The case of Montrose Court Holdings & anr v Shamash & ors [2006], decided in February earlier this year by the Court of Appeal, is one which could easily slip under the radar but raises some interesting points in relation to the landlord’s ability to supplement leasehold (and in this case freehold) rights by the application of regulations. The court also discussed landlord’s derogation from grant which, combined with the covenant for quiet enjoyment, seems to be getting more prominent. As an example, see Stewart v Scottish Widows & Life Assurance Society Plc [2005], which dealt with the unfortunate consequences for a prestige sports car maintenance business when the landlord, with the best of intentions, introduced speed bumps to its estate roads.

The facts

It is a shame that the Honourable Lord Justices did not provide a sketch plan of the estate with the judgment handed down, as it would have been instructive in following the facts, but a quick internet search soon illustrates the area involved. Essentially, the case revolved around the parking rights attaching to certain properties in a prestigious area of Knightsbridge adjacent to Hyde Park. The judge at first instance found that the householders on the estate in question, comprising an eight-storey block of flats and eight mews houses, had the use of 114 car-parking spaces. Eighty-four of these were in the basement of the eightstorey block. It is an indictment of the environmentally unfriendly times we are living in that these 114 spaces were unable to support the requirements of the 100 dwellings on the estate. The crucial last piece of the jigsaw of information before moving on to the dispute itself is that the estate owner (Montrose) owned:

(1) the freehold of the block of flats;

(2) the forecourt in between the block and the main road;

(3) the freehold of five of the mews houses that were held by their owners on a long-leasehold basis (three had been sold off on a freehold basis, which is central to the case); and

(4) the service road which looped from the main road round the block of flats and bisected the block from the houses.

This service road supported parking for 19 cars and the forecourt parking for approximately 11 vehicles.

The dispute

So, the landlord had recognised that the excessive parking demands of the various households on the estate was causing an issue, particularly when supplemented with mischievous passers by using the estate for off-street parking while presumably enjoying an afternoon picnicking in Hyde Park or frequenting the haute couture shops in the vicinity. The solution to the problem seemed straightforward: residents’ parking permits.

The system of permits related to the entry of any vehicle onto the Montrose Court estate, which was prohibited without a permit. Permits were offered to residents for a fee (which might have come as something of a shock to the residents, having previously enjoyed free parking), and in this context residents included the owners of the freehold mews properties. One permit was allowed per property but more than one vehicle could be approved by the permit. It is worth setting out the relevant regulation, which was questioned in its entirety (note that it relates to the service road and forecourt only, ie not the basement parking under the eight-storey block of flats):

A residents’ permit will authorise each of the cars specified in it to be brought onto the estate and parked in the parking areas (service road and forecourt) for up to 72 hours if space is available, but no more than one of the cars specified in the residents’ permit may be on the estate at the same time.

The leasehold properties, ie the flats and the five leasehold mews cottages, all contained provisions entitling the landlord to make regulations relating to the parking of vehicles. Interestingly enough, one of the freehold houses also contained a prohibition against parking, so there was no problem on that score. The transfers of the other two freehold properties contained no prohibition on parking (or for that matter, any express right to park).

The owners of one of the houses wrote to Montrose stating that they did not consider themselves bound by the regulations. They also requested the court to declare that their property enjoyed an easement to park and that the regulations would be an unlawful and substantial interference with that easement. Montrose sought a declaration to the contrary.

The first instance decision

The judge at first instance found that the regulations could be validly made subject to:

(1) the owners of the two freehold mews houses being entitled to two residents’ permits at the same time, rather than one; and

(2) limitations on the amount that the landlord was able to charge.

The first limb of the declaration is odd and smacks of a compromise. Certainly, given the judgment of the Court of Appeal, there is a suggestion that such a ruling would have been subject to challenge by the other residents on the estate.

As is often the case, in trying to keep both parties content, the court had satisfied neither.

Montrose challenged the ability of the freeholder owner to receive two permits. The freehold owners challenged the 72-hour time limit within the regulation itself.

This was the argument that came before the Court of Appeal.

Court of Appeal

The court began by going back to basics. Was there a right to park at all? The rationale for finding that a right to park had been granted was interesting.

The register of title included:

(1) a right to pass and repass over the service road;

(2) an explicit prohibition against any parking ‘which could block the service road’; and

(3) (unusually for a freehold title) an obligation to observe all regulations made by the transferor which related to parking.

The judge at first instance observed that, notwithstanding the lack of an express right to park, some parking rights might have been granted. Examining the three provisions above, this seems a reasonable, if slightly conservative, observation. However, there was a further factor to consider. Prior to acquiring the freehold interest in the property in 1987, the owners of the mews cottage occupied the same property on a leasehold basis. Although it is unclear how the judge at first instance was able to speculate on this, it was found as a fact that the service road was used for parking by the relevant owners who had brought the case against Montrose during this leasehold occupation, ie immediately prior to the 1987 transfer of the freehold. The operation of s62(2) of the Law of Property Act 1925 (LPA 1925) incorporated this right into the freehold transfer as being a right:

… occupied or enjoyed with, or reputed or known as part or parcel of or appurtenent to, the land, houses and other buildings conveyed, or any of them, or any part thereof.

Any argument that the general rights to make regulations was limited to the exercise of rights expressly granted by the conveyance (rather than rights implied by the LPA 1925) was soon snuffed out by the Court of Appeal – a useful reminder that, as a class, section 62 rights cannot be distinct from the document which creates them. In other words, an express right to park would have been subject to the right of the estate owner to make regulations. An implied section 62 right was no different.

On the basis the regulations could be made, therefore, the only question before the court was whether or not these regulations were properly made. The starting point was to confirm that the parking spaces were available not only to the owners of the mews houses but also the flat-owners. This put the problem into context. The right to park in the 19 or so spaces was available to some 100 residents. On that basis it could be supposed that, as a general principle, regulations were desirable and even necessary to control the use of the spaces.

The court examined the case of Saeed v Plustrade Ltd [2002]. In that case rights to park had been granted by a long lease in 1977. In the subsequent ten years a further 18 long leases were entered into containing a similar right, notwithstanding that there were then only spaces for 13 vehicles. The property in question was then redeveloped, which had the effect of reducing the available parking from 13 spaces to a measly four. The landlord in that case used the imaginative argument that as they were able to specify the area to be used for parking, they could frustrate the parking rights by refusing to specify any area!

An interesting variation on this theme can be found in the relatively recent cases on rent review, including Addin v Secretary of State for the Environment [1997], where a landlord attempted to thwart an automatic upwards/downwards rent review by refusing to nominate a valuer to determine the new rent. The courts have made it quite clear that any efforts by parties to avoid their contractual obligations by (ab)using the ‘machinery’ will be frowned upon.

In the rent review cases the landlords were forced to nominate a valuer to determine the new rent and if they refused, the court would step in and do it for them to give effect to the bargain struck.

It will come as no surprise that in Saeed the landlord was found to have substantially interfered with the right granted in the lease and therefore derogated from its grant. The analysis was almost mathematical – the right gave 19 owners the ability to use 13 parking spaces. To reduce that number to four rendered the right almost unexerciseable.

Decision

This test of ‘substantial interference’ was applied in the Montrose case. Once this was adopted as the test, the decision in the case was never in doubt. The number of spaces available for parking had not been decreased by the use of the regulation mechanics. This was a proper use of regulations to regulate the use of the spaces for the benefit of each of the householders and, as the courts said, the regulations made could be seen as necessary so that everyone who enjoyed the right could enjoy it ‘in orderly competition’.

A sensible decision, then, from the Court of Appeal, and one which puts nicely into context the relationship between the making of regulations by estate owners and the potential conflict with the landlord’s obligations not to derogate from its grant. Clearly, landlords need to bear the substantial interference test in mind when attempting to make estate regulations, but the basic rule of thumb is to treat all occupiers equally. Provided the regulations regulate and do not reduce the express rights granted, they should receive the judicial seal of approval.

Derogation of grant/quiet enjoyment cases seem to be arising with more frequency, with tenants pursuing this route to protect their occupation and related rights. This case reinforces the principle that if a landlord is contractually able to make regulations then, provided there is no substantial interference with the tenants’ rights (even their rights to free parking!), the landlord should be on safe ground for some time to come.  © Property Law Journal