Estate management - regulations

The case of Shah v Colvia Management Company Ltd concerned a large industrial estate where each unit was let on a long lease. The estate was managed by a management company which was owned and run by the tenants. Each tenant had the right (in common with the others) to use the car parks on the estate, subject to reasonable regulations laid down by the management company from time to time. No individual spaces were allocated to tenants.

The car parks on the estate were very congested. The problem was exacerbated because several of the tenants operated vehicle repair businesses. These tenants frequently left vehicles in the car parks overnight, which made it difficult for other tenants to find spaces in the morning.

The management company received a rates bill in respect of the car parks. Initial attempts to put this through the service charge met with opposition from tenants who had difficulties parking. Instead, the management company decided to introduce a scheme to ban overnight parking on the estate in all but a number of designated spaces. A charging system would operate for tenants who wished to park overnight in the permitted spaces. The revenue raised would go to meet the rates bill.

The scheme was challenged by the vehicle repairers. They did not contend that the management company, as part of its power to prescribe reasonable regulations, could not ban overnight parking. Nor did they contest the company's proposal to charge for use of the car parks. However, they alleged that the scheme was discriminatory. The vehicle repairers were the only tenants who were likely to make use of the overnight parking facility. Since the charges had been set by reference to the amount required to meet the business rates bill for the car parks, the rates liability was effectively being met exclusively by the vehicle repairers. They argued that this was an expense which should be shared amongst all the tenants via the service charge.

The High Court agreed with the vehicle repairers. However, it found that this did not preclude the introduction of a scheme which charged for overnight parking provided that the charges were set by reference to the market value of such a facility, rather than the amount needed to pay the rates bill. Since there was no evidence of any research being carried out into the market value of overnight parking spaces in the area, it found the scheme to be unreasonable.

The Court of Appeal overturned this decision. It held that the burden of proof was on the vehicle repairers to show that the proposed scheme was unreasonable. This meant proving that the decision to adopt the scheme was not one which a reasonable landlord or management company could have taken in the circumstances.

The court commented that, just because a particular expense can be reimbursed by way of the service charge, that does not mean that it must be, rather than by any other means. Furthermore, since none of the various elements of the management company's income were earmarked for particular expenditure, it would be wrong to regard the prospective receipt by way of parking charges as paying for the rates liability rather than for any other aspect of the company's expenditure. The Court of Appeal found that there was no evidence that the proposed charges were unreasonable and consequently it upheld the scheme.

Things to consider

The test laid down by the Court of Appeal will be helpful to all those with responsibility for property management and for formulating regulations governing use by occupiers in multi-let buildings or estates. Whether a scheme of regulation is reasonable will depend on its terms, not on how those terms were arrived at by the party putting forward the scheme.

This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.

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