Bell & Scott's Property Update, July 2010

Welcome to the July 2010 issue of Bell & Scott’s Property Update.

In this month's issue we comment on a case in which a fairly new title restriction on alcohol sales in a mixed development was relaxed by the Lands Tribunal when it was proving difficult to let the retail units.

We also update you on a number of other relevant news items.

Recent cases

How many units of alcohol?

The Lands Tribunal relaxes a title restriction to facilitate commercial letting

In 2006, Matnic acquired 3 retail units (extending to some 6,000 square feet) located at ground floor level below 16 flats. At that time, the development had been completed though none of the retail units had been let. The Deed of Conditions put in place by the developer included the provision “no shops or other buildings shall be erected on the Area of Ground for the sale of any wines or spirits or other excisable liquors”.

Matnic had difficulty letting the units and, since their acquisition, had only managed to let two smaller units totalling some 2,600 square feet. Matnic’s estate agency advice indicated that the location of the retail units meant that they were most suitable as the location of a convenience store. A supermarket use was unlikely given that there would be little passing trade. However, without the ability to sell alcohol, it was unlikely that any tenant would take a unit for a convenience store use. Non-food retail uses were possible but there had been no strong interest from other prospective tenants.

Matnic applied to the Lands Tribunal for the variation of the Deed of Conditions in order to permit the sale of alcohol from the retail units. In doing so, Matnic intimated their application by serving notice on some 300 other owners in the development whose property was also affected by the Deed of Conditions. Of those, three owners of flats above the retail units objected to the application to vary the Deed of Conditions. Two of those objections were withdrawn prior to the hearing, leaving Mr Armstrong as the sole objector.

Armstrong submitted a short, written submission to the Tribunal stating his objections that the presence of the restriction was a material consideration when he bought his flat, that there was sufficient provision for alcohol sales within a relatively short distance from the development, that allowing Matnic’s application would lead to increased litter, noise and vandalism problems, would increase pressure on parking and would set an unwelcome precedent.

Matnic argued that it was the developer’s intention that the retail units should be allowed to sell alcohol as ancillary to their principal use, the prohibition being designed to prevent off-sales and pub uses, and that it was significant that the developer did not object to the release of the restriction. Also, a supermarket or convenience store would benefit the community, the low level of objection indicating that the residential occupiers did not regard the release of the restriction as prejudicial. In addition, noise, litter and other nuisance had been considered as part of the planning process.

The Lands Tribunal allowed Matnic’s application to vary the title condition to the effect that alcohol sales would be permitted, but added the restrictions that such sales could not take place later than 8pm nor in an area in excess of 1,500 square feet. This would allow a convenience store use but would tend to exclude a larger supermarket use.

Neil Fraser, Associate in our Housing and Regeneration Team, comments:

Title conditions frequently present a barrier to the free use of property, and quite deliberately so, given that such barriers are usually intended to protect the amenity of nearby property being sold by the developer. Although the Matnic case was decided in 2009, it has only recently been published in the Scots Law Times. The case was decided under the “new” provisions of the Title Conditions (Scotland) Act 2003. The Act sets out various factors (listed in section 100, here) which the Lands Tribunal is bound to consider in determining whether it is reasonable to grant the application to vary the title. The Tribunal will typically consider all of these factors and any other factor the Tribunal considers relevant, whether or not specifically raised by the parties. Each factor is weighed up against competing factors to give the outcome in any particular case.

This process has certain pros and cons. On the plus side, the Tribunal has shown itself to be flexible, to suggest and reach compromises, and to take on board commercial concerns. On the down side, the outcome is difficult to predict. “Precedent” is perhaps the only factor which the Tribunal will not consider, each case being decided on its own, individual, facts and circumstances. The parties to a case involving the variation or discharge of a title condition may find the lack of predictability hard to cope with but it is difficult to criticise the Tribunal since their decisions are invariably reasonable, though we dare say that not everybody would always reach the same conclusions.

In the Matnic case, the Tribunal was quick to dismiss the suggestion that the developer’s lack of objection was significant. The developer may have retained some minor areas of ground in the development but, in reality, had no particular interest in what happened with the retail units. The lack of all but one objecting owner was indicative, but not necessarily central. Similarly, the public planning process could offer some protection to the flat owners but could not be considered as effective a protection compared with a private property right to enforce a title restriction.

Rather, the significant factors in this particular case were (a) it was a relatively young title restriction, still serving its original purpose, and (b) the restriction was to some extent a benefit to the flats in terms of protecting their amenity, particularly in the evenings and late at night, but (c) the restriction was a significant commercial burden upon Matnic. The Tribunal therefore varied the restriction to open up the possibility of a unit being let as a small convenience store without late opening which, they felt, ought not to have any significant impact upon the flat owners beyond what might be expected from any other retail use that was already permitted. Whether this solution is completely satisfactory to either party is a matter of speculation. It is not a solution that either party had requested. Still, it is often said that a good measure of a sensible compromise is that neither party leaves the court feeling completely happy with the outcome.

In the wider context, the decision illustrates the difficulty of striking the right balance between the competing needs of residential and commercial elements when considering how title restrictions in a mixed development might impact upon marketability. In a tough economic climate, commercial occupiers may not be beating down the door looking for space, yet housing units are also harder to shift.

It also has to be borne in mind that the ability to amend a Deed of Conditions is dramatically reduced once any part of a development is leased or sold and so a prospective investor needs to seriously consider the possible impact of any title restrictions. The Lands Tribunal may well come to the rescue but that cannot be guaranteed and it would be a brave investor who relied on it.

Case referred to: Matnic Limited v Charles Armstrong: LTS/TC/2008/46; 2010 S.L.T. (Lands Tr) 7

A full text of the decision is available on the Lands Tribunal website accessible here.

News Updates

Resourcing a High Quality Planning System: A Consultation Paper
This consultation seeks views on how the planning service can be more effectively resourced and focused on quality of service and on options for amending the fee structure. Written responses to this consultation paper are due by 15 October 2010.

Details are available on the Scottish Government's website accessible here

Consultation on a Proposed Housing Bill: An Analysis of Consultation Responses
This report provides an analysis of responses to the Scottish Government's recent Consultation Paper on a proposed Private Housing Bill. The Consultation Paper put forward proposals in six areas, four of which related to the private rented sector, one to the licensing of mobile home sites and one to the 20 year rules.

Details are available on the Scottish Government's website accessible here

Revenue and Customs Brief 29/10
This brief announces a change to the treatment of claims received by HM Revenue & Customs under the provisions of the VAT: DIY Housebuilders and Converters VAT Refund Scheme - treatment of holiday homes.

Details are available on HM Revenue & Customs website, accessible here

Housing: Fresh Thinking, New Ideas - Summary
This is a summary of Housing: Fresh Thinking, New Ideas, the Scottish Government publication which was issued in May.

Details are available on the Scottish Government's website accessible here

Environmental Report: Permitted Development Rights for Microgeneration Equipment on Non-Domestic Properties Consultation
This report sets out the potential significant environmental effects that may arise as a result of the proposed permitted development rights for microrenewable equipment on non-domestic properties. Comments are due by 8 October 2010.

Details are available on the Scottish Government's website accessible here

Small Buildings Structural Guidance
The Small Buildings Structural Guidance provides structural guidance to designers of small domestic buildings on how to comply with standard 1.1. This document replicates the guidance that was published in Section 1 (annexes 1.A to 1.F) of the Technical Handbooks up until 30 September 2010.

Details are available on the Scottish Government's website accessible here

Loch Lomond and the Trossachs National Park: Statement to Parliament on Consultation on Draft Order to Modify Designation Order
This contains a Statement to Parliament, as required under the National Parks (Scotland) Act 2000, on the consultation on a draft Order to modify the 2002 Designation Order to reduce the number of members of the Loch Lomond and the Trossachs National Park Authority from 25 to 17, and to reduce the number of members nominated by West Dunbartonshire Council, Stirling Council and Argyll and Bute Council. It also contains the consultation responses.

Details are available on the Scottish Government's website accessible here

Cairngorms National Park: Statement to Parliament on Consultation on Draft Order to Modify Designation Order
This contains a Statement to Parliament, as required under the National Parks (Scotland) Act 2000, on the consultation on a draft Order to modify the 2003 Designation Order to: (1) extend the boundary of the Cairngorms National Park into Perth and Kinross as recommended by the Parliament's Environment and Rural Development Committee in 2007 and proposed by Ministers in 2008; and (2) reduce the number of members of the Cairngorms National Parks Authority from 25 to 19, reduce the number of members nominated by Highland Council and Aberdeenshire Council and provide for Perth and Kinross Council to nominate a member. It also contains the consultation responses.

Details are available on the Scottish Government's website accessible here