In this bulletin we look at rights to light, a legal issue which continues to impact developments across the City and beyond. It is bandied around as a buzz phrase in the media, but property owners and developers often receive mixed messages on how it should be dealt with. After a brief introduction to rights to light, we consider the solutions available and where you can turn to find them. Having evolved into sophisticated solutions, the different insurance options are explored in some detail.
What is a right to light?
Any property in England or Wales may have, or obtain, a right to light. It is a private property right (easement) to receive light through an aperture, usually a window. Rather than being measured by a light meter, a specialist surveyor models how much sky can be seen through an aperture from a given point in a room. The relevance of rights to light and the associated risk becomes apparent when there is development of adjoining land.
A surveyor can calculate the point at which this same level of light can be seen in a room before and after the proposed development and, by reference to the altered positioning within the room, an amount of lost light can be calculated in square feet. There are several ways in which light loss can be valued but of course everything has a price, and compensation figures can range from thousands to millions of pounds. Worse still, as a property right, the Courts view light as a precious commodity and one which should be protected by legal remedies should an affected property owner wish to pursue the matter.
The ultimate sanction is an injunction: a legal remedy requiring the property owner to restore the affected property to the position where it enjoys the same level of light before any work took place. In effect they must demolish or radically alter their scheme from that envisaged, even if it has full planning approval.
Despite a Law Commission recommendation to abolish injunctions where one would be prohibitive to reasonable use or development of the land, they remain an ever present threat to developers. The right to light complications at 22 Bishopsgate are a recent and very public example. Against a backdrop of compensation, legal fees, redesign and property alterations, developers are rightly cautious against infringing neighbours’ property rights when building out.
How can the right to light risk be avoided?
In an ideal world any development would be designed so as to have no impact on an adjoining property’s right to light. Particularly in city developments where tall buildings are prominent, or where there is massing to existing buildings in an infill environment, this is impossible. The developer is then left with three principal ways to mitigate the risk of legal action:
- Obtain a release of any rights to light from any affected neighbouring land owner
- Seek assistance from the local planning authority for appropriation of the development land
- Insure against the risk
Obtain a release of any rights to light
The next best thing to a scheme redesign is to seek the agreement of each neighbouring owner to release their rights to light. Once their right is released, an owner can have no further claim against the developer or land owner for infringement of that right.
However there are several drawbacks to this approach. It:
- Takes time. Surveyors need to approach each and every party with a claim to the right to light. This can include tenants as well as freeholders. Formal legal deeds need to be drawn up, agreed, and registered at the Land Registry before the risk is removed.
- Can be costly. Negotiations cost thousands of pounds in professional advisor fees and begin to accrue from the time a decision is made to approach a neighbour. The sums which an affected party may seek may not just be the ‘book value’ (a professional assessment of the value to their light loss) but may be based on enhanced sums several times this or even an alternative based on a share of profit of the build.
- Is not certain. A third party may refuse to release their rights to light meaning that the injunction risk is very real.
- Highlights the issue. Whilst certain commercial owners may be aware of their right to light, some less advised owners are not, and even fewer private individuals are. Actively seeking a release from their rights may mean time is lost and money spent where otherwise there would be no claim, or even worse the uneducated owner being educated by the developer just to have them turn around to threaten an injunction.
Seek Assistance From The Local Planning Authority
The development at 22 Bishopsgate provides an example of where the local authority used statutory powers available to it to ‘override’ private property rights. In effect, this means that any rights which do exist over a development site (not just rights to light) are attributed a monetary value in exchange for which the owner is due compensation.
This approach has some serious drawbacks. It:
- Is not favoured by local authorities. Invoking statutory powers requires the local authority to move from planning decision maker to commercial influencer. Doing so can attract unwanted media or political attention and so is typically avoided by local authorities wherever possible.
- Is not certain. Assuming that the local authority can be convinced to use its powers, it has to be able to do so. There are several criteria which have to be met, including an unquantifiable test that the development is in the public interest. Specialist legal advice, usually from a QC, needs to be sought before the powers can be invoked and even then there is still possibility of legal challenge to the decision.
- Can be costly and complex. In order to appropriate the land the local authority must have an interest in the land – essentially it must own it. Needless to say this can become complex and deal structures involving sale and leasebacks or sales back to the developer need to be considered and drawn up. Often the local authority will only do so on the condition that the developer indemnifies it against any compensation claims it receives.
- Takes time. For all of the reasons above appropriation is a very time and labour intensive exercise. It is only usually a consideration on high value, high profile sites where there is no prospect of dealing with the property rights in a commercial manner.
Insure Against The Risk
Insurance has increasingly been used to mitigate the risk posed by rights to light. It has evolved significantly to offer sophisticated solutions to site specific nuances, meet client preferences, and work in tandem with legal or surveyor recommendations.
Insurance is designed to offer a safeguard to property owners and developers against financial losses they might face in the event of a right to light claim.
Standard losses covered are:
- Compensation sums
- Legal fees
- Property alterations
- Construction costs
- Professional fees
- Diminutions in asset value
Additional cover can be sought for:
- Delay costs (such as contractual penalties or increased lending charges or costs of working)
- Relocation costs
- Staffing or alternative accommodation (such as commercial pre-lets)
Historically, obtaining insurance meant that a developer had to follow one approach to their rights to light: keep quiet! However the traditional ‘wait and see’ approach has now been replaced by individual approaches tailored to each risk. The different types of strategy approach can be seen in the table below.
Where there are severe infringements to nearby neighbours, or a claim has already been made, a developer may be left with little choice but to seek a release. Notwithstanding, insurers can offer policies to protect against an entrenched negotiation or an affected owner pursuing an injunction under a proactive release approach.
WAIT AND SEE
Low risk developments
Where there is general approval to the scheme or rights to light injuries are small
Where appropriation has already taken place and insurance is required against the compensation budget
High risk developments
Where there has already been a claim for a right to light
Where specific discussions need to be had on scheme developments or joint impact of rights to light
Medium risk developments
Where neighbourly matters are required but the developer may not wish to raise rights of light
Where objections have been made on light or amenity issues but have been dealt with at planning
+Saves cost (against compensation budget)
-Developer conduct looks bad
+Complete security (a release removes the risk and financial cover sits behind this if one cannot be obtained)
-Requires rights to light brought ‘to the table’ with negotiation costs on the developer
+Can act as a hybrid where surveyors or lawyers are unable or do not have time to determine potential claimant’s position
+Can save cost
-Negotiation costs remain with the developer
Where neighbourly matters (such as Party Wall Awards or crane over sail agreements) are required with an adjoining property, a developer may wish to have flexibility to deal with a claim if brought up during negotiations. Here a reactive release approach may be preferable or required by insurers.
Where affected properties are far away from the site or there is a large number of potential claimants (such as a block of flats) then cover may still be best served by the traditional wait and see approach.
Policies can be structured in combination so as to have one strategy for certain properties, and another for others, offering a highly bespoke solution to the rights to light issue.
Where To Turn
A full risk assessment is important in this specialist area. A right to light surveyor will need to be contacted to assess any potential impact on neighbouring properties as a result of the development. At an early stage, both a legal team and a specialist right of light insurance broker should be involved.
Working together the team of advisors can assess whether any affected properties are high, medium or low risk, and working with the developer and / or property owner they can devise an appropriate strategy for risk mitigation. This may involve any one of the above mentioned solutions, or a combination, but the key is the early involvement of all advisors to assess the possible solutions from all angles. This will ensure not only that the build is delivered smoothly with no capital risk, but also that potential funders or future purchasers are assured that they will have full asset security.
JLT have a specialist rights to light team, including an underwriter and a non-practising lawyer, and offer a combined legal indemnities’ experience in excess of 30 years. We have been involved with the development and evolution of the rights to light insurance product since its inception, and have been market leaders working with insurers to deliver bespoke solutions to our clients.
Working with some of the leading constructors, rights to light surveyors and lawyers, we have been able to ensure that we have maintained our position at the forefront of rights to light insurance. This has recently been cemented with the introduction of a brand new insurer to the market: Fidelis Underwriting Limited. Working with them exclusively on rights to light cover, as well as with the other leading insurers in the market, we continue to deliver the most sophisticated and cost-effective solutions to our clients.
Download Risk Focus Bulletin
For more information contact:
Ross Nicol, Real Estate, JLT Specialty on +44 (0)20 7558 3450 or firstname.lastname@example.org
Oliver Jackson, Real Estate, JLT Specialty on +44 (0)20 7558 3467 or email email@example.com