The end of deeds of conditions?

Across Scotland you will find landscaped and lawned spaces, woodlands and children’s play areas next to new (and not so new) homes. During the summer, you’ll hear the hum of mowers, or the whirr of strimmers, as workmen keep areas cut, clean, tidy and safe.

Some areas will be publicly adopted, maintained by the local council and paid for by your council tax. Others are not, and local residents will pay factors instead. Factoring seems a simple arrangement: a factor is appointed to carry out work on behalf of all residents. But this simple arrangement can become very complicated when residents and factors fall out, as a recent case before the Lands Tribunal for Scotland, Marriott v Greenbelt Group Ltd (LTS/TC/2014/27, 2 December 2015), has shown.

Background

The Greenbelt company is one of the UK’s biggest factors – it specialises in owning and caring for open spaces in housing developments, a type of factoring known as the “landownership model”. This involves developers (i) transferring all open space to Greenbelt so that it owns it; and (ii) imposing title conditions on residents to make them responsible for paying maintenance fees.

Michael Marriott was a customer of Bett Homes. He bought a new home in a development in Menstrie in 2005. The development had open spaces which were owned and maintained by Greenbelt under the landownership model. Marriott’s title deeds included a deed of conditions which required him to pay a maintenance charge. Marriott objected to the charge and raised an action against Greenbelt on six grounds. This article will look at two of those grounds.

First ground: illegal monopoly

Marriott argued that if the residents were unhappy with their factor, they could not sack them and appoint another. They had to use Greenbelt, as Greenbelt was the owner of the benefited property that enforced the maintenance burdens.

Marriott argued that this position in effect created a monopoly, and that the maintenance real burden charging costs back to residents was invalid under s 3(7) of the Title Conditions (Scotland) Act 2003. This section prohibits real burdens that create a monopoly.

By a majority the Tribunal rejected this argument. It focused on the word “create”. It said that the burden did not create a monopoly. The monopoly already existed as a result of the Greenbelt Company owning the benefited property. The maintenance burden was implementing an existing monopoly – a monopoly which was justifiable as all owners have a monopoly over how they use their own property.

Accordingly, the Tribunal’s decision supports the landownership model of factoring on this point. However, all was not lost to the applicants.

Second ground: void for uncertainty

A burden has to be contained within the “four corners of the deed”. With certain very narrow exceptions, you cannot refer to other documents when setting out what a real burden means. This is only fair. Anyone should be able to pick up a title deed and know exactly what they are buying.

Marriott argued that the maintenance burdens were unclear because they breached the “four corners” rule. They defined the open space by referring to a planning permission; and costs were capped by reference to an index in the Financial Times. Marriott argued that by referring to these external documents, the real burdens were unclear and therefore invalid.

The Tribunal agreed. While Greenbelt tried to argue that the 2003 Act had weakened the “four corners” rule, the Tribunal reaffirmed that real burdens had to be clear, precise and set out in the titles themselves.

Accordingly, burdens which required Marriott to pay to maintain an area of ground defined by external documents were unclear and therefore invalid.

What does this mean for developers?

This decision reinforces the need for developers to define exactly what the open areas of a development will be before the first customer moves in and receives a title. If the open areas are not defined, the factoring arrangements could be invalid through uncertainty.

What does it mean for people buying homes?

New homes: This case highlights the need to identify whether common areas have been defined correctly. If not, you could find that customers are buying homes in areas where factoring arrangements will not work and they could be left in developments with open spaces that will not be maintained.

Existing developments: In practice, factors continue to charge residents for maintaining open space whether there is a legal basis for it or not. Most people are happy to pay someone to take responsibility for it, provided they feel they are getting value for money. The problems arise when customers and factors fall out. If you are buying a property which has factoring arrangements, you should let your client (and lender) know if the arrangements could be challenged, as they too could be left with open spaces that may not be maintained.

What next?

This decision, along with the earlier Lands Tribunal decisions of PMP Plus 2009 SLT (Lands Tr) 2 and Lundin Homes 2013 SLT (Lands Tr) 73 (see “Here comes the flood?”, Journal, October 2013, 33), have created big problems for anyone creating or examining titles with open spaces. While, in an ideal world, developers would set out exactly what they will build at the start of their development, as the housing market changes and years pass, customers want different types of homes. Plans change, layouts change and title needs to be able to change with it. We need laws which are dynamic to reflect the reality of building new homes throughout Scotland. Unfortunately, as this decision, PMP Plus and Lundin Homes have shown, real burdens in deeds of conditions are not dynamic and are quick to break under pressure.

Instead I believe we should manage open spaces using development management schemes – the statutory framework for management and maintenance of shared facilities. This is specifically designed to give developers flexibility, and house buyers control of the factor, maintenance and charges. In short, after three strikes, deeds of conditions for open spaces must surely be on the way out.