Tenement deed of conditions - what happens on destruction of upper floors?
Our client was buying a ground floor commercial unit in a tenement. A clause in the deed of conditions for the tenement (which was registered against all the titles in the tenement) stated that if any of the upper floor flats was totally destroyed, the owner of that flat had to convey it, for nothing, to the owner of the ground floor commercial units. This was a very unusual title condition. The lack of compensation is one major issue - but there was also the lack of any choice in the matter for the flat owners, who might want to use their insurance money to rebuild. And how would potential flat insurers view the provision? The clause was not expressed as a right of first refusal type of obligation - it was mandatory.
We would have been very concerned if we had been acting for the buyer of one of the flats - who could, if this condition was enforceable, lose the title to their flat if it was destroyed, without getting any payment in return.
However, even for the buyer of the ground floor units, it was still of concern for other reasons. For example, our clients might not want to be given title to the flats above. Also, if the whole tenement was destroyed and some of the flat owners refused to transfer title while others had agreed to do so, the issue could become very messy and costly to sort out - and in the meantime no rebuilding or redevelopment could take place.
Was the clause enforceable?
Our gut feeling on first sight was that such a title condition could not possibly be enforceable and indeed what on earth was the person, who put in place the deed of conditions, thinking?
However, on closer examination, we felt that it was more difficult to pinpoint exactly why the obligation would not be enforceable. Presumably, for the party who developed the tenement, the title condition had seemed like a good idea at the time. Perhaps that developer intended to keep the ground floor units and was trying to obtain a windfall in the circumstances of total destruction. It could then redevelop at will. The original developer had however long since sold off every part of the tenement, including the ground floor. Indeed, the ground floor commercial unit had also been split off in various segments, so that there was no longer just one ground floor owner who was meant to benefit from the title condition.
Although the title condition was put in place in 1982, it could hardly be considered as a wholly historic condition. Similarly, no intervening legislation had been enacted that prohibited such a scenario being enforceable.
In our case we had no option but to report on the terms of this clause to our clients, and to point out the potential risk of the title condition coming into play.
The title condition had been drafted clearly, it did not seem contrary to public policy or "repugnant with ownership" (although the flat owners might not feel that way!) or illegal - all of which could have assisted in reaching a conclusion of unenforceability.
The potential problems to which the title condition could lead are many. Fortunately, there were other factors in the clause that helped to point towards non enforceability. Although, without the issue being tested in court, there could be no absolute certainty.
Clarity is key
It is difficult to imagine that any upper floor property buyer today would accept such a title obligation. If, for the sake of argument, the principle had been accepted by buyers, then today's developer would want to be much clearer as to what was to happen and to set out a more detailed mechanism. Also, it would be sensible to back up the obligation with security - although that would cause problems for those buying the flats, as their lenders would want first priority or ranking.
The moral of the story here is to fully consider the enforceability of any title condition that you want to include before doing so to avoid questions of enforceability and the consequent adverse affects on marketability and possibly also value.