Rights to Light: development risks from blocking out light

Rights of Light are increasingly finding their way to the top of a developer’s risk register due to the potentially catastrophic consequences of a successful claim by a neighbouring owner. Aside from the possibility of an injunction being awarded, rights of light claims are a drain on the developer’s profits, limiting the floor space which can be achieved in the development and having to pay out either in damages or for insurance to mitigate the risk of a successful claim being brought.

From a developer’s point of view, the risk needs to be addressed very early on in a project – ideally at the pre-planning stage. There is little point in obtaining permission to build something that will have a significant right of light problem unless you have a clear strategy in place to mitigate that risk.

One of the major misconceptions in this area is that planning permission which involves daylight and sunlight analyses is all you need in order to build.  Rights of light are private rights which are entirely separate to the planning process. An entirely separate analysis needs to be carried out in order to assess whether the development has the potential to cause an actionable interference with a neighbour’s right of light.

The biggest risk which a developer faces is that of an injunction being granted. The case of Heaney, decided in 2010, related to an office development in Leeds called Toronto Square.

The fact that the development had been completed and the top floors pre-let to a commercial tenant did not stop a High Court Judge from granting an injunction requiring the developer to pull down the top two floors which were infringing the rights of light in respect of a nearby building.

Whilst the construction industry was still reeling from the decision of the Court in Heaney, the Supreme Court heard the case of Coventry v Lawrence. Although rights of light were not an issue in this case, the case concerned noise nuisance being caused by a speedway track in Norfolk and centred on the law of nuisance, which governs rights of light. In particular, the Court were considering the question of whether an injunction should be granted to prevent a nuisance where it had already been established or whether damages would be a more appropriate remedy.

The factors which the Court will take into account in deciding whether to award an injunction or damages include severity of the infringement, the use of the affected property, the behaviour of the parties concerned and the public interest.  It is widely considered that the Supreme Court’s decision in Coventry and Lawrence signalled a move away from the granting of injunctions towards damages.

If the Court decides not to grant an injunction, it will need to make an assessment of the damages that should be paid in lieu of an injunction.

There is a significant body of case law around the legal principles that are applied and the amount of damages which should be awarded. The starting point is the Wrotham Park case [Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798] which related to a breach of a restrictive covenant. The principle which the Courts use to assess the level of damages payable is based on the concept of ransom.

Where a breach of a neighbour’s right would otherwise result in the development not being able to proceed because an injunction would be granted, so the developer is effectively reliant on his neighbour for the scheme to proceed, the question the Court considers is what level of release fee might the developer have to pay in order to release their neighbour’s right.

The approach of the court when considering the level of damages payable is to assess what the outcome would be of a hypothetical negotiation between the developer and the neighbouring owner. The basis of the negotiation is around the profit which the developer will derive from that part of the scheme which infringes the neighbour’s right.  There is no hard and fast rule as to how profit is measured but where there is evidence of actual profit the Court is likely to consider it.

Although not set in stone, a neighbour can expect to be awarded something in the region of one third of the profit relating to that part of the development which infringes their rights. As a result of the increasing risk factor that rights of lights have posed in recent years, the insurance market has developed a number of policies intended to assist in mitigating the risk.

The first insurance policies were known as “wait and see” policies, which involved placing insurance against the risk of a claim by a neighbouring owner – but required there to be no contact whatsoever with the neighbouring owner. The wait and see nature of the policies had the effect of increasing the likelihood of an injunction being granted, given the Court’s focus on conduct. The Courts disapprove of a developer who makes no effort to make contact with his neighbour whose rights will be breached by the development.

As a consequence, “negotiating policies” were introduced, which addressed the problem. These policies provide cover in the event of a claim but also allow the developer to negotiate with the affected parties with a view to reaching a financial settlement. Financial settlements are by far the preferred outcome for a developer as they will result in a release of any rights the neighbour had and remove the risk of a claim being brought.

There is no substitute for direct negotiation between the developer and the affected parties. It provides certainty, assuming that releases can be agreed and documented. The issue is that negotiations can take time and risk alerting parties who would otherwise have been unaware of their rights of a potential claim. Negotiating with the comfort of an insurance policy in place is advisable to remove the risk of a claim being brought.

It cannot be emphasised how important it is for full legal due diligence to be carried out. Historic ownership and title searches can throw up a lifeline in an apparently difficult situation and is something which is surprisingly often overlooked.

This article was written by James Souter and Natalie Deucher. For more information please get in touch with James via james.souter@crsblaw.com or at +44 (0)20 7427 6716 .