The concept of "common parts" in a development of land is nothing new. Developments large and small, residential and commercial have always included open spaces and shared facilities intended to benefit all or some of the ultimate proprietors or occupiers of the development. However, the issue of how best to deal with ownership and maintenance of the common parts has in recent times posed fresh problems for developers and conveyancers alike and the Scottish Government has now issued a consultation that attempts to address the concerns that affect both consumers and developers.
Private maintenance of common parts
Broadly speaking there are two long-established models for the private maintenance of common parts but the recent spotlight on common parts has shown that neither model is without its problems.
The first model: shared ownership
Under the first model, the ultimate proprietors of the development are granted shared ownership of the common parts and can then make their own arrangements to carry out necessary maintenance – the principal arrangement for a development of any significant size usually being the hiring (and firing) of a factor or land maintenance company to organise and carry out maintenance on behalf of the proprietors.
This seemingly straightforward approach to maintenance of common parts has, however, been the subject of much discussion since the 2008 Lands Tribunal case of PMP Plus Ltd v The Keeper of the Registers of Scotland. Whilst, arguably, simply confirming the existing law relating to the transfer of land, the PMP Plus case brought to an end the widely accepted practice of transferring shares of ownership in common parts to proprietors by reference to rather loose (or 'flexible', depending on your viewpoint) definitions in Deeds of Conditions. Prior to PMP Plus, the common parts would typically be defined to include any part of the development not sold to a particular proprietor by the time the development was completed.
However, the Lands Tribunal decided in PMP Plus that such flexible definitions are invalid for the purpose of transferring shares of ownership, and instead the common parts must be capable of being idenitfied at the point a share of ownership is transferred to particular proprietors. In many cases this requirement could present developers with a serious difficulty because, for a large development still under construction, it may now be necessary to commit to a fixed plan of common parts at an early stage and therefore lose the ability to make adjustments as the development progresses.
The question of how to overcome this obstacle is still to be satisfactorily answered. The Scottish Law Commission has proposed one solution, in the form of provisional shared plots, followed up by ascertainment deeds, in its draft Land Registration (Scotland) Bill.
The second model: ownership by land maintenance companies
In light of the difficulties posed by the PMP Plus decision, it may be tempting to see the second model for private maintenance of common parts as a potential saviour. Under the second model, the developer retains full ownership of the common parts during construction of the development and then transfers ownership of the common parts to a land maintenance company once the development is complete. When transferring ownership to the land maintenance company, the developer imposes appropriate real burdens to oblige the land maintenance company to maintain the common parts. Corresponding real burdens are imposed upon the remainder of the development to oblige the proprietors to each pay a share of the cost of the maintenance of the common parts.
On the face of it, the second model therefore achieves the same result as the first model – in both cases, the maintenance of common parts will be carried out by a factor or land maintenance company and will be paid for by the proprietors of the development. However, utilising the second model avoids the need to define the common parts prior to completion of the development and in this respect offers a considerable advantage to the developer.
A "land maintenance trap"?
Yet avoiding one problem may lead to other difficulties further down the line. What happens if the land maintenance company does not hold up its end of the bargain? What if the maintenance services provided are inadequate, or the charges for work done seem excessive, or both? Under the first model where the proprietors of the development own the common parts between themselves, the solution for the proprietors should be relatively simple – sack the land maintenance company. There may be a mechanism for doing so under the Deed of Conditions for the development, or alternatively the proprietors could seek to dismiss the land maintenance company from its position as appointed "manager" by using procedures under Section 28 or Section 64 of the Title Conditions (Scotland) Act 2003.
However, the position is less clear under the second model, where the underperforming land maintenance company is in fact the owner of the land which it should be maintaining. Can such a land maintenance company be removed by the proprietors of the development?
This is not a theoretical problem but a real one. In recent years plenty of column inches in the press have been filled with the plight of victims of the "land maintenance trap" – homeowners seemingly obliged to pay a land maintenance company for inadequate services, bound by the fact that the company in question is not merely an appointed manager but is the registered owner of the common parts of the development.
While the issue has attracted plenty of attention in the press, the legal implications of ownership of common parts by land maintenance companies do not appear to have been fully explored in the courts and therefore the position remains open to interpretation.
On one view, regardless of the fact that a land maintenance company may own the common parts, it is still a "manager" under the 2003 Act and can therefore be dismissed and replaced under Section 66.
Another possible line of attack for disgruntled proprietors would be to challenge the validity of the relevant burdens on the basis that they have the effect of creating a monopoly and are therefore invalid in terms of Section 3(7) of the 2003 Act.
However, while these lines of argument may seem attractive for reaching the "right" result for the development proprietors, the contrary view favoured by land maintenance companies does hold considerable weight: if the common parts are owned by the land maintenance company, arguably it is not a "manager" under the 2003 Act at all. On this analysis, the land maintenance company is simply a landowner obliged in terms of the title deeds to maintain its own land, and entitled in terms of the title deeds to recover reasonable remuneration for doing so from the other proprietors of the development. By extension of this argument, the burdens do not create a monopoly – the land maintenance company's seemingly untouchable position is the result of its legitimate ownership of the burdened land, not the result of the relevant burdens requiring maintenance and appropriate payment.
Even if it were established that a land maintenance company which owns the common parts is nonetheless a "manager" which can be hired and fired, the removal of the company as manager would itself raise difficult questions. This would leave the company as the owner of land which in essence exists for the use and enjoyment of neighbouring proprietors, and from which the company itself could seemingly obtain no benefit. If the rights of the company as a landowner were restricted to the point that its ownership was effectively meaningless, the burdens affecting the common parts might be deemed to be repugnant with ownership and therefore invalid in terms of Section 3(6) of the 2003 Act. This point was argued – but not decided upon – in the recent case of Sheltered Housing Management Ltd v Bon Accord Bonding Co Ltd.
A third way – the Development Management Scheme
There is increasing pressure for the law in this area to be clarified sooner rather than later. In March the Scottish Government began a consultation process to examine possible changes to the law to overcome some of the present difficulties.
In the meantime, one possible solution available to developers would be to make use of the recently introduced Development Management Scheme (implemented by the Title Conditions (Scotland) Act 2003 (Development Management Scheme) Order 2009). The Development Management Scheme is a standardised set of rules for maintenance and management of developments which can be applied to land by registration of a "deed of application" against the title (which can be achieved through incorporation of the DMS) within a standard Deed of Conditions. The DMS includes provision for the establishment of an Owners' Association and, crucially, an Owners' Association under the DMS is a corporate body (with the members of the Association being the proprietors of the development to which the Scheme is applied). It is therefore now possible for title to the common parts to be transferred to such an Owners' Association, upon completion of the development, thus avoiding the difficulties of the PMP Plus case, while keeping ownership of the common parts within the control of the development proprietors.
Given the difficulties experienced with the more established mechanisms for ownership and maintenance of the common parts, the DMS may be an attractive way forward for developers.
To view the Scottish Government consultation on Maintenance of land on private housing estates click here.