Developer-owners of block not property factors: court

Developers of a residential block which remained owners of all but two of the flats, and took on the management of the building themselves, were not property factors within the Property Factors (Scotland) Act 2011, the Inner House has held.

Lords Menzies, Drummond Young and Pentland gave their decision in allowing an appeal by Proven Properties (Scotland) Ltd against decisions of the First-tier Tribunal and Upper Tribunal, which found in favour of the owner of one flat who was in dispute with the appellants over a leaking roof. The owner had applied for a determination under the Act of whether the appellants had failed to carry out the property factor's duties and comply with the property factor code of conduct.

The appellants had built the 15-flat block in 2007, but marketing was affected by the recession. Only two flats had been sold and they let out the others. Initially the flats were factored but in 2011 the appellants took on the management of the building. They arranged servicing of the lift, cleaning of common areas and any necessary repairs to the building and charged the owner in question a one fifteenth share, with no factoring or management fee.

The tribunals considered that looking at what the appellants actually did, in terms of s 2(1)(c) of the Act it was enough that the management was done as part of their business and the other owners were required by their titles to pay that cost, whether or not remuneration was involved.

Lord Menzies said that the phrase "in the course of that person's business" in s 2(1)(c) had to be interpreted in the context of the statutory scheme for regulating property factors. Homeowners who chose to manage the common parts of their properties themselves were not property factors, and the phrase should be given the more restricted meaning of "in the course of their business as managers of the common parts of properties, rather than in the course of any business, however far removed its main purpose may be from the management of the common parts of land owned by other persons and used to any extent for residential purposes".

What the appellants did was done "not in the capacity of property factors, but as developers and owners of the majority of the properties in the development".

Lord Drummond Young held that the Act's requirements on property factors "demonstrate in my opinion that the purpose of the Act is to regulate those who carry on business as property factors and are paid for so acting": it was "not intended to regulate those who undertake property management functions in a tenement on a gratuitous, non-professional basis".

Lord Pentland added: "The real question is not whether the appellants did things that a property factor would typically be expected to do or would customarily do; the issue is whether the appellants were, in the course of their business, managing the common parts of land owned by two or more other persons and used to any extent for residential purposes, to quote the language used in s 2(1)(a) of the Act." In his opinion, they were not. It was not the intention of the Parliament that someone in business within a block, who voluntarily took on the burden of arranging certain maintenance, should because of that be treated as a property factor.

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