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Management regulations

Are they reasonable?

Shah v Colvia Management Company Limited
[2008] EWCA Civ 195

Summary

In this case, the Court of Appeal had to resolve a dispute arising from serious congestion problems in a car park on an industrial estate and decide whether a scheme put in place to regulate the car parking was reasonable or not. The burden of proof, the Court of Appeal held, lay with the tenants to show that the scheme was unreasonable.

Facts

Colvia Management (“D”) was the management company responsible for managing an industrial estate. The tenants controlled the management company. Shah (“C”) was one of the tenants.

Each of the 87 units on the estate was let on a 999-year lease, which contained a right for the tenant to use the car parks on the estate, together with a tenant’s covenant to comply with regulations made in relation to the common parts of the estate. There were about 350 car parking spaces, which was inadequate for the tenants’ needs, particularly as many of the tenants operated car repair businesses, and there was serious congestion.

Some tenants, including C, ran vehicle repair businesses and needed more space in the parking area than most other types of business, for vehicles awaiting inspection and courtesy vehicles. This meant the car parking spaces filled up early in the morning, so that by about 9 am there was no vacant space in the car park. This created a severe problem for staff and visitors arriving at the units on the estate during the day.

D proposed banning overnight parking in the common areas of the estate, with limited exceptions for which payment would have to be made. This was intended to reduce the extent to which the car park was used on a long-term basis, and to free up space first thing in the morning.

A company was appointed to manage this car parking scheme, which was approved by two-thirds of those voting, although the car repairers formed the bulk of the opposition to the scheme.

C and others issued proceedings against D, claiming that the scheme was unreasonable as under their leases, the tenants were only bound to comply with reasonable rules and regulations. They argued that the scheme was unreasonable because it would affect their businesses disproportionately and would produce significant income for D at the expense of C and others.

First instance

The High Court held that the scheme was unreasonable because:
  • no market research had been carried out as to the level of car parking charges before setting the parking charges under the scheme, and
  • the management company had calculated the charges for overnight parking under the scheme by reference to the costs of the third party responsible for managing the scheme and the level of rates (which were irrelevant to the exercise of the power under the leases to make regulations).
The judge considered, however, that charging for overnight parking could otherwise have been reasonable. The management company appealed to the Court of Appeal.

Appeal

Appeal allowed. The judge had incorrectly reversed the burden of proof. It was for the tenants to prove that the scheme was unreasonable, not for the management company to prove that it was reasonable.

The Court of Appeal did not think it was unreasonable in principle for certain tenants to pay for the privilege of parking overnight, so as to ration demand and contribute to the cost of running the scheme, even though this had the result that expenditure that would otherwise be recovered from all the tenants through the service charge would be met by only some of them.

In any event, the real issue was whether the proposed scheme was reasonable. T had to show that the basis of the decision to adopt the scheme was not one that a reasonable management company could have adopted in the circumstances.
Whether a regulation was either reasonable or not would depend on the terms of the scheme proposed under the regulation, and not how those terms had been arrived at. If the car parking charges were reasonable, it did not matter how these had been calculated. There was no evidence that the car parking charges were unreasonable.

The court held that C had failed to show that the scheme was unreasonable; and that it was reasonable that this scheme should be tried. The onus of proof was on those who asserted that the scheme was unreasonable. The scheme would be unreasonable if the decision to introduce it was not one that a reasonable management company could have adopted in the circumstances.

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