Here comes the flood?

Once upon a time there was a little Dutch boy who discovered a leak in a dyke.

What should he do? From a single leak, a terrible breach might grow. The whole country could be flooded, and everyone he knew would drown. So he did the only thing he could think of. He stuck his finger in the dyke, and the leak stopped. But the hole wasn’t fixed, it was only a temporary plug, and it wouldn’t be long before the boy tired and the leak would start again…

In August 2009, the Keeper of the Registers acted swiftly to prevent a flood. The case of PMP Plus Ltd v Keeper of the Registers of Scotland made it clear that neither property law nor registration law could create rights in common areas if identifying those areas depended on a future uncertain event. Any such wording in a disposition or title sheet was meaningless and no rights were created.

Post-PMP

For conveyancers, common property has always been a challenge, not just when dealing with large developments where changes to development plans make it difficult to draft dispositions and deeds of conditions with certainty, but also in buying individual properties in housing estates where you need to identify to your clients and to lenders what the common areas will be.

After PMP Plus, the Keeper issued Registers Update 27 to set out how she would deal with common areas in the future. It said:

• For new developments – Registers would not register any right to common property within any new development after 3 August 2009 which was defined by reference to a future uncertain event.
• For existing developments – any rights within existing developments (i.e. registered before 3 August 2009) which refer to a future uncertain event were not effective, but the Keeper suggested that a subsequent registration once the uncertain event became certain could be effective.

This update comforted many conveyancers. Four years on from PMP, it is unlikely you will find many titles that have not been “cured” by a subsequent registration. The hole had been fixed – or had it?

The recent case of Lundin Homes Ltd v Keeper of the Registers of Scotland (LTS/LR/2012/03, 28 June 2013) has effectively ruled that the Keeper’s Update was wrong. Subsequent registrations do not cure titles with common areas.

Incurable problem

Lundin purchased a rump site in a housing development in Seafield, Bathgate. The site was intended to be used as a detention pond for surface drainage run-off, but was sold to Lundin by receivers for the original developer after an alternative drainage solution was found. It is not clear whether all the homes were sold before or after receivership, but it may not matter since they all seem to have been sold, and the title sheet “closed”, before the sale to Lundin.

When Lundin registered its title, the Keeper excluded indemnity on the basis that it may have formed part of the common property of the development. Lundin, seeking a clean title, appealed to the Lands Tribunal for Scotland under s 25 of the Land Registration (Scotland) Act 1979. The Tribunal ruled that the Keeper’s decision to exclude indemnity was incorrect and found in Lundin’s favour.

The original development used a standard development structure – a deed of conditions was set in place over the whole development and the individual dispositions conveying each house referred to that deed. Each disposition granted the owner a share of common property, defined in the deed of conditions as the land left when the development was complete.

Following PMP, this structure only works if the common property can be identified, preferably by reference to a plan. In effect, you must define the land to be conveyed at the time it is conveyed, otherwise any conveyance of the common property is ineffective. The Keeper’s attempt in Registers Update 27 to limit the effect of the ruling as regards existing developments was rejected by the Tribunal, which ruled that any subsequent transfer of a title is not cured by the Keeper’s Midas touch. If the common property was not correctly conveyed originally, it cannot be subsequently conveyed even if the land certificate includes it.

The Keeper also tried to argue that the very last purchaser could own all of the common property, because at that point the common property was known and could be defined by reference to its own plan and the plans contained in other dispositions. This too was rejected. The Tribunal ruled that the Keeper could not rely on any evidence not contained within the “four walls” of the disposition. So, the purchaser could not look at other titles, or at its own development title plan in order to identify the common areas.

What will be the impact?

Residential property: If you are reviewing a title with common property, which will be particularly likely when dealing with the purchase of a house or flat in an estate, you should consider whether the title had a valid transfer of common property to it. If the original conveyance was invalid, then the title will not include it, even if there has been a subsequent conveyance. Any issues should be raised and discussed with your client and any lender in terms of the CML Handbook.

Commercial property: As with residential property, any issue in relation to an existing property with common property should be raised and discussed with your client as part of any due diligence process.

New developments: Registers Update 27 still stands – if you are working on a new development, you should consider how the common property is defined and when and how it will be conveyed. Every time you intend to convey it, the common property must be identifiable in the application to register it.

Who owns the "common property"?

If the intended owners do not own the common property, who does?

While the answer to that question is beyond the scope of this article, questions you may wish to consider are: Is it the original developer, if still in existence? If not, is it the Crown as ownerless property?

Equally, you should consider the effect of any “hole” on any burdens and rights over common property. For servitudes, the ownership question may be unimportant because a servitude right of access over an area of ground intended to be common property may exist regardless of whether the common property has been correctly conveyed, but each title will need to be reviewed on its own facts.

This case has opened floodgates you may have thought closed. Given that thousands of properties are potentially affected, I hope the Keeper will revise Registers Update 27 to confirm that:

• common property that was defined by reference to a future uncertain event does not form part of any existing title; and
• provide guidance as to how she will deal with any applications for existing titles which might contain a “hole”.