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Current rights to light bad for growth

by on for The Times

Uncertainty is only good for legal advisers and insurers —certainly not for the developer or the affected party.

It was not at all surprising to see that the Law Commission has opened a consultation on rights to light. The current situation has been untenable for some time, creating too much uncertainty — and that’s never good for encouraging property development and stimulating economic growth as the Government is so keen to do.

As the Commission itself states: “Where a development has taken place, but a court does not order its demolition, the court may award substantial damages. It may not be clear which remedy the court will order and landowners may succeed in preventing development even… after building has commenced.” And of course the difference between the two remedies, injunction or damages and indeed the amount of damages, can be make or break to a development.

For years, rights of light advisers were fairly confident as to what view the court would take in any given situation. Since 2005 the case most relied on was Midtown Ltd v City of London Real Property Co Ltd, in which damages, in lieu of an injunction, were held to be an appropriate remedy, when weighed against the harm that an injunction would cause in holding up a worthwhile development.

But in 2010 the pendulum swung back the other way in the case of KKRUK II (CHC) Ltd v Marcus Alexander Heaney, which reaffirmed what was always the basic legal position, ie, that the primary remedy for an actionable interference would be an injunction, rather than damages.

Not only that, but pre-Heaney, where damages were awarded, they were, in the main, based on valuing the loss in market value of the affected property. More recently, there has been the possibility that a claimant will make a claim based on the amount of developer’s profit referable to the offending area, ie, that part of the development which interferes. Generally, that will be a much higher figure than the loss of market value and may well make the development unviable. The current position breeds unacceptable uncertainty for the developer and a potential ransom strip situation for an affected owner. No one wins.

So, since Heaney, the advice to developers has been to try to settle with affected owners first and not assume that the court will grant “loss of market value” damages as a remedy.

To try to anticipate all possibilities, it is common now for developers to plan two alternative schemes at the same time — one which interferes and one which doesn’t, while trying to get affected parties “on board” in advance. Not knowing what basis of damages a court will award means that a developer is going into a negotiation with one hand tied behind its back. And a developer’s funders and investors require absolute certainty in an area where little certainty can be given – so where it is not possible or felt to be too risky to agree matters by negotiation the developer has to look to insurance, the cost of which is substantial.

Uncertainty is only good for legal advisers and insurers — certainly not for the developer or the affected party. As a developer’s lawyer, I think that the consultation is to be welcomed with open arms.

Nicky Richmond

Managing Partner & Head of Real Estate Finance & Banking

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