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Deeds of conditions: emerging stronger

18 April 16

A further contribution to the deeds of conditions debate argues that the Lands Tribunal in the Marriott case has underpinned rather than undermined their use to support the maintenance of common areas

by Stephen Goldie

In December 2015 the Lands Tribunal for Scotland issued its decision in Marriott v Greenbelt Group Ltd (LTS/TC/2014/27, 2 December 2015). It led Andrew Todd to suggest that it may mean “the end of deeds of conditions” (Journal, January 2016, 20); in its place he suggested that the future for managing communal areas in developments lay with the development management scheme.

In reply, Wendy Quinn suggested that deeds of conditions are “not dead yet” (Journal, February 2016, 20). Perhaps, however, we can go further – not only is the use of deeds of conditions for such purposes not dead yet: it has in fact been endorsed by the Lands Tribunal for Scotland.

Background

The dispute in Marriott arose in relation to the management of the open ground at Menstrie Mains, a large housing development with multiple areas of open ground. Under the deeds in question, the developer, Bett Homes, had disponed the open ground to Greenbelt Group Ltd, a private property and land management company. Greenbelt’s ownership was, however, burdened with multiple maintenance and facility obligations, the aim being to ensure that the open ground was maintained, providing an overall amenity benefit to the development.

As the Tribunal noted, the maintained land, while outwith the ownership of the individual homeowners, was likely to add value to them, not just from the amenity benefit itself, but from the positive impact this could have on property values in the development.

In turn, each homeowner’s title within the development was also burdened using a deed of conditions which obliged all homeowners to contribute pro rata to the cost of Greenbelt’s operations. In essence, Greenbelt was obliged to provide a service by maintaining the open spaces owned by it, and the homeowners were to pay for it.

This arrangement is known as the “land-owning maintenance model”. It differs from typical factoring arrangements in that the maintenance company owns the open ground associated with the development, rather than the homeowners each having a proportional share of ownership – the “common ownership model”.

Michael and Jean Marriott, homeowners in the Menstrie development, objected to and sought to challenge the validity of the burden requiring them to contribute to the maintenance cost. In bringing the challenge, the Marriotts not only brought into question the validity of the particular burden, but also the whole land-owning maintenance model, for if Greenbelt could not validly charge for the operations they were obliged to perform, no company would undertake such an onerous maintenance obligation.

The decision

Attacking the legal basis of the model, the Marriotts failed except on one narrow technical ground. It was suggested that the burden was not praedial; created a monopoly; was an unreasonable restraint on trade; was repugnant to ownership and illegal; contravened the Competition Act 1998; and finally that it was void for uncertainty. Every possible avenue of challenge was considered, and it would perhaps be right to suggest that the outcome would define the future of the land-owning maintenance model. Rather than seal its fate, however, the decision confirmed that the model can, and indeed does, work.

Only personal?

The first substantive legal challenge to fail was the suggestion that any burden obliging a homeowner to contribute to maintenance costs could not satisfy the fundamental requirement for a real burden: praediality. That is to say, the burden must relate to the properties and not merely to arrangements between their owners. It was suggested that the burden was a profit-making tool for Greenbelt; they were not maintaining the land because they owned it: the burden was simply part of an arrangement for work to be carried out for a profit.

The Tribunal agreed the burden was one to pay money, but found that did not in principle prevent it from constituting a valid real burden. Furthermore, the burden was not just an arrangement amongst the owners of the properties, but provided a benefit to the properties themselves in terms of preserving the amenity and value of the communal areas, a benefit that was echoed by the Tribunal throughout the judgment and reflected in the value of the homeowners’ properties.

No monopoly

Next came a challenge in the form of a suggestion that the burden created a monopoly, in that the model allows Greenbelt to charge for the work they do but provides the homeowner with no remedy to seek an alternative provider if they do not think the work is satisfactory.

Again, however, the model stood strong. The Tribunal examined the history behind the legislation and concluded that the Parliament had had no intention of eliminating the model, “nor any hostility to it”. At worst the model reflected the inherently monopolistic nature of landownership – owners have exclusive possession and complete control over their land. Greenbelt, as sole owner, was the only party with responsibility for maintenance of the land, and hence the only party able to charge for undertaking that obligation. This was not a monopoly, but the reality of ownership.

Even then, however, many property management companies give the homeowners the opportunity to purchase and manage the areas themselves. Greenbelt’s “customer choice” policy provides this option to homeowners dissatisfied with Greenbelt’s service. The difficulty is that when homeowners are made aware of the obligations that come with ownership, and the associated liabilities, few like the reality of ownership of open ground quite as much as the theory.

So perhaps the Tribunal could have gone further. The model does not create a monopoly, but nor does it reflect one. It simply reflects the reality that many homeowners do not want to be involved in the onerous task of maintaining communal areas themselves, and are instead happy for the task to fall to a property management company.

Illegal restraint?

Having held that no monopoly had been created, the Tribunal then considered an argument that the burden restricted trade, and was repugnant with ownership and illegal. In relation to each assertion, the burden at the heart of the land-owning maintenance model was scrutinised, and again its legal validity was confirmed: it does not restrict trade, nor is it repugnant with ownership or illegal. It is fair to say that the Tribunal gave this challenge short shrift.

Stepping back and looking at the bigger picture, it is difficult to see how it could be suggested that the burden placed on homeowners is illegal. As the Tribunal members repeatedly suggested, it merely requires homeowners to make a payment for the upkeep of the open ground in their development, for which they receive benefits of amenity and to their property values.

Notwithstanding this, the argument was taken one step further, as it was suggested that the burden
was illegal under the Competition Act 1998. This built on the suggestion that the situation put Greenbelt in a monopolistic position: it was argued that they were abusing that dominant position in the marketplace. The homeowners were being subjected to unfair prices and trading conditions, with no viable alternative.

The challenge once again failed, and rather tellingly its main downfall was a lack of evidential support for the claim that the charges were excessive or that the work carried out was of poor quality.

Technical flaw

These first four arguments challenged the legal basis on which the land-owning maintenance model is constructed. Had they proved successful, it might have been pertinent to suggest it was time for a different approach. Instead, the Marriotts succeeded not because the model was illegal or structurally flawed, but because the particular burden fell foul of the “four corners” rule.

Under the 2003 Act, the benefited land has to be nominated and identified in the deed of conditions, this being the statutory embodiment of the common law position that the terms of any burden must be set out within the “four corners” of the deed. The deed of conditions for the Menstrie development instead made reference to planning documentation and the UK Index of Basic Materials and Fuels, neither of which were fully incorporated into the deed in question.

Notwithstanding that there has arguably been some relaxation to the “four corners” rule following the Title Conditions (Scotland) Act 2003, the Tribunal held that this breached the rule and went against the need for clarity and certainty. It also recognised this was a technical issue, not a substantive legal one, commenting: “The applicants fought this case on a very wide front but (on the majority view) have been successful only on a relatively narrow and technical issue. As an attack on the land-owning model per se it has failed. The applicants have succeeded not because of any structural flaw in the model but because the benefited land property was not adequately identified in the constitutive deed.”

The Tribunal then, with no requirement to do so, went on to suggest how to remedy this technical issue so as to avoid such a situation.

Therefore, far from suggesting the end of the land-owning maintenance model, this decision should be seen as testament to its legal validity. It withstood a broad attack, the only identifiable weakness being a technical drafting point which the Tribunal itself saw as remediable.

Problem outcome

Moreover, whilst the Tribunal’s decision is legally correct, it is important to consider the practical effects of the Marriotts’ application. The aim of the land-owning maintenance model is to provide all homeowners with an equal and fair way of maintaining the open ground – all are burdened with the same pro rata payment obligation, and in return all benefit from the amenity and increased property value. The outcome of the application is to break the security of this arrangement and create a real problem for the Menstrie residents. The Marriotts are no longer obliged to contribute to the upkeep of the communal areas from which they benefit. Furthermore, unless all the residents can agree how to proceed, Greenbelt may be forced to divest its interest in the open space, leaving no one accountable for its long term continued maintenance.

One wonders whether the actions of the Marriotts, in raising the application, in fact embody the difficulties that can arise when homeowners are left to manage open ground – each is driven primarily by their own interest, and there is no one objective party to consider the effect this will have on the development as a whole.

The development management scheme

Furthermore, to suggest that the decision could be seen as the end of deeds of conditions in favour of the development management scheme (DMS), is perhaps going too far at this stage.

The DMS still has to be applied to the particular development through a “deed of application”, but the legislation in question, part 6 of the 2003 Act, provides no statutory form for this deed. This has led some to suggest it could just be incorporated into the traditional deed of conditions, much in the same way as traditional real burdens.

Unfortunately, this is no more than a suggestion, for the scheme has been in place since June 2009, yet so far it has failed to gain favour with developers or homeowners.

Perhaps this is because it relies on the co-operation of all the owners in the development, and as such brings with it all the associated difficulties of common ownership, but without actually giving homeowners title to the land. The scheme, when applied to a development, creates an owners’ association – a body corporate which owns the land, can enter contracts in its own name and is tasked with “managing the development for the benefit of the members”, being every homeowner in the development.

Far from giving homeowners autonomy over the communal areas, however, there is an obligation to appoint a manager, who does not have to be a member of the owners’ association and in most cases is likely to be a professional property management firm. Nor will the choice and appointment of the manager necessarily lie with the owners’ association, as developers are free to adapt this part of the scheme.

Each homeowner will still be obliged to pay an annual service charge towards the management and maintenance of the shared facilities, and just as with the land-owning maintenance model, those common shared facilities will have to be clearly defined.

Therefore, rather than offering a clear and obvious alternative to the land-owning maintenance model, the DMS has many of the same core elements, but these have not been scrutinised by the Land Tribunal, and they do not have years of practical application supporting them.

Moreover, adopting the DMS in place of the land-owning maintenance model would lose the advantages that come from single ownership, namely accountability, responsibility and decisive action.

Companies like Greenbelt Group Ltd are burdened with the task of maintaining the land for the good of the development – if they do not meet the standards expected they cannot hide behind anyone else. When that responsibility is spread amongst all the residents, that accountability is arguably lost, and it is the residents and their properties that could suffer, through reduced amenity and with it reduced property values.

Conclusion

The maintenance of open ground in a development has long been a difficult and complex task. The land-owning maintenance model is only one solution to the problem, but following the decision in Marriott it is a solution which has now been tested and shown to stand up to a wide-ranging attack.

It is a solution which uses deeds of conditions to provide all homeowners with an equal and fair arrangement that is long term and secure. Far from causing distress to those examining titles, the decision should provide comfort. As long as the constitutive deed is in order, the model will work and will provide a long-term solution for developers and homeowners alike which is both fair and secure.

Stephen Goldie, partner, Brodies LLP 

Have your say


Your comment

Mike M

Wednesday May 4, 2016, 10:34

I find it incredible that while the government are reforming the old feudal system we have another one coming in through the back door.

Here we have a situation where a landowner, in this case Greenbelt, charging residents of estates a sum of their choosing for a service with absolutely NO mechanism for residents to have any influence or even change supplier.

The idea that residents can purchase the land is an absolute nonsense as all the shots are called by the landowner.

The monopoly argument was split and if this argument was taken away from the Land Court then the outcome could have been very different as Greenbelt are also providing a service of which residents have no say.

Finally this has NEVER been a attack on the business model. The declarator was asked to make judgment on the enforceability on the burdens within the deeds and nothing else.


Sally G

Thursday May 5, 2016, 13:12

Stephen Goldie is a solicitor in the employ of Greenbelt Group. Why no declaration of interest here?

The judgment in the case, available as a link on the Lands Tribunal for Scotland website, sets out the views in detail of panel member Ralph Smith QC who strongly supported the view that a monopoly was in operation.

The case was a first toe in the legal waters, and no doubt more cases, building on the learnings of this one will follow.

As a 2011 independent market study by Consumer Focus Scotland showed, the majority of Greenbelt Group's customers would leave it if they could. Hardly the win / win scenario painted here.