Supplementary Information to MacRoberts Development Unit e-update 02/04/09

DEVELOPMENT MANAGEMENT MADE EASY?

When passed, the Title Conditions (Scotland) Act 2003 contained a section headed "Development Management Scheme" which promised the ability to apply a pre-formulated scheme for managing commercial or residential developments. What was missing was the pre-formulated scheme. The Development Management Scheme (DMS) has at last been published by the Scottish Government and will be available for application from 1 June 2009.

The following is no more than a flavour of the DMS and its application. If you would like more detail on the contents of the DMS or how it might work for you, please contact John McQuillan, Partner, MacRoberts LLP on 0141 332 9988 or e-mail john.mcquillan@macroberts.com

When will the DMS apply and to what?
In order for the DMS to apply to land, the owner of land must register the DMS in the Land Register or Register of Sasines using a deed of application. Although "owner" is used in the singular, there is no prohibition on a group of owners agreeing to apply the DMS, so it is open to existing developments to adopt it (although getting a large number of owners to agree to that may be hard work). The land to which the DMS will apply is whatever land is designated in the registered version of the DMS. The DMS will bind tenants.

The DMS is not a default scheme like the Tenement Management Scheme promulgated under the
Tenements (Scotland) Act 2004. It will not apply to any property unless the owner of that land takes positive steps to make it applicable. The DMS can, however, be applied to tenements.

What form will the DMS take?
Ultimately the form of the DMS which is registered is up to the land owner. The land owner can elect to use the DMS as drafted and attached to the Regulations, or can elect to use a variation on the theme. The only part of the DMS which cannot be varied is that relating to the establishment of an owners' association. The deed of application should detail any variations. The DMS is therefore a template, not a mandatory standard.

Can the DMS be varied once it has been applied?
The DMS as applied by the deed of application can be varied at any time (again with the exception of the owners' association), albeit in accordance with the Regulations as to the requisite formalities. The DMS therefore has some flexibility for the future and future owners can adjust the DMS to suit changing circumstances.

Can the DMS be disapplied?
The owners' association established under the DMS can register at any time a deed disapplying the DMS. The DMS can be disapplied from the whole scheme or any part of it. However, that deed must be intimated to every owner of an affected unit within the scheme and any owner has the right to apply to the Lands Tribunal to have the DMS preserved. Only where no such application has been made, or has been made but has been unsuccessful, can the deed be registered.

What does the DMS say and do?
The terms of the template DMS are not very exciting, it has to be said, but they are functional and cover the essentials of development management. The DMS requires the establishment of an owners' association which will be a body corporate. The members will be the owners for the time being of all units affected by the DMS. The functions and powers of the association include carrying out of maintenance, repairs and improvements, taking out insurance, administering a service charge, borrowing and investing money, and engaging employees or agents. The association is also to be the enforcer of the DMS.

A manager is to be appointed by the association. The first manager will be named in the DMS as applied by the deed of application, but there are then provisions to allow the manager to be changed at subsequent meetings, or even to be deposed by the association. The manager will be an agent of the association and will be empowered to exercise the powers of the association. However, the manager will also be obliged to comply with directions from the association. The duties of the manager are essentially the implementation of the DMS and financial accounting.

There are provisions relating to the collection and use of a service charge in relation to the scheme property. The default position is that the service charge will be the same for each unit, but with provision for the association to decide that that should be varied in respect of any unit. The Service charge will be collected and managed by the manager.

Other provisions of the DMS include the frequency and conduct of meetings, allocation and exercise of voting rights, provisions in respect of winding up the association when the DMS ceases to apply, and the holding of association funds.

How are disputes under the DMS to be resolved?
Any dispute arising which cannot be resolved by the association can be taken to the Sheriff Court by any owner affected by the scheme. This will include disputes about the operation of the DMS as well as disputes about any decisions taken under it. Applications to vary or discharge the DMS in relation to any unit in the scheme can be made to the Lands Tribunal, who also have the power to determine questions as to the interpretation, validity, enforceability or applicability of the DMS.

DMS as real burdens
Selected provisions of the Title Conditions (Scotland) Act 2003 will apply to the deed of application, effectively rendering the DMS a set of community burdens on the scheme property, each unit within which will be benefited and burdened in accordance with the intent of the registered DMS.

Commentary
Developers are already very familiar with the concept of a deed of conditions. Anyone who has ever been involved in preparing a deed of conditions in relation to the management of a commercial development will know how hard it can be to cover adequately all of the relevant management issues. While the DMS may not be capable of application to every development without alteration, it is arguably a very good starting point as regards management. However, it is also arguably too detailed and may be difficult to edit into something more suitable. So is the DMS really any better than a deed of conditions? Sometimes it will be; sometimes it won't. However, developers now at least have the option to use the DMS template. The template is at least adequate, and if widely used would introduce an element of consistency and certainty for purchasers (and tenants) of units in developments.

The association which must be set up to administer the DMS is to be a "body corporate"; that is, an association with a legal identity separate from its individual members. The association will have the power to enter into certain types of contract, (e.g. purchase of goods, contracts of employment, etc.) It is the association as a body corporate which will be liable under those contracts, albeit acting through its office bearers. The DMS makes no specific mention of liability of office bearers, but the general law will apply as it does to all bodies corporate, so that there should be no personal liability attaching to office bearers, provided that the office bearers act within the powers specified in the DMS. Nonetheless, there will be some responsibility associated with being an office bearer in an association, and it is to be wondered whether that will be a role willingly taken up by many.

Conclusion
One of the primary aims of the DMS is to reduce the scope for disputes, an aim which it may well achieve. However, we expect that, in most commercial developments, the ultimate management responsibility will still be delegated to a managing agent. If that is the case, it may be that a "traditional" deed of conditions will deal better, and more simply, with development management.

We anticipate that law firms will start to offer the DMS as a viable alternative to developer clients, but we also anticipate that developers will often opt to stick with what they know, and use tried and tested deeds of conditions.

© MacRoberts 2009

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