Heritable Property – Title Conditions – Community Burdens – Validity – Variation (including imposition) by majority – Sheltered Housing Development – Imposition of restrictions on use of ‘residual’ property, including warden’s flat and office, guest bedrooms, etc. owned by former managers following exercise by majority of statutory right to appoint new managers – Whether valid real burdens – Whether repugnant bto ownership – Whether ‘community burdens’ – Title Conditions (Scotland) Act 2003, Sectons 3(6), 25, 27, 33, 54(1), 90(1)(a)(ii)
Heritable Property – Title Conditions – Community Burdens – Variation by majority – Preservation – 1986 deed of conditions with managers having superiority and ownership of ‘residual property’, including warden’s flat and office, guest bedrooms, etc. free of burdens – Proposed restrictions on use of residual property to use ancillary to development following exercise by majority of statutory right to appoint new managers – Restrictions corresponding to purpose for which residual property originally transferred to managers without payment – Effect on value of residual property – Whether proposed ‘House Manager’s Apartment Charge’ grossly inadequate – Grounds for preservation – Best interests of owners of all units taken as a group – Whether unfair prejudice to owner of residual property – Title Conditions (Scotland) Act 2003, Sections 33, 34(3), 54(5), 90(i)(c), 98(b), 100
A sheltered housing development was erected in about 1986. The scheme of tenure, in relation to common parts of the development, involved those parts to which there was common access, e.g. the residents’ common room, to be owned by the flat proprietors in common, and other parts over which the managers had control (the ‘residual property’, e.g. the warden’s flat and offices, guest bedrooms, etc.), to be in the ownership of the original managers, the applicants (SHM). The developer marketed the flats on the basis that there would be a resident warden and management services, and also guest bedrooms for the use of visitors and relatives. A deed of conditions narrated that the superiority and the residual property were being transferred to SHM so that they should administer and manage the development. The residual property was transferred to SHM, for no monetary consideration. It was not, however, burdened in any way, i.e. there was no title restriction on its use.
In 2005, the majority of the flat proprietors exercised the new right under Section 28 of the 2003 Act to replace SHM with new managers. At the same time, they executed a deed, under Section 33, varying the burdens, partly up-dating the provisions to take account of the abolition of feudal tenure and a change in the basis of the management contract (to which SHM did not object), but also imposing burdens restricting the use of the residual property to use ancillary to the development, in order to secure the continuing use of the residual property as the warden’s flat, etc. The residents generally wished to maintain a resident warden and also the facility of the guest bedrooms (the charges for the use of which did not generate any net profit). The deed fixed a ‘House Manager’s Apartment Charge’ of £6,000 per annum reviewable annually on the basis of the Retail Price Index, as a payment by the flat proprietors to SHM as the owner in respect of this use of the residual property. There was co consultation between the flat proprietors and SHM about the level of this payment or valuation basis to be adopted, but SHM did not make any representations following service of the ‘Community Consultation Notice’ under Section 55. There was a pattern at other sheltered housing developments of the developers appointing managers but retaining ownership of similar residual property and receiving similar payments which, however, were reviewable on the basis of ‘open market value as determined by’ the owner.
SHM applied under Sections 34(3) and 90(1)(c) for preservation of the original deed of conditions, arguing:-
In relation to the third issue, there was evidence from valuation surveyors on each side on the value of the residual property, mainly on a capital basis and on the basis of aggregating values for the various parts. There was some dispute about the effect of the planning permission for the development and a particular condition in relation to its use for sheltered housing purposes.
Held (1) applying the common law (which parties agreed was reflected in Section 3(6)), there was no repugnancy with ownership. Restrictions in the use of property conceived in the legitimate interest of other property owners were recognized and permitted. C.f. Earl of Zetland v Hyslop. The extent of interference with the owner’s exclusive enjoyment of the property varied not only with the terms of the restriction but also with the nature of the property. By its nature, ancillary property was likely to be permanently shackled by such restriction. There was nothing unusual or objectionable in these proposed burdens, which appeared typical of modern provisions in such property communities. The applicants’ real objection was to the manner of creation of the burdens, by imposition rather than agreement, something which was not possible at common law but for which the legislation provided.
(2) Further, the proposed burdens were ‘community burdens’ under the Act. The submission that while Section 54 dealt with a situation where there was no mutuality in deeds in existence in November 2004, Section 26(2) merely also referred back to old deeds and thus did not assist in relation to creation of new community burdens, could not be accepted as a correct reading of Section 26(2). The provision in Section 27, that where the constitutive deed stated that the burdens were to be community burdens, each unit would be both burdened and benefited, was also relevant. In any event the provision for payment to the residual owners was of benefit to the residual property.
(3) The applicants had failed to establish that the proposed burdens were not in the best interest of all the owners (viewed as a group) of units in the community. That issue involved putting aside the particular interests of SHM; but also recognizing that the fact of the majority (and in this case the necessary two-thirds majority) vote in favour did not take the argument far the other way. It was possible to envisage situations in which a majority, perhaps even a large majority, might be shown not to have properly considered the interest of the whole group, but there was no real support for the evidence of SHM’s managing director on this in the particular circumstances. The Tribunal was unable to see why securing the use of the warden’s flat for the occupation by a resident warden was not in the best interests of the flat owners. If the rental payment was ‘grossly inadequate’, it was not clear why that would not be in the best interests of the group.
(4) The applicants had also failed to establish unfair prejudice. This issue had to be decided on the particular facts and circumstances. There were two broad aspects, viz. the use restriction in itself and the provision for payment. It had always been completely clear until the present issue arose that all the residual property would be used for the purposes of the sheltered housing development, and there had always been a resident warden, as the flat owners continued to wish. The 2003 Act gave new rights to majorities in property communities, and in particular sheltered housing developments, to impose additional burdens. Reviewing the factors under section 100, the Tribunal considered that the replacement of SHM as managing owners was a very significant change of circumstances, not envisaged when the existing deed was entered into. Further, there had been a general change in management arrangements in this industry. The existing deed could be described as old-fashioned and outmoded. There had been a clear purpose, recorded in the existing deed, of enabling the owner to administer and manage the development. In the new circumstances, the proposed deed secured that purpose; the existing deed did not. It was relevant that the residual property had been used throughout for management of the development. The applicants’ evidence that SHM had given consideration for the property by providing their services in the planning of the development was not accepted. The circumstances of acquisition of the property were bound up with consideration of the situation under the proposed deed and the lack of consideration was thus relevant. It was arguable that planning permission would be required to convert the warden’s flat and guest bedrooms into additional sheltered flats and a valuer should not assume that such use would necessarily be permitted. The Tribunal was of the clear view that there was nothing unfair in the proposed use restrictions in themselves. The Tribunal did accept that the proposed deed appeared not to give the owners any right of entry to their property, but that was a very minor point which could if necessary be rectified by agreement.
The Tribunal was doubtful about the valuation approach of aggregating capital values for all the parts of the residual property, where that property, apart from the warden’s flat and the garage, seemed to be so ancillary to the flats as to make it difficult to imagine such independent values. It was difficult to imagine either planning permission, or actual use, of any of the other parts for any other use. ‘Open market value’ must reflect the planning permission. While the warden’s flat and garage might consistently with the planning permission be used otherwise, there must be doubt at least about changing the use of the guest bedrooms into an additional sheltered flat. In any event, there was nothing unfair in the circumstances about taking account of existing use. On the valuation evidence, possible ranges 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 £8400 to £9000 per annum for the warden’s flat, on an unrestricted use basis, could be identified. The Tribunal concluded that a fair rental for the warden’s flat, garage and remaining residual property, with all repairs and maintenance paid by the tenant (as provided in the proposed deed), was in the range £6000 to £8000. There were therefore values in excess, but not by nearly as much as the applicants contended, of the figure of £6000 in the proposed deed. The Tribunal considered some more minor objections to the provision for this payment. Review on the basis of RPI was considered appropriate where there was little or no comparable market evidence.
Taking an overall view on the evidence, the Tribunal considered that there were other factors apart from that identified shortfall. In particular, the applicants had not given any consideration for the property, which was simply given to them in order to enable them to fulfil a contract, of which they had the benefit for around 20 years. If they could quantify a loss arising out of this restriction of their property rights, the Tribunal had power to award compensation. In all the circumstances, the Tribunal did not consider a secure return of £6000 per annum, reviewed in line with RPI, in perpetuity, to be an unfair provision in respect of this restriction in use which was in general an appropriate and fair measure to take at this sheltered housing development.
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
See full decision: LTS/TC/2006/01