For those involved in the development of land, whether for residential or commercial use, deeds of conditions are a useful tool. This blog explains what a deed of conditions is, goes on to consider whether deeds of conditions necessarily require developers to lose flexibility in development design, and looks at different approaches to ownership of development common parts.
What is a deed of conditions?
A deed of conditions is essentially a rule book drawn up by a developer for its development. The terms of the deed regulate the rights and obligations of those who will live and work in the completed development. The deed should, for example, provide every property owner with rights of access over the roads within the development, rights to connect into service media, and rights to use common parts such as car parks. It will also set out how maintenance costs are to be divided amongst the owners.
If a well drafted deed of conditions is in place at the outset and the development is constructed in a manner consistent with the terms of the deed, then purchasers of units within the development will be satisfied that they have all the rights they need over the rest of the development, and will be clear about any obligations and restrictions which might apply to them as an owner.
Flexibility and deeds of conditions
A deed of conditions needs to be registered against the title before the first unit is sold. But this presents an apparent problem: the deed of conditions needs to be in place right at the start, but most developers need to retain a degree of flexibility to make changes as the development progresses. If the deed of conditions is too rigid in specifying the layout of the development, it may be difficult to deviate from that later on.
There is a common misconception that the law now demands that deeds of conditions pinpoint the location of all development common parts (such as the roads, car parks, open spaces) by reference to a clear plan. This misconception is fuelled partly by two well-known cases in which deeds of conditions featured (PMP Plus v the Keeper and Lundin Homes Limited v the Keeper), and partly by the greater emphasis upon mapping introduced by the Land Registration etc. (Scotland) Act 2012 Act ("the 2012 Act"). However, the reality is that a deed of conditions need not eliminate room for manoeuvre.
PMP Plus and Lundin Homes cases
What is sometimes ignored in relation to the PMP Plus and Lundin Homes cases is that, although deeds of conditions featured in both, these cases were not really about deeds of conditions at all. Instead, both cases dealt with the specific issue of conveying ownership of common parts. The cases confirmed that a developer cannot transfer a share of ownership in the common parts to purchasers if the common parts are not properly defined at the point of transfer. However, this is only relevant if the developer wants to transfer a share of ownership of the common parts to each purchaser as the development progresses, which is not necessary and may not even be desirable.
So long as ownership of the common parts is properly thought through, the PMP Plus and Lundin Homes cases should be no barrier to flexibility. (More on ownership of common parts below.) Unit purchasers are usually not particularly concerned with owning a share of common parts, so long as they have the rights they need to be able to use the common parts – and it is possible for the developer to grant the comprehensive servitude rights needed by purchasers without giving up flexibility.
2012 Act mapping requirements
The introduction of the 2012 Act raised the bar in terms of mapping requirements for land registration, and as a general rule it is now necessary to map not just property boundaries, but also areas affected by servitude rights and other title conditions. So, for example, it would not normally be acceptable to grant a generic "right of access"; instead, the route of the right of access should now be plotted on a plan to allow this to be shown on the Land Register.
However, despite this general rule, servitudes can still allow for plenty of flexibility. It remains possible to grant a servitude right of access over the "roads constructed and to be constructed" within a defined development area. The exact routes of those roads do not need to be fixed in advance, so long as the development area to which the servitude rights apply can be identified on the map – which may well be the whole site. In relation to service media, there are specific statutory exceptions to the mapping rules which mean that routes do not need to be shown. The 2012 Act has therefore had little effect on the use of servitudes in development situations. Given the difficulties of transferring shares of ownership in common parts as the development progresses, servitudes are the most practical way of providing purchasers with what they need without the developer losing the ability to make adjustments on the ground.
Ownership of the common parts
Assuming the deed of conditions properly covers off all rights needed over the common parts, there is still the question of who is to own the extent of the common parts once the development is complete.
Before the PMP case, it was common for developers to transfer (or at least purport to transfer) shares of the common parts to purchasers along with their individual unit. It is still possible to do so – but only if the developer is able and willing to set in stone the common parts upon the sale of the first unit. Therefore alternative approaches are usually now preferred.
One possibility may be to transfer some or all of the common parts to the local authority once the development is complete – particularly amenity areas and open space. However, with increasing pressure on budgets, it will be important to sound out the local authority well in advance to make sure they are willing to accept such a transfer.
Another option could be to sell or transfer the common parts to a factoring company, who will then maintain the common parts and charge the cost (and a factoring fee) to the proprietors of the development. (Of course, many developments use a factor to carry out maintenance on behalf of the proprietors without the factors owning the common parts.) Although there has been some controversy around this type of arrangement, the Lands Tribunal judgment in the case of Marriott v Greenbelt Group Ltd made it clear that the model of transferring ownership of common parts to a factoring company is legally sound.
Finally, if the deed of conditions incorporates the Development Management Scheme (a model management scheme for developments introduced in 2009) it is also possible to transfer ownership of the common parts to an owners' association. Every proprietor within the development will automatically be a member of the owners' association, and the association is a corporate entity capable of owning land. This is an attractive option, given that the transfer need not take place until the development is complete (therefore leaving the developer with flexibility) whilst ultimately leaving control of the common parts in the hands of the unit proprietors. Although the DMS has been available for almost a decade, it is perhaps underused and should be considered more often by developers and their advisors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
