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Shaky Foundations for Open Ground - Marriott v Greenbelt Group Ltd LTS/TC/2014/27 - Lands Tribunal, 2 December 2015

Through an analysis of Marriot v Greenbelt Group Ltd, David Jeffries (4th year LLB) criticises the upholding of the use of real burdens in relation to the "land owning maintenance model", arguing that this contravenes the prohibition on real burdens that have the effect of creating monopolies.

 

Shaky Foundations for Open Ground - Marriott v Greenbelt Group Ltd LTS/TC/2014/27 - Lands Tribunal, 2 December 2015

 

An Attack on the Land Owning Maintenance Model

This case was highly significant for a particular model of estate management, known as the “land-owning maintenance model”, which came under scrutiny due to its use of real burdens. The model involves areas of “open ground” in property developments being transferred by the developers to estate management companies, who in turn maintain it for the benefit of the other properties in the development. The scheme works through the imposition of a real burden on the group of properties to pay for the maintenance costs, and a real burden on the open ground, which obligates the estate management company that owns it to maintain it. The applicants in this case were challenging the validity of the burden to pay money to the estate management company, Greenbelt Group Ltd, which was a direct attack on the compatibility of the land-owning maintenance model with Scots law. If a burden to pay money to an estate management company was held to be invalid by nature, then the model would cease to exist, as no company would accept such maintenance obligations without remuneration. 

In examining the judgement of the Lands Tribunal, the arguments against the burden will be outlined, along with a summary of the Tribunal’s judgment. Focus will be placed on the decision relating to one of the most significant grounds of challenge, namely the Tribunal’s verdict on whether the burden had the effect of creating a monopoly in contravention of Section 3(7) of the Title Conditions (Scotland) Act 2003 (the 2003 Act). Its arguments in relation to this issue will be explored, with a view to evaluating whether or not the Tribunal is successful in justifying its verdict.  It is suggested that while the Tribunal’s decision may have dealt with the attack and secured the survival of the land owning maintenance model for the moment, it has done so on grounds which are open to question, and may have applied the 2003 Act in what could be viewed as a creative and potentially unconvincing way.

 

Background of the Case and the Verdict of the Lands Tribunal

The broad circumstances of the case are that Bett Homes, a developer, disponed the open ground in the Menstrie Mains housing development to Greenbelt, whose title was burdened with the obligation to maintain the aforementioned open ground. The title of each homeowner in the development was burdened with the obligation to pay Greenbelt for this maintenance. The homeowners had no rights in respect of the open ground, it was owned outright by Greenbelt. These arrangements are typical characteristics of the land owning maintenance model.

The applicants in the present case owned a house in the development, and challenged the validity and applicability of the burden obligating them to pay Greenbelt for its work under Section 90(1)(a)(ii) of the 2003 Act. They did so on five grounds. The first was that the burden was not praedial, in that it did not satisfy the requirements of Section 1(1), 3(1) and 3(2) of the 2003 Act which essential state that a real burden must relate to the land it burdens, not just the owner. The second was that it created a monopoly in contravention of Section 3(7) of the 2003 Act. The third was that it was invalid under s3(6) of the 2003 Act and common law, in that it was contrary to public policy, repugnant with ownership, and illegal. The fourth was that it was illegal under Section 18 of the Competition Act 1998 in that it constituted an abuse of a dominant position. The fifth was that the burden was invalid due to uncertainty.

The applicants were unsuccessful with regard to every ground of challenge bar the one which argued that the burden was invalid due to uncertainty. In its concluding statements the Tribunal remarked of the challenge: “[as] an attack on the land-owning model per se it has failed. The applicants have succeeded not because of any structural flaw in the model but because the benefited land property was not adequately identified in the constitutive deed.”[1] Therefore, the general validity of the burden and consequently the underlying basis of the land owning maintenance model was upheld, which appears to be a resounding success for proponents of the scheme. However, one particular aspect of the decision will be subject to greater examination, with a view to illustrating that the argument relating to the prohibition of burdens creating monopolies could be seen as unconvincing.

 

Prohibition of the Creation of Monopolies

It was argued, unsuccessfully, that the burden to pay money towards the maintenance costs was contrary to Section 3(7) of the 2003 Act. The provision states that:

“Except in so far as expressly permitted by this Act, a real burden must not have the effect of creating a monopoly (as for example, by providing for a particular person to be or to appoint— (a) the manager of property; or (b) the supplier of any services in relation to property).”

The applicants argued that the burden had the effect of creating a monopoly as it allowed the respondents to charge the proprietors for providing the maintenance service, and gave them no opportunity to seek another provider in light of unsatisfactory service. It is no exaggeration to say that this ground of challenge, even if it were to stand alone, attacked the very existence of the land owning maintenance model. If a burden of this type was found to be invalid due to illegally creating a monopoly, the capacity to make money would disappear from the model. The Tribunal held, by a slim majority of two to one, that the burden did not contravene Section 3(7), thus narrowly preserving the model.

  1. The Argument of the Majority

The majority recognised that the situation in question “is a monopoly: the respondents have exclusive control of the supply of a service.”[2] However, the essence of its argument lay in the assertion that the burden did not “create” that monopoly, as is required for it to contravene Section 3(7), but rather merely “reflected” one[3]. The majority based this assertion on the fact that it was the respondents’ right to manage the land which they owned that created the monopoly, not the burden, stating that “the maintenance of land in the hands of its owner does not give rise to a monopoly in the sense required for section 3(7), otherwise any maintenance burden could be said to create a monopoly.”[4] In support of this line of argument the majority mentioned the monopolistic nature of land ownership, and the right of a land owner to manage their land how they please. It stated that all the burdens did in this case was turn this right into an obligation and impose certain standards of maintenance, rather than alter or create new monopolistic characteristics that did not exist already[5]. The majority ended its ownership argument by stating that the norm when a monopoly is complained of is to demand that it is ended, but that this “simply cannot happen when the monopoly comprises rights which are inherent in and inalienable from the ownership of land”[6]. The rationale of these arguments can be called into question in certain respects.

 

  1. Creative Interpretation of the Legislation

Firstly, it will be noted that the narrow focus on the question of whether the burden “created” the monopoly (as opposed to merely having the effect of creating it), on which the majority based its argument, is as literal an interpretation as could have possibly been made from the wording of Section 3(7), and may even have resulted in the purpose of the position being frustrated. It could be pointed out that if the Scottish Parliament intended to place so much emphasis on the need for the burden to actually create the monopoly, it may have excluded the qualification that a burden can “have the effect” of doing so, which seems to widen the scope of the provision somewhat. It could have sufficed to say “a real burden must not create a monopoly”, which is how the majority appeared to interpret it, but this is not what the provision stipulates. Although there is little mention of this provision in either the Scottish Parliament “Inquiry into the effectiveness of the provisions of the Title Conditions (Scotland) Act 2003”, or in the policy memorandum, the explanatory notes state that Section 3(7) “makes clear that a real burden cannot create a monopoly, except where the contrary is expressly permitted by the Act.” The only express permission found in the 2003 Act is for community burdens to appoint managers under Section 26(1)(d) and for the creation of manager burdens under Section 63, which are themselves time limited[7]. Gretton and Steven use similarly unqualified terms, asserting that “a real burden must not create a monopoly, for example by requiring that a certain company always manages a development”[8] (which is essentially the effect of this scheme of burdens). It seems therefore that the prohibition on burdens which have the effect of creating a monopoly is relatively strict, particularly looking at the limited exceptions to the rule. The Tribunal has given the term “creating” the most literal interpretation possible, which could be argued to go against the general scope of the provision.

 

  1. The Effect of the Burden to Pay Money

In focussing so literally on what it is that has “created” the monopoly, it could be argued that the majority missed what the effect of the burden in this case actually was, which could be seen as the essential element to identify, bearing in mind the argument that Section 3(7) of the 2003 Act encompasses situations where burdens “have the effect of creating” a monopoly.  It began its argument by providing two “potentially relevant”[9] definitions of monopoly, the first of which reads “Exclusive possession or control of the trade in a commodity, service, etc.; the condition of having no competitor in one’s trade or business”. This definition will be used for the purpose of this argument. It was accepted that the services being provided to the proprietors of the other properties were the management operations[10], and that there was indeed a monopoly with regard to these services. The majority then delivered the arguments mentioned above regarding the fact that the monopolistic nature of land ownership and Greenbelt’s right to manage its own land were what created the monopoly, rather than the burden to pay which merely reflected it. However, it could be argued that the burden indeed created the monopoly, or at the very least had the “effect” of doing so in the wording of Section 3(7). Hypothetically, if the points about the consequences of land ownership and all that it entails are assumed to apply, and it is assumed for a moment that there is no burden, then there can be said to be no monopoly. The proprietors would not have to pay Greenbelt and therefore there would be no trade in a service, and consequently no exclusive control of such a service. Furthermore, Greenbelt would still have all its rights in its land, which would be totally unaffected, and it would still be subject to the maintenance burden. Now, once the burden to pay is added to the scenario, the situation changes. There is now a group of proprietors paying for a maintenance service, of which one undertaking has exclusive control. It is Greenbelt’s business, which has no competitors. These are the characteristics of a monopoly as defined by the majority. The imposition of a burden to pay on the proprietors arguably has the effect of creating a situation where the provision of a service is monopolised by a company. It is true that it was Greenbelt’s ownership of the land that made it the only one that could be responsible for maintaining the land, as it belongs to it. This is not a monopoly in itself. Maintaining one’s land alone is not a business. The burden then gave Greenbelt the grounds to claim enough remuneration to make a profit[11] (it should be noted that it was receiving more than merely a share of the costs of maintenance) and created a market for Greenbelt to provide maintenance services over which it had a monopoly. This could be argued to be enough to show that the burden had the effect of creating a monopoly in terms of Section 3(7), even if it was not the burden itself which gave Greenbelt actual control of the maintenance.

  1. The Possibility of Ending the Monopoly

The same line of thinking would also challenge the majority’s assertion, mentioned in section i), that a monopoly in a case such as this could not simply be ended because of the inalienable rights Greenbelt held in the open ground. It is true that the monopoly could not be ended in the sense the majority is referring to, in that other suppliers of services could never be allowed a chance to manage land belonging to another as that would be repugnant with ownership. However, the monopoly could still be ended, relatively simply, without infringing on Greenbelt’s rights and obligations. This would work by the burden being declared invalid due to its contravention of Section 3(7). This would have the effect that the proprietors would no longer be under any obligation to pay. There would be no impact on Greenbelt’s ownership right, and it would still be under a maintenance obligation. It may well want to sell the land, but that is a decision unrelated to its rights in the land. It could be suggested that with this particular argument the majority tried to create a situation in which a finding of a monopoly created by a burden, which would have to be ended, would have resulted in consequences repugnant with ownership, in that other business would have been able to compete to manage Greenbelt’s land. However, this is not the case. Greenbelt would simply stop receiving a profit for maintaining its own land.

 

Impact of the Decision and the Future of the Land Owning Maintenance Model

The decision has affirmed the validity of the land owning maintenance model, regardless of the fact that the reasoning can be called into question in certain respects. It was argued by Andrew Todd that the requirement for burdens to be so precise in identifying burdened property could cause big problems for developers seeking to use the land owning model, given their need for flexibility and the model’s lack of it[12]. However, as Wendy Quinn pointed out[13], the Tribunal only ruled that the burden was invalid on a technicality and upheld the validity of the burden on all other grounds, which thus affirmed the validity of the basis of the model. Stephen Goldie went further[14], asserting that the Tribunal had “endorsed” the model, an argument which has some persuasiveness given the Tribunal’s arguably strained effort to show the burden did not create a monopoly. Whether it was correct to do so remains to be seen. 

A potential alternative that avoids some of the issues inherent in the land owning maintenance model could be the use of development management schemes provided for in Part 6 of the 2003 Act and the Title Conditions (Scotland) Act 2003 (Development Management Scheme) Order 2009. This involves the creation of an owners’ association, a body corporate with the benefits of legal personality such as the ability to own land and be a party to contracts. This association is headed by a manager appointed by the proprietors, who are all members. This model has the benefits of facilitating monetary contributions towards the maintenance of land while also providing the possibility of choosing the provider of the services. It represents a more flexible alternative to having one independent company owning burdened open ground.

 

[1] Marriott v Greenbelt Group Ltd LTS/TC/2014/27 [177]

[2] Ibid [104]

[3] Ibid [105]

[4] Ibid [106]

[5] Ibid [107]

[6] Ibid

[7] Title Conditions (Scotland) Act 2003 s63(4)

[8] G L Gretton and A J M Steven, Property, Trusts and Succession (Bloomsbury Professional 2013), 13.11

[9] Marriott v Greenbelt Group Ltd LTS/TC/2014/27 [101]

[10] Ibid [103]

[11] Clause 3.1 of the burden allowed the respondents to charge “reasonable estate management remuneration and charges incurred …”.

[12] A Todd, “The end of deeds of conditions?”, J.L.S.S. 2016, 61(1), 20-21

[13] W Quinn, “Deeds of conditions: not dead yet”, J.L.S.S. 2016, 61(2), 20-21

[14] S Goldie, “Deeds of conditions: emerging stronger”, J.L.S.S. 2016, 61(4), 32-33,35

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