ANALYSIS Legal FIGHT FOR 9 Next Wednesday the Court of Appeal will decide how far the law backs neighbours in rights of light disputes. Richard Heap reports U K developers are receiving ransom notes, from their neighbours: “Dear Mr Developer, You want to build a scheme on a site next to me, which will block my light. I can delay your scheme for ages unless you pay me a lot to go away. If you don’t pay, then I will get part of your building torn down. “Yours, A Neighbour. “PS. The law is on my side.” The Court of Appeal is on the verge of deciding how far the law backs neighbours. Next Wednesday it is due to start the two-day appeal hearing in a “rights of light” dispute in Leeds, involving Highcross subsidiary HKRUK II (CHC) and neighbouring property owner Marcus Heaney. The original judgment in September caused shockwaves among developers, as Highcross was told to take down the parts of its building, Toronto Square, which blocked Heaney’s light (box, overleaf). Developers say the judgment is dangerous. It shows neighbours can have bits of buildings taken down, even when the neighbour’s own financial loss is relatively minor. They also warn that, if the Court of Appeal upholds the Heaney judgment, objectors will use the threat of injunction to delay schemes and receive big payouts. Highcross and Heaney both declined to comment on the case in advance of the appeal hearing. says the age of the law shows how antiquated it is. “Rights of light is a nonsense, because it dates back to the Victorian days when people sat with their candlelight. It’s being used as a ransom rather than a compensation issue,” says Kaye. The law is delaying developments and Kaye says property should lobby the government for change if this continues. He suggests there should be a time limit during which aggrieved neighbours can bring rights of light claims, and that the planning process should take into account rights of light when making its planning decisions. At present, rights of light disputes are matters of civil law and dealt with separately from the planning process. Nigel Webb, head of developments at British Land, agrees that the Heaney case has added more risk to development and the wider economy. “This case brings uncertainty when UK companies need to have the development industry progressing schemes and creating employment. We’re all hoping there’s going to be some clarity following the appeal,” he says. Aldous Hodgkinson, director at development manager Stanhope, says that the way compensation is worked out and the size of claim that can lead to the grant of an injunction are both concerns. He adds that the Heaney case shows developers are at risk of injunction, even after they have HOW TO WORK OUT A RIGHTS OF LIGHT CLAIM AFTER AN 1 BEFORE: BUILDING PLANNING EXTENSION Affected building Adequately lit area Dark ages The Heaney case has raised the question over how rights of light compensation should be worked out. Historically, neighbours have been entitled to a payout for the decrease in the value of their property because of the impact on their light. Heaney has raised the prospect that payouts can be based on a share of the developer’s profit instead. Gerald Kaye, director at Helical Bar and president of the British Council for Offices, says in one recent dispute, an objector used this to claim £1m in compensation — more than the value of its property. “How can you reduce the value of the building by more than the value of the building?” he asks. “The whole thing’s got out of control.” The right to light (box, opposite) is usually gained under the Prescription Act 1832. Kaye 30 25|03|11 propertyweek.com Legal ANALYSIS LIGHT consulted extensively with aggrieved parties. He says developers in the City of London that want to start development are most immediately affected: “These issues are making it quite difficult for developers to get on and implement their building permission, which is what they would like to do and what the City of London corporation would like to see them do as well, providing everybody is getting a fair deal all the way around.” Gordon Ingram, senior partner at rights of light specialist Gordon Ingram Associates, says the Heaney case did not change the law on rights of light. Rather, it interpreted the existing law to make it easier for objectors to file for an injunction. He also says developers are frustrated because there is a small number of rights of light surveyors that can deal with disputes. Any delays in resolving them can help the negotiating position of objectors. Development at risk Ingram agrees that more developers are talking to the City of London. “The corporation wants to be seen as fair, but at the same time it doesn’t want to lose the opportunity to see development take place. I suspect they also don’t want to see Canary Wharf — where rights of light is less of an issue — take tenants as a result,” he says. To bring a rights of light claim, a neighbouring property owner needs to have enjoyed uninterrupted light for 20 years. As the first tenants only moved into Canary Wharf in 1991, few would have a right to light. One rights of light expert, who did not want to be identified, says “all development will be at risk” if the Court of Appeal agrees with the previous Heaney judgment. “The law says if you’ve got a building on the site, the moment you start going bigger or higher, you have a rights of light case. It doesn’t matter whether it happens in Bath, Leeds or London,” he says. “If developers can no longer put up office ›› EXTENSION ws 2 AFTER: PROPOSED EXTENSION s Reduced lit area al e m 1. y on. . ion. propertyweek.com 25|03|11 31 ANALYSIS Legal « buildings with big floorplates because of rights of light, the City of London’s future is in jeopardy.” The City of London corporation is working on the problem. It is in the early stages of producing a protocol to encourage developers to consider rights of light issues at an early stage in the planning process, and whether the corporation can intervene earlier to stop rights of light disputes becoming a problem on schemes. The corporation would not comment on its plans as it is still considering its options. Under section 237 of the Town and Country Planning Act 1990, local authorities can override rights of light claims from neighbouring property owners for planning purposes, such as where a development causing the rights of light issue is of significant economic benefit to the area. However, local authorities are reticent about using these powers, as they need to balance the interests of developers and neighbours. Liz Peace, chief executive of the British Property Federation, says the government should establish a sensible framework to deal with rights of light disputes and that local authorities should consider using section 237 powers more often. “If you can get the local authority to use section 237 powers, that will bring the neighbour to the table,” she says. Peace adds that the government should produce a formula for working out rights of light compensation, rather than leaving it to the discretion of the High Court in each individual case. She also says the threat of claims would make it harder for developers to borrow money for their schemes: “You’re not going to find a bank lending against a scheme where there might be a vexatious claim in the future.” John Walker, head of development planning at Westminster City Council, says developers in the West End are aware of their obligations, but others assumed they would be able to settle claims with a payment later on in the process. This is not a legally sound position. “You should never make assumptions when it comes to things like that, because it’s very difficult to gauge just how emotional people can get about their light, and how far they will go,” says Walker. “It’s something that needs to be sorted out at a very early stage, because some people will fight it tooth and nail. It’s happened in the past.” Ray of light Although the Heaney case has not changed case law, it has given a tougher interpretation to laws that already exist (box, opposite). Clare Fielding, partner at law firm Herbert Smith, explains: “A market practice seems to have developed under which commercial interests are seen as compensational and the court is only likely to grant an injunction in exceptional circumstances. In fact, that’s never been the legal position.” Property developers can take steps to protect THE HEANEY CASE their interests. Bill Gloyn, partner in European real estate at insurance broker Jardine Lloyd Thompson and immediate past-president of the City Property Association, says rights of light have “never been clear”, but there is insurance cover that developers can take out, in case objectors try to take action against them after schemes have been completed. Developers can obtain light obstruction notices to stop rights of light from becoming an issue on their schemes. The notices are a way of removing a right to light without building a physical obstruction, based on powers in the Rights of Light Act 1959. But the biggest worry for developers is starting schemes. If the court upholds the Heaney judgment, developers can expect a lot more ransom notes. 9 Case news @ You can read the case news report (Property Week, 01.10.10) by Jonathan Ross, head of property litigation at Forsters, about the initial judgment in HKRUK II (CHC) v Heaney at propertyweek.com/heaney PROFESSIONAL What is the valuer registration scheme? Which valuations are provide? Where possible, we will collect most of the information we need through firms that are regulated by RICS. This information will include an overview of their valuation practice, details of their insurance cover, details of the properties they value and so on. Individuals will need to provide personal information about their valuation work. How will they be monitored? The computer system will risk assess the information and indicate which areas of practice need further scrutiny. Some members will have their work reviewed by qualified staff, which could include site visits and interviews. We can then issue a report with recommendations about how they could improve their practices. When members cannot or will not improve their standards, disciplinary action could follow. When does the scheme start? it launches on 20 Octob gist 25|03|11 covered? In future, any “Red Book” valuation will need to be performed by an RICS registered valuer. By creating a register, we will be able to identify who is carrying out valuations and monitor them. We can then provide them with relevant information. What must valuers LEGAL CASE NEWS News Jonathan Ross Floor could disappear under you if you deny a neighbo ur’s right to light The message Developers should not proceed without resolving right of light claims by neighbours. We see it as a way to raise standards among our members and ensure our valuers are the global gold standard. We need to monitor and improve standards and firmly establish RICS members as the professionals of choice. In th 32 News Box header Q+A: valuers Mark Gerold, senior director of valuation at BNP Paribas Real Estate and chairman of the RICS valuation professional group, talks about the RICS valuer registration scheme nd all purchased the adjoining building in 2003. It was the former headquarters of the Yorkshire Penny Bank, and the defendant said he had spent around £3m in restoring it as offices. The case In the first important reported case involving a completed HKRUK appreciated that commercial scheme, the its development of the upper floors would court has had to decide interfere with the light whether an injunction enjoyed by the defendant’s should be granted to prevent building. In September interference with an 2008, HKRUK offered adjoining owner’s rights the defendant compensation of light or whether damages of some £20,000 plus would be an adequate costs, but this was remedy (HKRUK II (CHC) v unacceptable. Solicitors for the Defendant then Heaney, 03.09.10). wrote in November 2008 to ask for an undertaking HKRUK, a that the development would not interfere with subsidiary of the defendant’s right of light. Highcross, bought HKRUK decided to proceed with the development the building, now while negotiations continued. It clearly anticipated known as Toronto reaching some agreement with Heaney and work Square, in Leeds on the construction of the upper floors commenced in December 2007 in September 2008. It was well under way by for £18.75m. It the time the defendant’s solicitors came on the scene. proposed a scheme Correspondence between solicitors continued that included the from November 2008 until February 2009 with reconstruction of the defendant taking no steps to seek an injunction the fifth floor and to prevent the works proceeding. the addition of a The works were completed by July 2009 with the total cost of the sixth and seventh project coming to nearly £36m, including the floor. Heaney, the acquisition and finance costs. defendant, had HKRUK let the seventh floor from 1 August 2009 Valuation Office Agency ‘drags heels’ over empty The property industry was livid when business rates relief for empty properties was scrapped on 1 April 2008. Now, it is becoming frustrated by the Valuation Office Agency and its tougher stance over exempting properties from paying rates, even in legitimate cases, where properties are being refurbished or redeveloped. Rating experts say the agency has become more inflexible since it introduced a practice note on valuation in 2008, which gives a tougher interpretation of the Rating (Valuation) Act 1999. They claim erties that were “incapable of beneficia tion” were previously made m ess r No thi PROFESSIONAL Professional @ but, to allow other lettings to proceed, started proceedings to obtain confirmation that the defendant’s only remedy was damages and it could not demand any changes to the development. In the proceedings, it was estimated that any required alterations would cost £1m-£2.5m and would require the occupiers of the seventh floor to vacate. In the case of Regan v Paul Properties (2007), the court had made clear that an injunction to require demolition or alterations to a building could be awarded, even if the adjoining owner had not sought any injunction to restrain interference with its right of light while works proceeded. That case involved a domestic property and HKRUK argued that interference with light to a commercial property was not as serious and, in its estimation, the eff ect was small and related to less than 1% of the total square footage of the defendant’s building. Case law has established that the burden is on the developer to establish that an injunction should not be granted to restrain interference with a neighbouring property. It can do so if it can establish that any injury caused is small, compensation can be clearly estimated, a small payment would adequately compensate the injured party and it would be oppressive for an injunction to be granted. Unfortunately for HKRUK, the court held that neither the injury, nor the compensatory payment, would be small. There would be substantial interference to some important areas of the defendant’s building, and that the amount HKRUK would have to pay to buy out the defendant’s rights was assessed at £225,000. Although the defendant delayed taking action and the effect of an injunction would be very costly for HKRUK, the court recognised that it had proceeded despite knowing that it was infringing the defendant’s rights and did so at its own risk. It thought it would be wrong for it to compel the defendant to accept damages, which he did not want, in relation to a building he had invested heavily in. HKRUK now has to carry out major alterations or reach an agreement with the defendant. This would now involve a very substantial payment indeed. 9 It would be wholly wrong to compel the defendant to accept damages he did not want rates It also defends the 2008 practice note: “The object was to provide additional clear and consistent guidance on the law and practice for valuation officers who were likely to receive more appeals as a result of the 2008 changes to the empty property rate legislation.” Steve Thomas, head of rating at Montagu Evans, disagrees. He says the Valuation Office Agency is dragging its heels on removing properties, or parts of them, from the rating list — even though it would have done so quickly four or five years are go. He cites the example of a building near Piccadilly Circus in London’s West End (pictured) Thomas says that is case, the agency would remove it list d Jonathan Ross is head of property litigation at Forsters Summing up: HKRUK v Heaney 9 HKRUK’s scheme blocked Heaney’s light. The firm then sought to prevent an injunction. 9 HKRUK wanted to pay damages instead, as an injunction would mean changing its building. 9 The court gave the injunction. It said Heaney shouldn’t have to take damages he didn’t want. You can read hundreds of advice pieces online. The latest article is Clarke Willmott associate Karl Brown’s advice to landowners on what they need to do to stop private rights of way arising on their land. For this and more go to propertyweek. com/professional Meanwhile, Howard Kennedy solicitor Scott Goldstein explains why the judgment in the BDW Trading v Opticlife case (29.07.10) is significant to property owners. He says the case is a warning to sellers and their advisers that they must comply with all contractual preconditions to a sale to compel a buyer to complete a purchase. Read more legal case verdicts at propertyweek.com/p rofessional And finally … In 2003 Marcus Heaney bought the Yorkshire Penney Bank in Leeds city centre and spent £3m restoring it. In 2007 Highcross subsidiary HKRUK received planning permission to redevelop and add two floors to the adjacent building, Toronto Square (pictured). During 2008, the developer notified Heaney of its proposed works, and admitted that the interference to light caused by the extension was actionable. HKRUK decided to start on the scheme while negotiations continued. Heaney’s solicitors threatened to file for an injunction, but never did so. Construction started on the upper floors in September 2008 and the work was completed in July 2009. HKRUK issued proceedings that claimed that Heaney was not entitled to an injunction because a small financial payment would be adequate compensation. Heaney claimed that he could file for an injunction to remove the obstructive part of the building. HKRUK said the work would cost £2.5m and force the tenant that leased the top floor to vacate. In September, the High Court found that Heaney was entitled to an injunction, a decision that Highcross has appealed. The hearing is on 30-31 March, and the appeal judgment is expected soon. Green gets a lift London mayor Boris Johnson used his spee h t of World Green o set out his Speaking uld propertyweek.com