricted basis, i.e. on the basis of no planning or title restriction on use of the warden’s flat. The other six of these developments have similar provisions but with a figure of 8% in place of 8.3%. Elsewhere, where such charges are payable, they range from 6% to 8.3%, often with a lower starting rate, perhaps 3.75%. The amounts of such payments range up to about £10,000 per annum.
Sheltered flats in most developments are owner occupied or occupied by relatives of owners. They tend to be more difficult to let. Investors who have purchased such flats have sometimes found them difficult to let.
Mr MacDonald is a chartered surveyor, based in Aberdeen, who has acquired extensive experience in the valuation of residential properties. He had prepared capital valuations as at August 2006, and had provided these on the basis of his assessment of the market value of the various component parts that make up the residual property. Although his valuation was on the basis of market value he had in the first instance disregarded any restriction that might arise having regard to the planning consent and had assumed that there were no title or other restrictions that would impact on value. In the past he had never been asked to value either a warden’s flat or any of the other component parts of such residual property. He did not base his values on any directly comparable property.
His opinion of value of the individual parts of the residual property contained a number of further assumptions:-
Mr MacDonald’s valuation figures were on the basis that the residual property would be hypothetically marketed as a single package albeit made up of various parts.
Mr MacDonald also prepared open market valuations taking into account the fact that the residual property was part of a sheltered housing development with an age restriction to residents aged 55 or over. He considered that this could impact on the value of some parts of the residual property but other parts, such as the garage, would be unaffected by the changed assumptions. He considered the impact of the planning consent on value but was of the view that the valuer would need to take planning advice
His current valuations are summarised thus:-
| Valuation assuming no planning or title restrictions | Valuation assuming age restriction in place | |
|---|---|---|
| Wardens flat | 160,000 | 130,000 |
| Wardens office | 30,000 | 15,000 |
| Guest Rooms | 80,000 | 70,000 |
| Garage | 10,000 | 10,000 |
| Potting shed | 5,000 | 3,500 |
| Stores/cleaners stores | 5,000 | 3,000 |
| Electrical stores | 15,000 | 5,000 |
| TOTAL | 305,000 | 236,500 |
He considered that if the residual property was let at an annual rent of £6,000 this would materially reduce the market value of the residual property. He acknowledged that the rent at that level would be well secured and a yield of around 6% would be appropriate, giving a market value, on an investment basis, in the order of £100,000. He accepted that Mr Begg’s open market rental value of £700/£750 per month, for the warden’s flat without any occupancy restriction, on the basis of a short assured tenancy, was reasonable. He also said that he had experience of rent reviews being linked to a retail price index.
Mr Begg, who is also a chartered surveyor with extensive residential valuation experience in the locality, gave market value figures on the assumption that there were no onerous title or other planning restrictions that would impact on value. However, he also considered that the current planning consent would have an adverse effect on value as could any title restriction but he felt that in the absence of any market evidence the effect would be very difficult to assess. His views on the market value of the various parts of the residual properties, assuming no planning or title restriction, may be summarised as follows:-
| Wardens flat | 175,000 |
|---|---|
| Wardens office | 6/8,000 |
| Guest rooms | 30/35,000 |
| Stores | 12,000 |
| Electrical Store | - |
| Garage | 15,000 |
| Potting Shed | 6/8,000 |
| TOTAL | 244,000/253,000 |
In Mr Begg’s opinion there was market evidence from the sale of other flats within Cults, and assuming no restrictions as to occupancy, a value for the warden’s flat of £175,000 could be anticipated. He did not consider that that figure would be affected if occupation was restricted to persons over 55. He was unable, in the absence of any market evidence, to give a figure as to the extent of any further reduction that would be required to reflect a planning restriction limiting use of the wardens flat to that very narrow use of “occupation only by the warden”. However, he considered that such a deduction would be substantial and pointed out, by way of analogy, that where the occupation of rural dwellings was restricted to agricultural workers the discount to unrestricted market value was in the order of 40%.
Mr Begg indicated that in his view if a flat, i.e. residential property, was let at a rent of £6,000 per annum the capital value on an investment basis would be in the region of £130,000/£140,000, but this would be influenced by the nature of the property and the financial status of the tenant.
He considered, again on the basis of local comparisons, that, if the warden’s flat was offered on the open market (with no age restriction), on a short assured tenancy, it would command a rent of £700/750 per month or £8,400/9,000 per annum. He accepted that this equated to a yield of around 5% on a capital valuation of £175,000.
Richard Rogers, an estates manager for Peverel, is not a valuer but is responsible for 23 sheltered housing developments located mainly in the north and east of Scotland. He spoke to the percentages used in fixing house manager’s apartment charges, on which we have made findings above. The charges varied from development to development. In his experience there was no meaningful evidence of open market rents from let sheltered housing units.
By way of introduction, Mr Clark first pointed out that the effect of granting the application to preserve would be that the burdens would not be varied or discharged in respect of the minority who did not sign the deed. Next, he summarised the applicants’ position: the existing deed, containing no burdens on the residual property, reflected the will of Esson, the granters, known to and agreed by all the initial purchasers and singular successors; the existing deed had been affected by the legislation, making much of it unenforceable by the applicants as superiors; the main reason for the proposed deed was to restrict the use of the residual property and the main reason for the application was to stop that from happening and not to challenge the appropriateness of having new provisions about management; the reasoning in reaching the figure of £6,000 for the House Manager’s Apartment Charge, imposed without discussion or negotiation, was seriously flawed; and this payment was intended to reflect the value on the basis of the proposed restrictions, an unreasonable and wrong approach. If unburdened property was being burdened on a consensual basis, it would be illogical and unfair to base the rent on the burden. The applicants would, for all time coming, not be able to use or even enter their own property. Nor could they let it. There was no mechanism for fixing a reasonable payment, nor even any provision for enforcing payment. In the particular circumstances, the applicants should not be criticised for not seeking to discuss the terms. If the £6,000 figure was flawed, there was a wrong basis for the majority vote and it could not be known whether a majority would have voted for it if the true value position had been reflected. If the majority in a development wished to ensure the presence of a resident warden, they could do so by appropriate means and on appropriate terms not involving depriving particular owners of the use of their property for all time coming. Views on the need for a resident warden might change: there was no excuse for depriving the owner of his property.
Mr Clark addressed the valuation evidence. Mr MacDonald had come down from a higher figure, and the surveyors agreed that the residual property had a substantial value on the basis that it had to be used for the purposes of sheltered housing. The warden’s flat was much larger generally than a two-bedroomed sheltered flat. The guest bedrooms could be converted for use as a sheltered flat. Condition 10 of the grant of conditional planning permission should be interpreted reasonably strictly and did not further restrict the use of any of the residual property: there was nothing requiring any particular part of the development to be used solely for a particular purpose such as a warden’s flat; no part of the residual property was mentioned in the condition, which referred to use of the building as a whole; and the reason given – preserving the amenity of the neighbourhood – had no relevance to the use of particular units for particular purposes. There was no restriction beyond that the building be used for sheltered housing purposes. Even without the other property, Mr Begg valued the warden’s flat on the basis of the restriction at £175,000. The restriction in the proposed deed would, however, as the experts agreed, blight the value of the residual property. The capital value would be very significantly reduced. In relation to rents, the fact that there was no rental payment by residents at older McCarthy and Stone developments was of no assistance. The evidence showed that the typical range of rental was 6% to 8.3% of the open market sale value with vacant possession. 8.3% was appropriate. On the experts’ range of valuation figures, the ‘rental’ figure would be in the range, £14,190 (6% of £236,500) to £23,406 (8.3% of £282,000). On any view, £6,000 was grossly inadequate.
Mr Clark developed submissions in three areas:-
(a) Competency. The purported creation of a real burden in the proposed deed was incompetent for two reasons:-
(i) The purported burdens were repugnant with ownership of the residual property. The two main substantive rights implied by ownership were the right to exclusive use and the right to use and enjoy land, including granting use and enjoyment to others. Although all real burdens interfered to some extent with property rights, the purported burdens, e.g. Clauses 3.1, 2 and 3, destroyed each of these. The clauses might correspond to the day-to-day use of the property, but not with the terms of the property rights. See Gordon, Ch. 13, particularly para 13-05,06; Moir’s Trs v McEwan; Earl of Zetland v Hislop; and Reid, Law of Property, para. 391. The McCarthy and Stone deeds were nothing like this. It was accepted that leases in shopping centres would produce similar restrictions, but these were consensual. The restrictions here were imposed, a very different situation. This sort of restriction could not be achieved by a real burden, however desirable that might be, but only by consensual mechanisms.
(ii) The purported burdens in relation to the residual property were not community burdens. Community burdens were imposed under a common scheme, each unit being, in relation to some or all of these burdens, both benefited and burdened (2003 Act, s. 25(1)).The extension in Section 54(1) to cover units used in special ways (as referred to in Section 25(2)) only applied to deeds registered before the appointed day. Section 26(2), which made new deeds similar to Section 54(1) deeds, could only apply where a community was to be found. That required the starting point of a common scheme. A common scheme, broadly, imposed the same burdens on each property, with mutual enforceability (Reid, Abolition of Feudal Tenure, para. 52.2; SE Explanatory Memorandum). The purported burdens on the residual property were not part of a common scheme and the units forming the residual property were not in any real sense benefited. Although section 27 provided that where the constitutive deed stated that any real burdens were to be community burdens, that could not sensibly be applied to these purported burdens. Section 33 could only be used if what was sought to be imposed was a community burden: most of the burdens in the proposed deed were that, but the burdens on the residual property were not, because they were not burdens under a common scheme. Further, applying Section 27 to the proposed burdens would be difficult – how could owners enforce, e.g. Clause 3.1, against other owners?
(b) Section 98(b)(i). Mr Clark referred to the proper approach of the Tribunal to assessing questions of reasonableness under the 2003 Act (George Wimpey East Scotland Limited v Fleming and Others; Church of Scotland General Trustees v McLaren; Ord v Mashford and Others). This involved consideration of the purpose of the existing deed, but the real point in issue under Section 98(b), however, was whether the imposition of the purported burdens was not in the best interests of the owners as a group. The Tribunal should simply have regard to the relevant circumstances. The interests of the majority should not be confused with the interests of the group as a whole. It might be in the interests of the majority to get the property of one of the community for substantially lower than market value, but that was not in the best interests of the group. For example, it would not be in the best interests of the group to take a property from another owner to have accommodation for a resident nurse or a handyman. If property could be taken against the owner’s will and for a grossly inadequate consideration, the majority could pick off the minority, using their property. The owners had at all material times been free to purchase the residual property or any other unit in the community on its falling vacant and use it.
(c) Section 98(b)(ii). Mr Clark submitted that the proposed variation was plainly unfairly prejudicial to the applicants. Compared to their present freedom to use their unburdened residual property for all lawful purposes, the proposed deed rendered it unusable and so financially blighted as to be unsaleable. There was clear prejudice and nothing to render that prejudice fair. In relation to the fact that the applicants had acquired the property for no financial consideration, they had done a number of things which, taken together, constituted the good and onerous causes for which the property was conveyed; and in any event, it would be irrelevant that an owner had been gifted, or inherited, property. The following specific factors were relied on:
Mr MacDonald invited the Tribunal to refuse the application without payment of compensation; alternatively, to refuse and take such steps as might be necessary to assess compensation under Section 90(6)(b) and 90(7) of the 2003 Act. He said that ‘unfairly prejudicial’ in Section 98(b) must mean something more than ‘substantial loss or disadvantage’ in section 90(7): much of the flavour of the application was that the substantial return was insufficient, but the Act envisaged an applicant not meeting the test of ‘unfairly prejudicial’ but being eligible for compensation. He submitted that the statutory regime entitled the requisite majority at Dunmail to vary the existing deed as proposed. The Act had for the first time empowered the owners of units in sheltered housing developments to change managers, and it would be perverse if it did not also enable the owners to take steps to ensure that integral parts of the development could be used as they had been before. Section 25(2) provided that any real burdens such as were mentioned in Section 54(1), which expressly referred to a sheltered or retirement housing development, were community burdens falling under Part 2. This applied even where a warden’s flat or other property used in a special way was not subject to the burdens. The provision was designed to take account of such situations. See Rennie, annotation to Section 54; Reid, Abolition of Feudal System, para. 5.4. The obligations within the existing deed qualified as community burdens, and could therefore be varied under Section 33(1). The words, ‘“varied” including imposed’ clearly envisaged the imposition of new community burdens. Further, ‘core burdens’, as defined in section 54(4), regulated inter alia management. The requisite majority had followed the prescribed route. See also Rennie, Land Tenure, para. 5-18.
In response to the applicants’ submissions, Mr MacDonald submitted as follows:-
(a)(i). It was accepted that Section 3(6) of the Act reiterated the common law. See Rennie, Land Tenure, para 5-14, Moir’s Trustees v McEwan, per, Lord Young at 1145, Earl of Zetland v Hyslop, per, Lord Young at 681. The doctrine of repugnancy dealt with absolute prohibitions, but the proposed deed did not prevent alienation, letting, incumbering with debt or the normal route of succession. The applicants could let out the investment, as in a commercial property chain. Restriction of use per se did not make the burden repugnant. Mr MacDonald listed six reported examples of restrictions on use which had come before the Tribunal without any suggestion that there was repugnancy, and also referred to Gordon, para. 13-16. Further, the original title in favour of the applicants had expressly referred to the existing deed, thus making the applicants clearly aware of the standard conditions of the sheltered housing development regime. Following the abolition of the feudal system the applicants now had a completely unburdened property which was, however, an integral part of a sheltered housing development where the units were otherwise subject to the existing deed.
(a)(ii). This criticism was met by the observations of commentators already referred to and consideration of the wide scope of the definition of ‘core burden’. See also Reid, Abolition of Feudal Tenure, para. 5-18. It was specially significant that the special property was made part of the ‘community’ in the legal sense.
(b) Section 98(b)(i). The onus of proof was on the applicants. They had focused primarily on the use restrictions and the financial return, but there were also many provisions designed to produce a far more robust scheme than hitherto. It was difficult to satisfy this test where the majority of unit owners had signed the proposed deed. There was no evidence that the proposed deed was not in the best interests of anyone other than the applicants. It was wrong just to consider theoretical possibilities. Here, the property had always been used, as originally intended, in this particular way; it was integral to the development; the applicants had only become entitled to the property because of their position as managers. An initial objection that the proposed deed required residents who became infirm to sell their property was not correct and had not been maintained.
(c) Section 98(b)(ii). Mr MacDonald submitted that the key word in this provision was ‘unfairly’: something more than prejudice or disadvantage had to be established. Parliament had chosen fairness as a criterion, freeing the Tribunal from technical considerations of legal right and conferring a wide power, to be exercised judicially, to do what appeared just and equitable. The context and background were important. This was special property in a sheltered housing development. The Act allowed the replacement of managers, and Parliament wanted to achieve good management, so democratised the right to appoint a manager. This could not be achieved if the integral parts did not continue to be used in the special way. There were no restrictions on the regime for variation. Section 33 conferred an unfettered discretion on unit owners.
The Tribunal should look at the factors set out in Section 100 of the Act. Changes of circumstances under factor (a) included changes in the law, rendering many of the conditions in the existing deed no longer enforceable and creating doubt about others. Mr Rogers had indicated that it would be difficult for Peverel to manage the development under the existing deed. The change of manager was also significant. Further, the quality of the development had deteriorated. Factor (j) allowed the Tribunal to consider the proposed deed. The applicants objected to the proposed rent figure and review mechanism, but had not indicated a level which would be acceptable to them. They had not taken advantage of the statutory consultation process. Compensation could be awarded where it was just to do so. Consideration should be given to the nature of the property and the circumstances in which the applicants became entitled to ownership, including the fact that no consideration had been paid. Little, if any, weight should be placed on their limited contribution to setting up the management. The applicants had had about 20 years to recoup any initial start-up costs.
Mr MacDonald submitted that it was inappropriate to apply open market valuation principles to the financial return to the applicants. There was no provision or indication in the existing deed that the residual property would be used for anything other than integral parts of the sheltered housing development. It had not been bought on the open market or with a view to occupation or lease for commercial gain. Weight should also be placed on the terms of the planning restriction. The evidence was that the surveyors would need to take legal advice on its effect. It would impact severely on the value. The proposed deed was compatible with it. Further, there was evidence that no charge was made for the house manager’s apartment at developments of comparable age. There was no known market for parts of the residual property. For that reason Mr Begg had not specified figures with the planning restriction in place: his figures were open market value figures without taking account of any restriction. The review mechanism did not unfairly prejudice the applicants. The deeds of conditions at other properties were all in respect of much later developments. In this context, review mechanism as in a commercial lease would be inappropriate. The Tribunal should have regard to the historical development of this sheltered housing scheme.
Mr MacDonald submitted that there was no inherent flaw in looking at the financial return on the basis of the imposed conditions, this being the correct approach bearing in mind the possibility of compensation and the test of unfair prejudice. Based on the unburdened situation, the figure would be different, but the valuation evidence involved certain open market value figures with recognition of a planning restriction and the surveyors were unable to point to a known market.
Mr Clark emphasised that there was nothing in the existing deed to preclude the applicants from selling the property, and no obligation to provide a resident warden. He pointed out that compensation had not been part of the case, and it should only be considered after applying the tests in Sections 98 and 100, if those tests were not met. The effect of the respondents’ submissions was that the residual property was ‘up for grabs’ at any figure and if the figure was wrong that would be corrected by an award of compensation. As regards repugnancy, the authorities, e.g. Gordon, loc cit, did not impose an ‘absolute’ test. None of the examples from the Tribunal’s jurisdiction involved excluding an owner from all use, occupation and power to let his property. It did not matter how desirable a burden might be in this context: if it was repugnant, that prevented it from being a real burden. The proposed deed effectively said that the owners could not exercise any rights as owners, so blighting the capital value as to make very serious inroads. There was a fundamental difference between consent and imposition. If a use restriction in relation to the January 2002 McCarthy and Stone development was repugnant with ownership, it would not be enforceable against singular successors. There was no evidence that the quality of the development had deteriorated. There was no evidence that the applicants had recouped their initial outlay over the 20 years. With regard to older McCarthy and Stone developments, that was a matter for them. On the valuation evidence, Mr Begg had valued on the basis of use for sheltered housing purposes and only been uncertain about the position if the planning restriction limited use to use as a warden’s flat.
The applicants submit that the proposed deed is incompetent because it purports to impose conditions which would not be valid because they are repugnant with ownership. The submission is focused on Clauses 3.1, 2 and 3, which would specifically restrict use of the warden’s flat and guest bedrooms respectively to occupation and use by the house manager and guests of or visitors to the sheltered flat proprietors or occupiers, and generally restrict other parts, including the remaining elements of the residual property, to use ancillary to the occupation and use of the flats. It is agreed that Section 3(6) does lay down such a requirement and that the requirement reflects common law. As we understand it, there is no suggestion of any other conflict between these burdens and public policy or legality.
Real burdens are generally perpetual in nature and therefore liable to restrict to some degree, in perpetuity, the owner’s right to exclusive occupation and use. Restrictions in the use of property which are conceived in the legitimate interests of other property owners are recognised and permitted. Cases such as Earl of Zetland v Hyslop, to which we were referred, have to do with the distinction between legitimate property interests and general social or moral interests which do not provide a legitimate basis for restricting ownership rights. The extent of interference with the owner’s exclusive enjoyment of his property will obviously vary with the terms of the restriction but will also vary with the nature of the property. Ancillary property is by its nature likely to be permanently shackled by a restriction, in the interests of the owners of the principal property, to ancillary use. It seems to us that the owners of the principal property, here the sheltered flats, have a proper and legitimate interest in establishing such a restriction, and we are not persuaded that there is anything in any way unusual or objectionable in these proposed burdens, which appear typical of modern provision in such property communities. The applicants as owners of the residual property will not be prevented from selling, or leasing, or granting security over, the residual property.
Proprietors of the sheltered flats are also bound by a use restriction, which if they are not of an age to enable them to comply, would prevent them from occupying the flats or using or letting them otherwise than for the purpose of sheltered housing, or from using the common parts which are in their (joint) ownership for purposes other than ancillary purposes.
The applicants’ real objection, as Mr Clark accepted and indeed argued, was as to the manner of creation of these burdens, by imposition rather than the consensual basis on which title conditions are normally created (albeit that they can then bind singular successors who, by taking the title, agree also to be bound). Mr Clark agreed, however, that the submission would cover similar burdens entered into on a consensual basis. Common law of course would not permit such compulsory imposition of burdens, but this legislation does do that and the application does not challenge the competency, in itself, of imposing burdens.
The applicants do, however, submit, as a further competency matter, that the power to impose depends on the proposed burdens being ‘community burdens’ within the meaning of the legislation, and submit that these burdens do not satisfy that test. We disagree. It seems clear to us that the Act’s provisions in relation to community burdens and the particular provisions which allow for specialties at sheltered or retirement housing developments can apply to the proposed deed in this case.
As we understood Mr Clark’s submission on this point, he argued firstly that the new provisions simply did not fit the concept of a common scheme and that while Section 54 dealt with such a situation at sheltered housing developments, that only applied to deeds in existence on 28 November 2004. Section 26(2) did not, he said, assist because it refers back to Section 54(1) and thus, again, only to old provisions. We do not think that this is a correct reading of Section 26(2), which refers to “any unit in a sheltered or retirement housing development which is used in some special way as mentioned in section 54(1) of this Act.” That appears to us to be a reference to the particular use situation, not to the age of the provision. Indeed, Part 2 in general, and Section 26 in particular, envisage the creation of community burdens: it would make no sense to include in that part a provision which only dealt with old deeds. The submission appears to confuse the Act’s provisions in relation to preservation of older burdens (with which Professor Reid was dealing in the passage to which Mr Clark referred) with the provisions about creation of burdens under the new rules. Certainly, it is necessary if a valid community burden is to be created in a new deed to comply with the new rules for creation of real burdens as these apply to community burdens. Subject, however, to the first competency point with which we have dealt, and provided that Section 26(2) can bring in the situation of special units at sheltered housing developments, we can see no reason why the burdens in the proposed deed should not qualify as new community burdens.
Mr Clark had a second point, to the effect that the residual property could not, under the provisions in the proposed deed, be seen as benefited as well as burdened. There would seem to be two answers to that: firstly, as the respondents argued, Section 27 provides that where the constitutive deed states that the burdens are to be community burdens each unit will be both benefited and burdened; secondly, it seems to us in any event that the provision for payment of the House Manager’s Apartment Charge is of benefit to the residual property.
Accordingly, we find the proposed deed competent.
Turning now to the merits, the issue under Section 98(b)(i) is whether we are satisfied that the imposition of the new burdens in substitution for those in the existing deed, is “not in the best interests of all the owners (taken as a group) of the units in the community.” This seems so much less likely in this particular case than a finding of unfairness to the applicants in their particular situation as owners of one of the units that neither side explored the correct approach or addressed it at length. Plainly, this issue must involve putting aside the particular interests of the applicants. Equally, the mere fact that the requisite majority has taken advantage of the statutory provision to enter into the proposed deed does not take the argument very far. Perhaps, the greater the majority, the more difficult it might be to satisfy this test, but there must always be the possibility of an objective view that even a very large majority has reached a decision on burdens which does not accord with an identified common interest of the group of owners as a whole. It is certainly possible to think of situations in which the majority may be shown not to have properly considered the interests of the whole group of property owners. A majority decision to convert the residents’ lounge into, say, some form of leisure centre, imposing the running costs on all proprietors, might be seen to pose a real threat to the future viability of the development and therefore not in the interests of the group as a whole. It is perhaps also possible to envisage one investment owner of many of the flats pushing through a deed which could be shown not to be in the interest of the group as a whole (albeit at least one other owner’s signature would have been required).
Before such a view could be reached in any particular case, it would be necessary to look at the particular proposed change and demonstrate that it was not in the best interests of the group. In our view, the applicants have failed to do that. Mr Miller made one or two points which were separate from his own interests, mainly in relation to the need for a resident warden. There was, however, no support for his evidence from either any other unit owner or any resident or any independent professional. We are unable to see why securing the warden’s flat for occupation by the warden, in line with its existing use and with the wishes of certainly the vast majority of the flat owners, is not in the best interests of the owners as a group. Standing the present prevailing wish for a resident warden, we would have thought that the continuation of a titular position under which the owner is apparently free to sell or let out that flat at a market rate (enabling him also to hold the residents, as it were, to ransom if they wished to acquire it from him) would not be in the interests of the group, either as owners or in so far as they are actually residents. The position in relation to the guest bedrooms would seem similar, and in relation to the rest of the residual property even stronger (except perhaps in relation to the garage, in which it is difficult to say that the owners as a group have an interest).
Mr Clark submitted that subjecting the property of one unit owner – the applicants – to burdens with a ‘grossly inadequate’ rental on which that owner was not consulted, would not be in the best interests of the group. These matters of course raise the issue under Section 98(b)(ii), but it was not explained to us why, in the circumstances of this case, this would not be in the best interests of the group.
We do not find this ground of the application established.
This, the main issue, focuses on the effect of the proposed deed on the applicants as owners of the residual property. A particular feature in this case is that the proposed variation involves imposition of new burdens against the will of the owner, something which the Tribunal has not previously had power to do. We also have to apply for the first time a test, new in this field, of ‘unfair prejudice’.
We should emphasise that, as always in title condition cases, our decision, on the substantial issues at least (if not on the competency issues), must be a decision on the particular facts and circumstances of the case. The particular issue raised by the applicants on the merits is whether the effect which the proposed new use burdens will have on the property is unfair in the circumstances. It should be recognised that we are not asking ourselves what would be a fair set of conditions to establish when developing a sheltered housing complex. The main question is whether particular changes proposed, following removal of the management contract from this particular owner who presently has outright ownership of the residual property, are in the circumstances unfairly prejudicial to the owner.
We of course require to consider all the applicants’ objections to the proposed deed, but it may be helpful to keep in mind two very broad aspects of the case. Firstly, is the proposed restriction on the use of the residual property (such restriction being admittedly the main purpose of the proposed deed) unfair in the situation where that property is currently in the outright ownership of the applicants to deal with it as they will subject to the planning position? Secondly, if the restriction is not in itself unfair, is the proposed provision for payment of a ‘House Manager’s Apartment Charge’ in respect of use of the residual property unfair to the applicants as owners, either because the amount is inadequate or for any of the other reasons advanced by the applicants?
On the facts which we have found, it was always completely clear until the present issue arose that all the residual property would be used for the purposes of the sheltered housing development. The flats were marketed on the basis of a resident warden. There has always been a resident warden. Further, the intention that all the residual property, including the warden’s flat, was to be used for this purpose, was specifically narrated in the existing deed, where it was indicated that that property was being transferred to the applicants “so that they shall administer and manage the development”. The conditions of the pro forma missives of sales of the individual flats by Esson to the original purchasers carry the same implication. As Mr Miller accepted, there was no reason, but for their appointment as managers, to transfer the property to the applicants.
There was of course always a possibility that there might not be a resident warden, or that the warden might be accommodated in the neighbourhood but not actually in the original warden’s flat. However, although those possibilities were canvassed to a degree in the evidence before us, we can find no suggestion that either was ever previously contemplated at Dunmail. It is not for us to judge the need for a resident warden, but we note that it was only really Mr Miller who spoke of it as something to be considered at all seriously.
Another possibility canvassed was that the flat proprietors should, since they do not own and, under the existing deed, have no control over the use of the warden’s flat, purchase a flat for the warden: either this flat, from the applicants; or one of the existing sheltered flats when it comes on the market; or, possibly, a flat in the near neighbourhood. We are bound to say that if the choice is between requiring the residents, if (as they currently apparently do) they wish to retain a resident warden, to raise a capital sum to purchase this or another flat, and limiting the use of the warden’s flat to its current use, being the use always held out for it and the only use it has ever had, we are in little doubt that, in an issue of fairness, the latter is the appropriate choice. Apart from the obvious unfairness, as we see it in the circumstances, of putting the sheltered flat proprietors to such trouble and expense, we would point out that such an arrangement would, on the evidence before us, be completely out of line with what happens at other similar developments. On a purely financial approach, it might be suggested that common ownership of the residual property including the warden’s flat would increase the capital values of the sheltered flats, but even if that were the correct approach we are not at all sure that it would be right in practice: it might reduce the amount of the common charges, but whether purchasers choosing between different sheltered developments would reflect this must be open to doubt.
The main, but not the only, aspect of the second broad issue, as to whether the proposed financial arrangements between the flat proprietors and the owners of the residual property are unfair, is whether the proposed initial figure for the House Manager’s Apartment Charge is, as the applicants contend, unfairly low. The applicants’ approach to establishing this was based on a capital valuation aggregating values for all the separate parts of the residual property, then decapitalising for the purpose of comparison with the proposed ‘rental’ figure of £6,000. We shall of course have to consider this in more detail, but we make the initial general comment that the assumption behind this is that the property is ‘divorced’ from its previous, and in fact its existing, actual use. Apart from the question whether this is a fair way of looking at it, we are in some doubt whether it is an appropriate valuation approach in the circumstances. The warden’s flat and the garage may be in different situations, but the rest of the property seems to us to be overwhelmingly so ancillary to the flats that it is difficult to imagine such independent values. It seems unlikely that planning permission would ever be granted for anything other than the existing use of these ancillary parts. While Mr Miller seemed to be able to contemplate other uses for parts such as the warden’s office, stores, etc., we much preferred the evidence of Miss Jack as to the unlikelihood of residents being interested in paying rent for such areas and we see such other uses – by anyone - as a very unlikely proposition. There is no evidence of any actual sales or lets of such property, and indeed the evidence perhaps points the other way, insofar as we were told that the current prevailing pattern elsewhere is that the residents pay a similar ‘rental’ charge to the developer in respect of wardens’ flats but no charge for other ancillary parts. At the subjects themselves, there was no consideration for the transfer of the property even with the warden’s flat and garage.
The 2003 Act goes some way beyond simply re-formulating and re-stating title conditions to enable them to work in a world without feudal superiors. It appears to us that there is a clear statutory intention to facilitate changes in the operation of property communities. The provisions of Sections 52 to 54, particularly Section 53, give new enforcement rights to proprietors within the community and able to demonstrate a real interest. Beyond that, however, there are provisions about management and there is this new right of majorities to impose additional burdens provided this is in the interest of the community as a whole and not unfair to the minority, particularly individual owners. This seems to involve recognition of a possible need to supplement or alter the titular arrangements entered into between developers and individual purchasers: a monopoly over management arrangements may have been created or title conditions may be seen as tilted in favour of the developer who either remains owner or is put in a position to deal in the residual property. In the sheltered housing context, the evidence before us suggests that much current practice in the industry reflects a need to respond to such concerns.
It can of course be said, as the applicants say in this case, that the residents, generally with legal advice, accepted the conditions, but of course the whole basis of legislation since 1970 is that there may be circumstances in which accepted land obligations or title conditions ought to be altered and the extent of such provision in the 2003 Act in relation to community burdens underlines that. The balance which the Parliament has sought to provide in such matters is that attempts to impose new burdens can be tested under the provisions of Sections 98 – in this case, Section 98 (b) – and 100.
It seems clear enough from the wording of section 98 that in cases covered by Section 98(b), including the present application, regard is to be had to the factors in Section 100 even although special tests, different from the general test of reasonableness under section 98(a), are established. There is a degree of difficulty in the application of Section 100 in relation to the imposition of new burdens. Looking at the factors listed in section 100, these are related to the ‘title condition’ which is, in the normal case, sought to be discharged or varied, but there is a certain artificiality in looking at the ‘benefited’ and ‘burdened’ properties in relation to imposing a condition: the status quo is the absence of a condition. Both parties tended to elide this difficulty by inviting us to consider the issue with particular reference to Section 100(j), ‘any other factor which the Lands Tribunal consider to be material’. It may, however, be useful to attempt at least a brief look at the more specific factors on the list on the basis that the residual property is benefited and the individual flats burdened, and the party seeking the change is the proposer and not the applicants.
There have undoubtedly been changes in circumstances since the date of the existing deed. The abolition of superiorities is of course one change which goes a long way to justifying the step taken by the flat proprietors to re-cast the existing provisions, but that is not really of significance in relation to the particular issue between the parties: the applicants do not challenge the general desirability of such an exercise. Of much more significance is the replacement of the applicants as managing owners by Peverel as factors. This is not just a change in the identity of the managers but a change in the structure, establishing Peverel as factors accountable to the flat proprietors in contrast to the previous arrangements under which the applicants did business on the basis of simply fixing an annual charge with the prospect of substantial profit but also, it is fair to say, some slight risk of loss. These changes were entirely unforeseen, being effected under the new statutory provisions, and they have produced an unforeseen situation in which the managers are no longer also the owners of the residual property. The basis on which the existing deed was established has been removed. The result of that change in circumstances, with the existing deed still in place, is, in theory at least, to free the owners of the residual property from any obligation to serve the interests of the flat proprietors and to leave them with this asset of the residual property which they were previously required to dedicate to those interests.
There seems to us to be another change, which if it is not relevant under section 100(a) we would certainly consider material under Section 100(j). This is that there has been a general change in practice in management arrangements in the sheltered or retirement homes industry. There has been a general development of separate factoring as opposed to owning managers. With such factoring arrangements, there has been a move away from a situation in which the developer or owner, while binding the individual flat proprietors to onerous conditions, could keep himself free from burdens. The structure commonly established under current practice has involved title conditions which ensured that the ancillary property, including the warden’s flat, was indeed only to be used for that purpose. Peverel, a company which undertakes many such factoring contracts, would not take this on at the subjects without such a change being made.
The respondent suggested that there was another change of circumstances, viz. a deterioration in the quality of the development. This was not particularly evident to us at our inspection; we were not referred to any respects in which the quality differed from other developments; and we do not see the relevance of this.
There is no doubt that the current freedom from burden confers the benefit of giving the benefited proprietor the legal right to deal with the property as he pleases. We have already touched on the question whether that is of substantial value and give further consideration to the valuation issues below. Apart from the effect on the value of the asset, the present title position gives the applicants as benefited proprietors the benefit of actual control over use of the property. These benefits, however, are subject to the planning restriction.
Similarly, the absence of any burden restricting the use of the residual property impedes the enjoyment of the burdened property, in theory at least, again subject to the planning position. In theory, on the applicants’ approach that the residual property can now be viewed as available to be exploited separately, the individual sheltered flats are almost uninhabitable, and certainly not useable as sheltered housing, because there is no access to, for example, the main electrical equipment or the central alarm systems. The unreality of such a situation might seem of itself to justify the imposition of burdens restricting the use of the residual property to its present use, even although this is clearly a considerable fetter on the applicants’ ownership.
The existing deed does not place any obligation on the flat proprietors to do anything in relation to the residual property (other than allow access to it through the common parts and pay for its maintenance, an obligation which would presumably not remain enforceable if the property were used for other purposes). Section 100(d) therefore has no application.
The existing deed is now 20 years old. The relevance of the length of time which has elapsed since the condition was created varies according to the circumstances. Given the development of the sheltered housing industry since 1986, it seems to us appropriate to refer to the existing deed as being old-fashioned and outmoded. One might alternatively say that, quite apart from the abolition of the feudal structure, it seems almost inconceivable that such a deed of conditions, so far out of line with modern practice, would be would be accepted by purchasers of flats in a new development today.
That brings us to the purpose of the title condition. If there is a clear purpose which continues to hold good, that is a very significant factor in favour of retaining a title condition. There might be two ways of looking at the purpose of the current provisions. Looking at them as a whole, the central purpose specifically recorded in the existing deed was to enable the owner, as manager, to administer and manage the development. Despite that stated purpose, the existing deed no longer secures occupation of the warden’s flat and the other residual property for management of the development, but the proposed deed does. Alternatively, one might look at the particular condition, or lack of it, i.e. the lack of any restriction on the use of the residual property, and attribute to it the purpose of securing the property for the free use of its owner in the event of a change of management (or, perhaps, in the event of a decision not to retain a resident warden, or, much less likely, for some reason to close down the whole development). There is nothing to indicate any anticipation of change of management. A purpose of securing the owner’s right to enjoy the fruits of the property in the event of some change of circumstances in the future does, however, seem relevant, particularly in the case of the warden’s flat.
On a somewhat strained reading of Section 100(g), it might be said that there is a planning consent in relation to the flats for a use inconsistent with the basis on which the applicants ask matters to be viewed under the existing deed. Put another way, the proposer of the deed is proposing to impose a burden designed to ensure use of the benefited property in accordance with the planning consent. However, the planning consent might be said to include the possible use of the warden’s flat and guest bedrooms to create additional sheltered flats.
In relation to Section 100(h), we do not consider that the proposal to pay ‘rent’ amounts to a willingness to pay compensation. The applicants have not – so far – asked for compensation, nor has any been offered. In that situation, this factor is neutral.
Section 100(j) refers to ‘any other factor which the Lands Tribunal consider to be relevant.’ We have already referred to an important purpose of the arrangements as a whole, namely that the residual property was to be in the ownership of the managers so that they could manage the development. We think we can additionally refer to the fact that this is what has actually happened throughout. Indeed, even after the change of manager, all the residual subjects, although now owned by the applicants, unburdened, are still being so used. No doubt that is, up to a point, dependent on the outcome of these proceedings, but even allowing for that, as regards most of the residual property, any different use seems really inconceivable. All of this just underlines the ancillary nature of the residual property which appears to us to be crucial.
We are also asked to consider the fact that the applicants obtained the property without payment of any consideration. The applicants answer this point in two alternative ways. Firstly, they suggest that they in effect did give consideration, in the shape of their initial unpaid contribution to the planning and implementation of the development. It will be evident from our findings that we are not particularly impressed by Mr Miller’s evidence on this. We are sure that he did have some involvement, although rather less significant than he claimed. There is no indication that its value was assessed or measured against the value of the residual property in any way at the time. It seems to us to have been just the sort of preliminary involvement and advice which one might expect the prospective manager of the development to give without charge in anticipation of the profit which he would hope to make once the development got under way. As the respondents pointed out, the applicants received another return on this initial involvement, viz. the benefit of the management contract which endured for more than 20 years. If their initial contribution was in any way at all measured against the value of the property, we think it inconceivable that the property was regarded as having any substantial value as now claimed. The developer in that situation would surely have sought payment. This corresponds with the situation at the older McCarthy and Stone developments, where there was – and therefore still is – no rental payment for even the warden’s flat: the ancillary property was, then at least, not considered valuable.
Secondly, however, the applicants submit that it is irrelevant: whether the owner paid for, as opposed for example to receiving as a gift or inheriting, property should not make any difference. In effect, the applicants are here asking us to ignore the first of three situations: ownership going along with and for the purpose of managing the development; ownership unburdened by either management responsibilities or a restrictive title; and ownership burdened by the restrictive title now proposed. There could be force in the suggestion that we should only look at circumstances directly related to the proposed change from the second to the third situation. We think, however, that the legislation does permit us to consider the original situation. It directs us to consider changes of circumstances since the original terms were agreed, and also their original purpose. The acquisition by the applicants is not some extraneous matter such as gift or inheritance. To the contrary, it is bound up with our consideration of the situation under the existing deed and the fairness of the arrangements proposed.
We think, therefore, that the fact that this property cost the applicants nothing is material, not only as an adminicle of evidence as to the true value of the property but also in considering the fairness of the proposed arrangements. It seems to us to be material to draw attention to a contrast with the position at the other developments about which we were told. The pattern there is that the developer who laid out the initial building cost of, for example, the warden’s flat (or possibly a purchaser from the developer) recoups that part of his investment from the ‘House Manager’s Apartment Charge’. The applicants here did not have that outlay.
It is perhaps an additional material factor that much of the proposed deed is not challenged and indeed accepted as appropriate and necessary provision to address the difficulties arising out of the abolition of superiorities. It would certainly be unfortunate to have to undo all the work done by the flat owners and their solicitor in this connection. However, the applicants are entitled to focus on what they contend is unfairness in the arrangements and it follows that if we accept that there is unfair prejudice we must simply grant this application. We did canvas with the parties the possibility that if we were of that view the application might be continued to give an opportunity to resolve the particular issues, but neither side wished that.
The planning position is an important factor. It is a permission to erect “a sheltered housing development comprising of 43 flats plus warden’s flat, two guest bedrooms and a common room.” It is subject to the particular condition that “the building shall in perpetuity be used for sheltered housing purposes only and for no other purposes without the prior consent of the Planning and Building Control Committee”, a condition stated to have been imposed in order to preserve the amenity of the neighbourhood. We did not have detailed submissions, or reference to any authority, on the interpretation of the permission and condition. The applicants – now at least – accept that valuation must be on the basis that only sheltered housing use is permitted. The particular question which arises is whether use of the warden’s house or the guest bedrooms as additional sheltered flats might be permitted. It seems at least arguable that as each of these is referred to in the permission, consent would be required to convert them into ordinary sheltered flats. The applicants envisaged the guest bedrooms being knocked together, a development which would anyway appear to require planning permission. Opposition from the other flat proprietors might be anticipated. We do not think it would be prudent for a valuer giving an opinion on market value to assume that such use would necessarily be permitted, although he might certainly regard this as a possibility and attribute what would in effect be a hope value to it.
On a consideration of all these circumstances, we have reached a clear view on the first broad issue. We are not persuaded that there is anything unfair in the proposed use restrictions in themselves. This property was transferred to the applicants to enable them to manage the development. It has always been so used. That is its natural use, ancillary to the use of the development. Now that the applicants no longer manage the development, it is in the particular circumstances entirely appropriate to secure that use. It would in our view be manifestly unfair to the flat proprietors to allow the applicants to take vacant possession and thus exploit their ownership for a purpose never previously envisaged. This is clearly a very substantial restriction of the applicant’s property right, but to our mind not at all unusual in the case of such ancillary property. The residents may or may not always wish a resident warden, but there is no serious question about that at present. If in the future the residents no longer have that requirement, the use restriction could no longer operate and the residents would not be free themselves to exploit the warden’s flat. It would in that case have to be recognised that there was a material change of circumstances calling for alteration of the provisions.
A subsidiary aspect of the first broad issue is the applicants’ complaint that the proposed deed not only deprives them of using their property but does not even permit them access or entry. This point was not explored in detail, but it does seem to us that it may be correct, at least in relation to entry. Clause 11.2 appears to give the applicants as owners of the residual property (and therefore ‘Proprietors’ – Clause 1.1.18) a right of access, but that avails them little if they do not have a right of entry, which would normally be considered appropriate and the subject of particular provision, for example for a landlord for periodic inspection purposes. That does appear to have been omitted. However, this seems to us to be a very minor point, which (if such a right could not be implied) it should be a simple matter to rectify by agreement. We also note that under the proposed deed repair and maintenance of the residual property is secured and clearly under the factor’s administration.
That, however, leaves the second broad issue. At the heart of this is the figure of £6,000 per annum on 1 November 2005 subject to annual review in line with the Retail Price Index.
There are three different situations under which to consider the value of the property, which is close to the heart of this dispute. Under the existing deed, and while the applicants were the managers, its value would seem to have lain in its conferment of the monopoly over management of the development. Mr Miller agreed that this was a good business opportunity to make money, although there is no indication at all before us of the extent of the return from that. We do know, on our findings, that during this first phase the original developers were prepared to convey the residual property to the applicants for no consideration, and their subsequent reluctance to do so does not appear to have been related in any way at all to any suggestion that they were giving up a valuable asset. There is no evidence of any positive capital valuation of the residual property under these circumstances, although it can be said that positive rental values, based on ‘open market values’, apparently on the basis of no restriction on use, have been ascribed to the warden’s flats (but not to other ‘residual’ property) at more modern developments.
Secondly, upon being freed of their obligations as managers, the applicants were theoretically free to deal as they wished with the property, unburdened by any private title condition. This situation of course raises questions about the effect of the planning permission. The applicants contend that in this situation, the property, on the basis of its constituent parts, had a capital value of £236,000. The respondent’s figure might be of a similar order, or might be considerably less but with no precise quantification, depending on the view of the planning position.
The third situation is that under the proposed deed, with the restrictions in use which, as we have said, we consider to be in themselves reasonable.
We are of the clear opinion that ‘open market’ values must reflect the planning position. In the light of the planning condition, no purchaser could contemplate, for example, using the warden’s office for some unconnected business purpose, and no value should be based on such an assumption. Despite Mr MacDonald’s initial approach – to be fair to him, apparently on the basis of instructions – by the stage of submissions it was clear that the applicants accepted this, with the point in issue in relation to planning being essentially whether the warden’s flat, and perhaps guest bedrooms, must be used as such or might be available for use as additional sheltered accommodation. There must be doubt at least about changing the use of the guest bedrooms, and we have already indicated our view that parts of the residual property other than the warden’s flat and the garage are essentially ancillary in nature and may not have any separate value. In these circumstances, we think open market valuation must reflect a good deal of caution. The applicants’ approach of arriving at a value for the residual property on the basis of aggregating values for all the nindividual parts appears to us to be an unrealistic approach to the valuation of this unusual property. On a fair and reasonable view, based on the reality of the situation, we think that valuation should be on the basis that the guest bedrooms, warden’s office, stores and potting shed, have little or no real value but the warden’s flat and the garage do have some value.
In any event, and accepting the respondent’s argument that the applicants must establish unfairness in the circumstances and not just prejudice, we do not think that there is anything unfair in taking account of the existing use. We appreciate the applicants’ argument that if a new burden is imposed it would be wrong in principle to measure the rental for the property on the basis of that burden, but in our view that ignores the circumstances of this case. As we have said, on a fair view in the circumstances of this case, the applicants should not be allowed to exploit this property on the basis of vacant possession in the way normally open to owners. The new burden fairly reflects the old reality. The property was transferred to the applicants for just the purpose now to be secured by the proposed burden. The applicant did not pay a price based on the development potential of changing the warden’s flat or the guest bedrooms into additional sheltered flats. Such development would considerably, and in our view, unfairly, change the arrangements into which the other flat owners bought and the applicants themselves contracted, albeit that understanding was not reflected in the applicants’ title. Valuing on the basis of continuation of the existing use, we share Mr Begg’s opinion that a substantial discount is appropriate, albeit he could not quantify that.
We also have reservations about the actual valuation approach which we were invited to take. In determining rental level, we regard the method of assessing capital value and then applying a yield figure as very much a second best, if market rental evidence is available. This has become essentially a commercial property investment for the applicants, and valuation of investment property tends to be the other way round. A multiplier reflecting appropriate market yield is applied to the rent. We also note that the two valuers were apparently speaking to values at the date of the hearing of evidence (August 2006) whereas the correct valuation date would appear to be the effective date of the proposed deed, November 2005. They did speak to a strengthening market, so this would have some effect on their figures.
Both valuers gave their opinion of the market value of the warden’s flat on the basis that it could be sold on the open market with vacant possession and their opinion of value lay in the range of £160,000 (Mr MacDonald) to £175,000 (Mr Begg). Mr Begg considered that if occupation is restricted to occupation by the warden a reduction was appropriate. We agree, and we also agree that the appropriate level of reduction is difficult to assess. The only guidance offered was a comparison with the situation which can arise in rural areas where occupation of a dwelling is restricted to occupation by an agricultural worker. Where such a restriction due to planning controls is found, in Mr Begg’s experience a reduction of 40% from the open market value unrestrained by planning conditions would be appropriate. The exact extent of the reduction must be open to doubt, but we do think that that situation provides a useful parallel. There would clearly be a considerable difference between sale in an open market and sale of a warden’s flat as such. If such a percentage were adopted the capital value of the warden’s flat restricted to this narrow use would be in the range of £96,000 to £105,000. Additionally, the garage was valued by the applicants at £10,000 and by the respondents at £15,000. That would give aggregate figures in the range of £106,000 to £120,000. The valuers agreed that the rate of return appropriate to a property investment of this kind would be in the range of 5% to 6%. For illustrative purposes, a yield of 5.5% applied to the range of capital values above would give a rental range of £5830 to £6600, which figures would be marginally lower if a yield of 5% is adopted and correspondingly higher if a yield of 6% is adopted.
Mr Begg gave an opinion of the rental value of the warden’s flat on the basis of a hypothetical short assured tenancy, assuming an unrestricted residential market. He suggested that that rental value lay in the range of £700 to £750 per month (equivalent to £8,400 to £9,000 per annum). This level of rent was accepted by Mr MacDonald. The precise terms of the assumed lease were not explored in any detail and an understanding of the comparative repairing obligations, insurance liability, etc. would be required. If the flat was to be occupied on the basis of an age restriction, some reduction in rent might seem appropriate. We note that Mr MacDonald applied a deduction of around 18.7% for this factor in his capital valuation and did not indicate any change in the percentage yield, but Mr Begg considered that there would be no reduction. We certainly recognise that this reduction in value would not necessarily translate directly from capital valuation into rental valuations. We are, however, in no doubt that there would be a substantial reduction if occupation was restricted to a resident warden.
We have accordingly identified a possible range of £5830 to £6600 per annum for rental of the warden’s flat, on the basis of the restriction, plus the garage, derived from capital values; and a range of £8400 to £9000 per annum for the warden’s flat alone, without any restriction on occupancy, on the basis of rental evidence on which the experts were agreed. Having endeavoured to address the key elements of valuation, on the evidence before us, we consider that a fair rental value in November 2005 of the warden’s flat, the garage, and the remaining residual property (to which, as we have said, we do not think any substantial value should be ascribed), with all repairs and maintenance paid by the tenant, lay somewhere in the range of £6,000 to £8,000. We do not feel able to be more precise than that. Overall, therefore, we accept that there are values which in aggregate are apparently in excess, but not by nearly as much as the applicants contend, of the ‘rental’ figure of £6,000. Correspondingly, it can be said that the capital value, derived on an investment yield basis from the figure of £6000 on the proposed deed, is slightly lower than that which would be derived from figures in our range of £6000 to £8000.
Apart from their objection to the actual figure, the applicants object that there is no mechanism in the proposed deed for fixing a reasonable charge. It seems to us that in this particular situation there would be great difficulty in expressing an appropriate formula. That might seem to make more significant the related further complaint that there is also no mechanism for taking the applicants’ views or representations into account. It does indeed seem a pity that there was no amicable or at least reasonable discussion with the applicants before the figure of £6,000 was arrived at. The basis of the applicants’ case before us perhaps does not suggest that agreement would have been reached in this way, but at least the applicants would then have had an input, which might have affected the figure finally proposed. However, there does seem to have been a difficult relationship between the applicants and the residents at that stage, and the applicants did have the particular opportunity of the statutory 60 day consultation period, and did not seek to use that. We have in this application considered the applicants’ position at some length and we do not think that these procedural complaints add anything to the merits of the issue of unfair prejudice.
The mechanism for review is a separate matter. Retail price movements may at first sight not seem an appropriate yardstick for what is essentially an investment property rent review. However, in our experience the Retail Price Index or similar is sometimes used in the investment property market, where there is little or no readily available comparable market rent review evidence or where the cost of conducting the review is high in relation to any change in rent. In this situation we consider it an appropriate mechanism for determining the annual review under the proposed deed. Although parties did not refer to this, we are aware, and have borne in mind in our consideration of the valuation, that in property valuations the review basis, as well as the quality of the covenant, may affect the yield percentage.
The applicants also complain that the income from part of the residual property which they own – the guest bedrooms – is to be taken by the sheltered flat owners and not accounted for. We would accept this as significant if the guest bedrooms were to be developed as an additional sheltered flat, but as we have said we do not consider that to be a realistic or fair approach. We do not think there is anything in this point: it was clear on the evidence that when expenses such as cleaning and maintenance are taken into account, there is little or no net profit to be had from the guest bedrooms as presently used.
Finally, the applicants complain that there is no provision, and no legal basis, for enforcing payment of the House Manager’s Apartment Charge, to them. We note that the proposed deed does clearly provide for this payment (described as “an annual sum payable to the proprietor thereof in respect of the use of the Residual Property”) to be included in the common charges, so that there is a community burden for its payment by the owners to the factor. We would have thought that the factor was then clearly accountable to the owner of the residual property, in the same way as he would be accountable to other creditors although the deed does not directly provide for them to be paid by the flat proprietors. We again place no weight on this matter.
We have to take an overall view on the evidence. Points of smaller detail, such as the omission of a right to enter and inspect the property, could be addressed by discussion and agreement or, if necessary, further application to the Tribunal. The one substantial point seems to be the apparent, but difficult to quantify, shortfall between the proposed figure of £6,000 and a figure which might emerge from the best attempt at establishing a rental valuation, with a corresponding reduction in capital value. However, for the reasons we have explained, we consider that shortfall to be relatively small. We think that there are other factors, which we have reviewed at some length, which are relevant and material in this particular case. In particular, the applicants did not give any consideration for this property. Their property right which is undoubtedly being substantially curtailed by this proposal was in fact something which they were simply given in order to enable them to fulfil a contract. They had the benefit of that contract for around 20 years. It is not the proposed deed, but another act authorised by the Parliament, viz. their replacement as managers, that has taken that benefit away. Neither their contract nor the statutory provisions in relation to replacement of managers give them any element of compensation for that loss. If they can quantify a loss arising out of this restriction of their property rights, the legislation allows for such amount of compensation as the Tribunal might think just to be awarded. In all the circumstances, we do not think that a secure return of £6,000 per annum, reviewed in line with R.P.I., in perpetuity, is an unfair provision in respect of this restriction of use which in general appears to us to be an appropriate and fair measure to take at this sheltered housing development.
We accordingly refuse the application and shall make the appropriate order under Section 90(1) varying the community burdens accordingly.
Parties did not address the issue of expenses which, if it is the subject of any motion, can be dealt with on the basis of written submissions in accordance with our normal practice.
| Representation: | ||
|---|---|---|
| for the appellants: | Mr A M Clark, Advocate, instructed by Messrs Miller Hendry, solicitors, Dundee | |
| for the respondents: | Mr K J MacDonald, solictor, Messrs Paull & Williamsons, solicitors, Aberdeen | |
| Dates heard: | 21 to 23 September and 2 October 2006 | |
| Members sitting: | J N Wright, QC I M Darling, FRICS |
|
| Decision issued: | 5 January 2007 | |
LTS/TC/2006/01
Certified a true copy of the statement of reasons for the decision of the Lands Tribunal for Scotland intimated to parties on 5 January 2007
Neil M Tainsh
Clerk to the Tribunal