Casting shadows: managing and avoiding rights to light issues

Posted: 30/01/2024

Following on from the previous article which looked at what rights to light are, how they arise and are identified, and what the potential consequences of infringement are, this article will now explore the ways in which they can be avoided or managed in the context of a development, though again the advice of specialist surveyors, valuers and lawyers should be sought in each case.

As with the last article, the expressions 'impacted building' and 'site' will be used to respectively describe the property with rights to receive light and the property being developed over the airspace of which those rights are exercised.

Avoiding an infringement

A developer which has identified any actual or potential rights to light affecting its site has a range of options available to avoid an infringement of those.

Changing the profile
The most obvious is to adjust the design of the development to prevent or minimise any infringement in circumstances where the site allows for it. However, developers should bear in mind that neither artificial light nor transparent or mirrored surfaces can be used to replace natural light as the law is concerned only with the latter.

Relying on custom
If the site is located in the City of London with the development broadly following the footprint of a previous building then the 'Custom of London' may be relevant. This holds that a development of any height may be built on 'ancient foundations' notwithstanding any impact on certain prescriptive rights to light.

However, its use is limited since it is overridden by the most prevalent form of prescriptive rights arising under the Prescription Act 1832 following 20 years of enjoyment without written consent. Furthermore, it is unclear whether the custom only applies to residential developments.

Blocking the path
So-called 'spite screens' were erected in the past to prevent light from reaching neighbouring buildings and prescriptive rights arising as a result. They fell out of use owing to changes in planning legislation and the subsequent introduction of light obstruction notices under the Rights of Light Act 1959. The effect of such a notice, once correctly served and registered, is to create an imaginary screen on the boundary of a site that prevents the passage of light and can be of a specified or infinite height.

Either of those can be an appropriate strategy where neighbouring buildings do not have any rights to light and a developer wishes to prevent them accruing by prescription. However, they may not be suitable where light has already been enjoyed by the neighbouring building for 19 years or more since any obstruction for less than a year will not prevent rights to light arising under the 1832 Act. And there is debate as to whether a light obstruction notice would be effective after 18 years of enjoyment given the wording of the 1959 Act.

Managing an infringement

If an infringement cannot be avoided, then the developer will need a strategy for managing the associated risks. Central to this is the question of whether insurance has a role to play and on what basis.

Insurance
This provides cover in respect of claims for injunction or damages made by owners of impacted buildings up to a specified limit of indemnity in return for payment of a premium. It can ordinarily be incepted before or after planning permission for a development is obtained, though insurers are naturally more comfortable insuring on a post-planning basis when armed with the knowledge of any objections made by the owners of impacted buildings. This will generally be reflected in the amount of the premium and excess applied to the policy.

Insurers are receptive to accommodating developers’ mitigation strategies and to tailoring their policies accordingly, whether that be to facilitate negotiations with owners of impacted buildings or to take a more reactive approach and 'wait and see' if claims arise. Whatever the strategy, the terms of the policy must be carefully adhered to given that the consequence of non-compliance may be the avoidance of the policy.

While insurance may appear to be an attractive risk management tool for developers and their funders, it can come at a significant cost and its potential shortcomings should not be overlooked. These include the loss of control over the conduct of any claims which exceed predetermined deductibles, for which the interests of the developer and its funder in de-risking the development as quickly as possible may not be fully aligned with those of the insurer in optimising the amount it must pay out beyond any such deductibles.

Engagement
Most rights to light claims do not go to trial and are instead subject to a negotiated settlement. Alternatively, they are simply never pursued because the infringements are small and the owners of impacted buildings are unaware of them. The developer’s strategy should identify those owners with whom it needs to engage to secure a release of rights and those for whom it may adopt a 'wait and see' approach, which is normally based on the seriousness of the infringement and the anticipated likelihood of a claim arising from the affected owner.

It is imperative for a developer to act in an open and honest manner in its dealings with the owners of impacted buildings. This will reduce the risk of an injunction being awarded in the event that negotiations fail, as the courts have indicated a willingness to punish developers that act in an underhand way.

Settlement
While the precise terms of each settlement will differ, it will usually involve a release of any rights to light over the site paired with an acknowledgement that any light over it is enjoyed by consent to prevent any further prescriptive rights from accruing. In many cases, the release will be confined to the particular development through the use of agreed profile drawings, such that the owner of the impacted building retains its rights in the event of a future development outside the agreed profile. However, it is conventional to allow for deviations of up to a certain tolerance – usually between 30cm and 1m – within the agreed profile to allow for minor design changes.

The release will be in consideration of a specified fee that would be agreed as either a share of the developer’s profit in the offending part of the development or an enhanced book value, especially where there is insufficient evidence of profit or there are too many affected parties for a share of profits to be calculated. The agreed compensation may attract stamp duty land tax as well as value added tax where the owner of the impacted building has opted to tax.

The owner might also seek a release of any rights to light enjoyed by the site where it aspires to develop its own impacted building. Those rights may well have value where any of the windows or other apertures in the developed site remain in similar positions to those previously on the site, albeit it is seldom taken into account.

Overriding
Another option may be available under section 203 of the Housing and Planning Act 2016 where planning permission for a development has been granted but negotiated settlement has not been possible. This legislation enables bodies such as local authorities to convert claims for any interference with rights due to the development into an entitlement to compensation by acquiring the site before transferring it back to the developer. The compensation payable is calculated by reference to the diminution in value of the impacted buildings caused by the interference, so would tend to be substantially less than the release fee or damages that a developer might otherwise expect to pay. And the risk of injunction is, of course, removed.

Unfortunately, this tends to be available only in the case of larger projects of local or national significance where agreements cannot be reached with the owners of impacted buildings. There are various reasons for this, which include the attendant costs and the fact that the site must be capable of being compulsorily acquired by the authority. That latter element means the development must be in the interests of the proper planning of the area or be likely to contribute to the promotion or improvement of its economic, social or environmental wellbeing. This approach also carries with it the potential for judicial review of the authority’s decision.

Thinking ahead

Rights to light can have a pivotal bearing on the success or failure of a development, so it is essential to identify them at an early stage and formulate and implement a robust strategy for dealing with them in a consistent and neighbourly fashion. Developers will need to deploy an experienced team of specialist surveyors, lawyers and valuers to light the way through this shadowy area, lest they find themselves grasping in the dark.

Enhanced book value

As seen in the previous article, book value represents a capitalised loss of light by reference to the yield of the impacted building through the application of a notional rent to areas for which there is a loss of light.

An enhanced book value is a multiple of the base figure which often reflects the severity of the injury and relative bargaining positions. It is frequently used in initial appraisals and as a starting point in negotiations.

This article was originally published in Estates Gazette on 16 January 2024, and was written in collaboration with Nick Lane, senior director at Point 2 Surveyors.