Managing the common parts of a development has a number of objectives for a developer including:
- Maintaining the amenity ground and services within a development to ensure that the development delivers as a quality living space;
- Ensuring that the management structure allows the developer an exit strategy so that they can pass on the management to a reliable successor and transfer all liability for common parts on completion of the development; and
- A fair and equitable management system which is clear and minimises any disputes with regard to the costs charged to plot owners for maintenance of the common parts. It is not unusual for residents to challenge their bills and seek to avoid liability for common parts which they may feel they derive no benefit from.
There are several ways in which the title deeds can provide for the management of the common parts. Which method is the appropriate way to proceed does depends on the particular nature of the development including the size, the location and the nature of the development.
What are the common parts?
The common parts will be those areas and infrastructure which the developer has identified as being for the benefit of more than one unit within the development. Some common parts will be common for the benefit of all the proprietors within the estate and some may only benefit a few proprietors. For example, there may be an area of the development which provides access only to a number of plots and the liability for maintenance of that shared access is shared amongst those few plots. There may be a part of the development which is flatted. Accordingly, the tenement blocks will have common parts specific to those flatted properties.
There have been some recent cases of proprietors challenging their liability to contribute to the maintenance of common parts where there was no apparent benefit to them. In a recent Land Tribunal case, a party was successful in avoiding liability for maintenance of an area of amenity ground on the basis there was a lack of clarity in the way the title condition had been expressed and the relevant area of amenity ground was located in an area of the development some distance from their property. Depending on how the management structure is set up, successful applications like that can create a residual liability for the developer in terms of common charges.
There are three ownership models to choose from when considering how best to set up the management of the common charges. These are:-
- The common ownership model;
- The land-owning maintenance model;and
- The development management scheme.
Each of these models has a different way in which the common parts are held and correspondingly a different way in which the management of the common parts is dealt with.
Common Ownership Model
This was the most common method of ownership of common parts and was perceived by developers to be the most flexible model. In this model, the deed of conditions defines the common parts as common property and with each conveyance to a purchasing plot owner there is included a share of the common parts. Such deed of conditions commonly used to have a clause within it which indicated that the developer retained an ability to determine the extent of the common parts right up until the development was completed. This meant that the developer retained a flexibility as to what would be comprised within the common parts.
If there was an area of ground initially identified as amenity ground and part of the common parts but for which the developer was then able to obtain a return, then the developer could still convey that area away to a third party as their exclusive property provided the conveyance was granted prior to deemed completion of the development. It was only upon completion of the development that the full extent of the common parts was ascertained and accordingly the extent of the common parts within the ownership of the co-proprietors.
This model however, was challenged following the decision in the PMP v Registers of Scotland case in 2008. In that case the Lands Tribunal indicated that a conveyance of an area of ground which was not at the point of conveyance capable of being validly ascertained was invalid.
Accordingly for the purposes of this model going forward the developer has to be quite clear as to the areas are identified as the common parts for which a share of common property is being conveyed at the point of sale to the first plot owner. Ideally the extent of the common property should be shown on a plan attached to the deed of conditions and a specific percentage share conveyed away to each of the co-proprietors. The disadvantage so far as this model is concerned is that it does take away the flexibility in that from first conveyance in favour of a plot proprietor containing a pro indiviso share in the common parts, the common parts cannot be used for any other purpose without the consent of each proprietor owning a pro indiviso share.
Land-owning Maintenance Model
The second model is the land-owning maintenance model. This model envisages that the developer will retain ownership of the common parts whilst the development is ongoing and when there is a requirement for there to be a maintenance regime set up for the common parts the developer will convey the area comprising the common parts to a land management company such as the Green Belt Company. With the title going across to the land management company there will be various title conditions obliging the land management company to carry out a maintenance regime of the common parts but with the ability to recover the costs of that maintenance regime from the proprietors. The deed of conditions would place obligations on the part of the proprietors to contribute to the maintenance of this area. The benefit for the developer in terms of this model is that the developer is passing over responsibility to the land management company along with the property and it is for them to deal with the residents.
Development Management Scheme
The third ownership model is the development management scheme. This scheme allows for the creation of a residents association as a corporate body with its own identity separate from the plot purchasers from the date of the first sale. As each sale progresses each new purchaser automatically becomes a member of this corporate body. This entity is tasked with the maintenance and management of the common parts as per the development management scheme rules and the residents association can appoint a property manager to act on their behalf with regard to the management.
The developer has the ability to transfer the common parts in whole or part thereof to this corporate body usually at the point of completion of the development. This provides the developer with an exit strategy on the same basis as the land management ownership vehicle but with this model the residents retain an element of interest so far as how the common parts are managed.
There are benefits and disadvantages with each of these three models for example the common ownership model removes an element of flexibility that the land-owning maintenance model and the development management scheme model retain. However, the land-owning maintenance model does not give the proprietors any involvement in the management of the common parts unlike the common ownership or development management scheme.
Which scheme is best for your clients or your development will depend partly upon the size of the development. If it is a small development the common ownership model probably works best but this does require the layout and location of the common parts to be ascertained at a fairly early stage. The larger development with the potential for further phases would benefit more from the development management scheme as it gives the greatest flexibility. If part of the common parts requires some specialist work then the land owning maintenance model is probably the best as it allows those that do maintenance of common parts as their business to ensure that the appropriate measures are put in place with regard to the management of these parts.
Brodies have experience in drafting for all three types of models so can help to advise at which model would suit your development best.