Bell & Scott's Property Update, April 2008

Welcome to the April 2008 issue of Bell & Scott’s Property Update.

In this month's issue we comment on (1) a case where a seller lost out on an overage payment in an agreement because consent for holiday apartments did not amount to consent for residential apartments; and (2) an appeal case which looked at the level of disturbance to the enjoyment of your property that you have to endure before you can enforce a title condition against your neighbour.

We also update you on (1) the Scottish Government’s proposal to remove the requirement for planning permission for micro-generation equipment in houses; (2) a new Planning Advice Note aimed at reducing carbon emissions in new developments; (3) moves towards an international standard for green buildings; (4) Fife Council’s proposal to increase the level of developer payments for adoption of amenity areas; and (5) a commission set up to review taxation in Scotland.

Recent Decisions

Going flat out for uplift on price

Was overage payment due for holiday apartments?

Mr and Mrs Kenley owned the Treyarnon Bay Hotel in Padstow, North Cornwall. In January 2003, they sold the hotel for just over £1M. The sale was subject to the purchaser obtaining planning permission for development. The purchaser made three applications for planning permission for various types of development but all were refused. While two of the refusals of planning permission were under appeal, a dispute arose as to whether or not the Agreement for the sale had expired and as part of the resolution of that dispute, a new clause was inserted into the Sale Agreement providing that, if the purchaser obtained planning permission to develop the property as residential flats and carried out that development within five years, then the purchaser would pay the seller an overage payment as and when each of the flats were sold.

The planning appeals were unsuccessful but the purchaser opted to proceed with the purchase without planning permission. The purchaser then made a further application for planning permission for “conversion, part demolition and extension of the existing hotel, flats and café to 17 holiday apartments with access, parking, services etc”. Planning permission was granted and, amongst the conditions of the planning permission, it was stated that the development was to be used for holiday accommodation only.

The development proceeded and Mr and Mrs Kenley considered that they were entitled to the overage payment. They based their argument on the following: (1) “residential flats” meant flats which could be used for residential accommodation, including holiday use, (2) holiday apartments and full-time residential premises are both within the same Use Class, (3) the wording of the overage provision was different from the wording used in the definition of “development” in the Agreement (where there was reference to “units of permanent residential occupation throughout the year”) and that, therefore, it was clear that that was the language which would have been used in the overage clause had the parties meant it to apply only to flats which were to be for permanent residential occupation. However, despite these arguments, the court decided that no overage was due. The judge’s main reason for that decision was that he believed that, as used in the overage clause, “residential flats” meant flats which could be sold for use as permanent residences and did not include holiday apartments.

Bruce Anderson, Head of our Strategic Land Team, comments:

Cases of this type sometimes throw up unexpected results – this is not one of those occasions.

Reading the full judgement, it would appear that the judge:

It was clear that it had been in the purchaser’s commercial interest to pay an uplift if it had been able to build units which were not limited to being used as holiday apartments and that it only settled in the end for building holiday apartments as that was the best it could get.

Besides, at the time that the Agreement was entered into, planning permission already existed allowing for the building of additional holiday apartments and it seemed commercially unlikely that the overage payment was intended to become due if the purchaser obtained and implemented a planning permission equivalent to the permission which was already in place.

In addition, in the context of the transaction, it appeared clear that by using the words “residential flats” rather than simply “flats”, a distinction was being made between flats available for full-time residential occupation and flats limited to holiday occupation.

It is good to see common sense prevailing. If the Kenleys had indeed wanted the overage to apply regardless of whether the flats were to be for holiday or full-time residential use, they would have had to ensure that that was stated very clearly in the Agreement. As so often, the lesson is to spell out exactly what you mean.

Case referred to Richard Jonathan Walker v (1) Malkolm Kenley and (2) Jennifer Eileen Kenley [2008] EWHC 370 (Ch).

A full text of the decision is available on the British and Irish Legal Institute website accessible here.

No interest to enforce right

Do title conditions have any bite?

In the June 2007 issue of Property Update (click here), we considered the Sheriff Court decision in the case of Barker v Lewis, which looked at the matter of interest to enforce title conditions. The case was appealed to the Sheriff Principal, who has now upheld the Sheriff’s original decision. However, the Sheriff Principal gave further consideration to the question of what may constitute “material detriment” to the value or enjoyment of a property, which must be shown by a neighbouring proprietor before he can establish an interest to enforce a title condition.

The Deed of Conditions, affecting 5 houses in a farm steading conversion near St Andrews, stated that each of the houses was to be used and occupied as a dwelling house for one family only. The Deed also prohibited activities which would cause disturbance to other owners within the development. Mrs Lewis, the owner of one of the 5 houses, started to run a bed and breakfast business from her property, in contravention of the Deed of Conditions. The other 4 owners refused to approve this and they raised an action to stop the use. However, neighbours seeking to enforce title conditions must have both a title and an interest to enforce the condition. While the neighbours, in this case, clearly had title to enforce, they failed to establish that they had an interest to enforce. In order to establish such an interest, they needed to show that they had suffered “material detriment” to the value or enjoyment of their properties, and, in the Sheriff’s opinion, they had failed to do so.

Paul Reilly, a Partner in our Housebuilding Team, comments:

The question of the potential rights of third parties to enforce title conditions has been a recurring issue since the coming into force, in 2004, of the Title Conditions (Scotland) Act 2003 (“the Act”). Although we no longer have Superiors to worry about, third parties have a right to enforce title conditions if certain criteria are met – one of the most common being that the properties in question are all subject to the same or similar conditions, which is the situation where a development has a Deed of Conditions in place. However, neighbouring proprietors must have an interest as well as a title to enforce. This case is the first one to emerge which examines the question of interest to enforce.

The Act provides that an interest to enforce exists where “failure to comply with a real burden is resulting in, or will result in, material detriment to the value or enjoyment of the person’s ownership of” their property. The key words are “material detriment” and “value”. Various factors may be relevant to what amounts to “material detriment”. One will be the level of seriousness of the breach. Another will be the physical distance which lies between the property which is affected by the title burden and the property which would have the benefit of that burden. For example, the owner of a house at one end of a large residential development would not have an interest to enforce a title burden, contained in a Deed of Conditions for the development, which prevented a house owner at the opposite end of the development building a conservatory.

In this case, the Sheriff originally accepted that the neighbouring proprietors were inconvenienced on a personal level by the breach of the burden. The Sheriff considered the nature of various incidents which had occurred over a period of time and how often such incidents had occurred. In his view, that evidence suggested that there was no material detriment, which must relate to a reduction in the value and the enjoyment of taking ownership of the property itself, rather than being personal to the sensibilities of the individual occupant of the property. In the Sheriff’s opinion, the neighbours had failed to show that they had suffered a sufficiently serious level of detriment to either the value of or enjoyment of their properties and, therefore, they did not have an interest to enforce the burden. He considered that the level of detriment that you must be experiencing, before you have an interest to enforce, needed to be substantial. In this case, the number and nature of the disturbing incidents did not reach that level, therefore, Mrs Lewis could continue with her bed and breakfast business. The Sheriff Principal has also given Mrs Lewis the green light. However, the Sheriff Principal thought that the original Sheriff, by deciding that “material detriment” had to be “substantial detriment”, had set the bar or threshold too high for establishing an interest to enforce a burden. The Sheriff Principal’s view was that “material detriment” meant “detriment which was significant” - a level which falls short of “substantial”.

This case therefore lowers, to some extent, the threshold for establishing “material” detriment to the value or enjoyment of a person’s ownership of their property. However, on the basis of this case – where the Barkers were, after all, immediate neighbours of Mrs Lewis – it seems that establishing an interest to enforce a title burden will still be more difficult than was previously considered.

What would be ideal, in this important area of property law, is a case to go to the Court of Session. Once a full hearing on the pros and cons takes place in a superior court, we may have something more concrete to go on.

Case referred to Kristeen Barker and others v Airlie Joan Lewis, Cupar Sheriff Court, 5 March 2008.

A full text of the appeal decision is available on the Scottish Court Service website accessible here.

News

Permitted development rights for domestic micro-generation equipment

The Scottish Government has issued a consultation on the removal of the requirement to obtain planning permission for the installation of micro-generation equipment in houses. The Government’s energy policy recognises that the promotion of reduced energy consumption and low carbon technologies is central to achieving sustainable economic growth. Micro-generation covers technologies such as solar panels, small wind turbines, ground source heat pumps, bio-energy, active solar heating, hydrogen and fuel cells. These technologies have potential to provide a sustainable source of low carbon energy and reduce carbon dioxide emissions from buildings.

In order to encourage the installation of more micro-generation equipment on domestic buildings, the consultation paper seeks views on the extent to which planning control can be reduced for domestic buildings by making micro-generation equipment 'permitted development' and thus removing the need to apply for planning permission. The proposals seek to strike the right balance between controlling adverse impacts on neighbours and amenity generally, and the wider environmental benefits of CO 2 emission reductions.

The consultation document can be accessed here. Responses must be received by 12 May.

Reducing carbon emissions in new development

The Scottish Government has issued Planning Advice Note: PAN 84 which aims to provide information and guidance on implementing the target in SPP 6, Renewable Energy.

SPP 6 and PAN 84 emphasise that a key role of the planning system is to support a move towards low and zero carbon development through the use of energy efficient, micro-generating and decentralised renewable energy systems.

The details of the Planning Advice Note can be access here.

An international standard for green buildings

An international summit of property industry leaders, chaired by Liz Peace of the British Property Federation, has agreed to develop a global index for green buildings.

Industry chiefs from the UK, Japan, USA, Germany, Italy, Finland, Sweden and Denmark decided on the need for a clear global reporting standard on sustainability to enable genuine comparison, measurement and benchmarking to take place in the interests of reducing carbon emissions from buildings.

Details of the summit can be found on the British Property Federation website accessible here.

Fife Council to increase adoption criteria

Fife Council is set to amend the level of contribution it will require from housing developers when it takes on responsibility for amenity areas. It will extend the adoption period from 10 to 25 years with a view, it says, to striking a better balance between increasing revenue and keeping costs of adoption affordable.

Most developers prefer to transfer responsibility for maintenance and repair of open spaces, recreational areas and play areas to residents, to a factor or to a private maintenance company. However, some developers still seek adoption of those areas and facilities by a local authority.

Developers opting to hand responsibility to Fife Council will have to pay a commuted sum equal to 25 times annual maintenance costs, as well as a capital sum which can be used to refurbish or restore land and recreation areas during the adoption term.

The future of tax in Scotland

A cross-party, cross-border commission to review devolution in Scotland was launched on March 25, 2008, focusing on tax-raising powers and financial accountability. The commission, to be headed by Sir Kenneth Calman, will publish an interim report by November 2008 following concerns relating to whether Scotland should continue to receive an annual GBP 30 billion from Westminster when it has no responsibility for raising the money. A separate paper was also commissioned by the Chancellor of the Exchequer, Alistair Darling, on the funding of the devolved administrations in Scotland, Wales and Northern Ireland.