Following the Law Commission’s project to investigate the rights of light issue, Anne Waltham examines the newly released consultation paper and what this means for the property industry
Key proposals at a glance:
• Abolish acquisition of rights of light by prescription for the future;
• Modify the damages or injunction criteria to focus on whether an injunction would be disproportionate;
• Introduce the notice of proposed obstruction; a “put up or shut up” notice procedure;
• Give the Lands Chamber power to discharge or modify existing (as well as future) rights of light.
It is extraordinary that the main catalyst to the Law Commission project examining rights of light was a first instance decision of the High Court. This is a reference, of course, to HXRUK II (CHC) Ltd v Heaney [2010] EWHC 2245 (Ch); [2010] 3 EGLR 15. Following Heaney, the uncertainties as to whether a neighbour may get an injunction even after a development is complete and the ever-spiralling costs involved in buying off claims were perceived to have reached meltdown.
Against that background, there were a number of initiatives within the property industry aimed at regulating the conduct of rights of light claims. At the risk of being cynical, however, most organisations would not hesitate, given the opportunity, to exploit any right they may have to the full. In reality, all this could achieve was tinkering at the edges and it was increasingly recognised that meaningful reform needed primary legislation: enter the Law Commission. The eagerly anticipated consultation paper (the paper) was published on 18 February and to use the Law Commission’s own words:
“We have approached this consultation paper on the basis that rights to light are valuable protections which should be respected. But so must the legitimate interests of those involved in developing the land, who are deeply concerned about the uncertainty of the current law and the risk of that uncertainty being exploited by those who benefit from rights to light. This project is therefore an examination of the balance between the competing interests of those groups to ensure that the correct balance is struck: one that fosters economic growth through the beneficial and efficient use of land whilst protecting legitimate private rights in a legal context, which is more transparent, fairer and easier to use than now.”
The paper follows the Law Commission’s easements report of 2011, which reviewed the law of easements generally and recognised the need for a separate review of rights to light. It examines the “full lifecycle” of a right of light and, in particular:
(1) whether the current law relating to the acquisition and enforcement of rights achieves a balance between the owners of a right and those wishing to develop land;
(2) whether the law can give greater certainty as to whether an injunction will be granted before works commence; and
(3) how rights to light come to an end, including by virtue of the planning powers exercisable by a local authority under section 237 of the Town & Country Planning Act 1990, which has been increasingly in the spotlight.
The key provisional proposals
1. The future: will prescription survive for rights of light?
The Law Commission’s provisional view is that prescription should be abolished for rights of light. The reform would only have effect for the future and existing prescriptive rights would continue to be valid. This would also bring an end to the acquisition of a right by the arcane legal fiction of lost modern grant.
Reactions to this may differ between legal practitioners and the wider property industry. Legal readers may recall that the easements report concluded that prescription should be retained. In How do you solve the problem of rights to light? (16 February, p90), Timothy Fancourt QC and Nick Lloyd expressed the view that it would be odd if the Law Commission was to recommend abolition of prescriptive rights of light, thereby creating an anomaly in the law relating to easements.
Developers, however, might say that the right is not protecting amenity (certainly in a commercial context), but is used as a tool to extract potentially disproportionate sums to allow a development to go ahead and that given the use of artificial lights and protections afforded by the planning regime, it is increasingly irrelevant in protecting homes and businesses from overly intrusive development.
2. The present: injecting more certainty for developers
The proposal for abolition of prescriptive rights is for the future. The Law Commission has also examined what could be done with existing rights to alleviate uncertainties in the current law. These were graphically highlighted in Heaney, particularly as to when an injunction would be granted, the potential for a neighbour to assert its rights, but take no action and effectively freeze or blight development and the delays and costs involved in the whole process. There are two key elements to the Law Commission’s provisional recommendations: first, a new test for resolving the injunction versus damages debate and, secondly, the introduction of a “put up or shut up” notice procedure.
Injunction v damages
The primary remedy for infringement of a right to light is an injunction. The current approach of the courts in deciding whether damages should be awarded in lieu of an injunction is by reference the Shelfer criteria (see Shelfer v City of London Electric Lighting Co [1895] 1 Ch 287). These criteria, together with their rigid application in Heaney, were explained by Fancourt and Lloyd. They expressed the view that the Heaney effect could be avoided by eliminating the Shelfer test and restating the court’s discretion to determine whether it is just to limit the neighbour to damages. The Law Commission has provisionally proposed something similar, but by reform, rather than elimination, of the criteria used by the courts.
The proposal introduces a new statutory test, which in relation to rights of light only, restates the Shelfer criteria with modifications. The buzzwords are now “oppression” and “disproportionate”.
Of the Shelfer criteria, the fourth limb, namely oppression, would be the key element in the decision as between damages or an injunction. A court may decide to award damages in lieu of an injunction if to grant the injunction would be “disproportionate”. In deciding this question, the court would have to bear in mind (which should not be regarded as exhaustive):
(1) the size of the injury in terms of loss of amenity (which can include consideration of whether artificial light is usually used);
(2) whether a monetary payment is adequate compensation;
(3) the conduct of the claimant;
(4) whether the claimant delayed unreasonably in bringing proceedings; and
(5) the conduct of the defendant.
It will be interesting to see consultees’ responses to this proposal and, in particular, whether it goes far enough to allow lawyers and rights of light practitioners to advise clients with rather more certainty on the million dollar question of “will an injunction be granted?”. Although distinct, the new test needs to be viewed in conjunction with the notice procedure described below.
Notice of proposed obstruction
A notice procedure was mooted by Fancourt and Lloyd and is a concept that has also been explored within the industry following Heaney as a method of addressing the apparent scope for a dominant owner to assert his rights, but sit back and do nothing actually to bring proceedings. Heaney showed that there is no point in time when a developer can build safe in the knowledge that an injunction will not be granted. All a developer can do, assuming that it can overcome the hurdles of funding and pre-lets, is take a deep breath and carry on or potentially seek a declaration that the dominant owner is not entitled to an injunction. Both carry significant risks and the latter spectacularly misfired in Heaney itself.
Against that background and to address the Heaney situation, the Law Commission’s provisional proposal is to introduce a notice procedure, which would operate as follows:
(1) The developer may serve on the dominant owner a notice of proposed obstruction (NPO). The NPO will contain information about the extent of the proposed obstruction and ask whether the dominant owner proposes to seek an injunction.
(2) The dominant owner will have four months to respond to the NPO by serving a counter-notice stating whether s/he objects to the proposed obstruction.
(3) If a counter-notice is served, then the parties have a further four months for negotiations to take place.
(4) If no agreement is reached within that further four-month period, the dominant owner must issue injunction proceedings before the end of that period.
(5) During the eight-month period encompassed by the procedure, the developer would not be allowed to infringe the dominant owner’s right.
(6) Only one NPO can be served on a dominant owner in any five-year period.
(7) If the dominant owner failed to serve a counter-notice objecting to the obstruction in time, the court would not be able to grant an injunction in relation to the proposed obstruction (or any other obstruction which causes no greater infringement of the right to light) for a five-year period from the service of the NPO. The dominant owner’s remedy in damages would not be affected.
This is a potentially radical change in the law where existing rights are concerned. No doubt there will be detailed issues regarding the procedure to be ironed out and poured over by practitioners during the consultation period. In particular, it will be interesting to see whether developers consider that the length of time involved in the procedure is longer than they would have liked.
However, since the Law Commission is seeking to achieve a balance between competing interests, it must be right that the dominant owner is given a proper opportunity to take advice, enter into negotiations and reach an informed decision. It will not be mandatory for a developer to follow the NPO procedure and, as now, a developer can take its chances through the courts against the background of the new statutory test of proportionality on the question, is it an injunction or damages?
3. Jurisdiction of the Lands Chamber under section 84 of the Law of Property Act 1925
Once the recommendations in the easements report are implemented, all easements, including rights of light, created after implementation will be able to be modified or discharged by the Lands Chamber under section 84. In relation to rights of light, the Law Commission has taken a more radical position. Its provisional proposal is that the jurisdiction of the Lands Chamber to modify/discharge be extended to include existing rights of light. The paper contains a discussion on whether such a proposal would be compatible with the European Convention on Human Rights.
In contrast to the easements report, its conclusion is that extending the section 84 jurisdiction strikes a fair balance between the public interest and the interests of individual owners of rights to light and would be compatible with the Convention.
If an application to modify/discharge is successful, compensation will be awarded to cover the loss suffered by the dominant owner and this is generally on a diminution in value basis, rather than a negotiated share of profits basis.
A side benefit of the proposal may be that rights of light would become less valuable as they would be susceptible to potential discharge for a level of compensation significantly lower than the current potential ransom value against a developer.
4. Aspects of the law where the provisional proposal is no change
(i) Principles governing when an obstruction of light is actionable
The Law Commission’s provisional view is to retain the current subjective standard of whether an obstruction is actionable, namely if it deprives the dominant owner of sufficient light for the beneficial use of the building for any ordinary purpose for which it is adapted. This is preferred over introducing an objective test or codifying the level of light to which a dominant owner is entitled.
The paper seeks views on whether commercial premises should be distinguished from residential premises when assessing the adequacy of light. The provisional conclusion means that the subjective test established by Colls v Home & Colonial Stores Ltd [1904] UKHL 1, the Waldram method and the so-called “50/50 rule” survive. Artificial light will still not figure in the equation of whether a nuisance has occurred, but as explained above, will be relevant on the question of remedy.
(ii) Method of assessing equitable damages
The Law Commission examined a number of options for reform, including the introduction of a cap on damages, for example, by reference to the market value of the dominant property. The paper recognises that some stakeholders have concerns with the current law, but the Law Commission tended towards the view that the other options did not offer a clear improvement on the present position. It is well established that where evidence of profits is available, damages will most likely be assessed by reference to a share of the profits that will be generated by the element of the proposed building that infringes the dominant owner’s right of light. This aspect of the paper is likely to provoke a lively debate since large City of London schemes in particular potentially involve high numbers, notwithstanding the overriding judicial consideration that the amount awarded “has to feel right”.
(iii) Extinguishment of a right to light by abandonment
The easements report recommended that where an easement has not been used for a continuous period of 20 years, there should be a rebuttable presumption that it has been abandoned, for example, where the dominant owner has blocked off the light to a window. The more complex scenario is where the dominant property is demolished and rebuilt with its apertures in different, but arguably overlapping, positions.
The key question is whether the new apertures are coincidental to the old ones and if so, by how much. This principle is simple to state, but can be difficult to apply in practice. Having considered the possible reforms, such as a registration requirement or new statutory test for when a right of light would survive an alteration, the Law Commission’s provisional conclusion is that none of the options represents an improvement on the current law.
(iv) What about section 237?
The operation of section 237 is expressed to be outside the scope of the current project. The Law Commission did, however, consider whether it offered an adequate tool to address the problems associated with rights of light. The conclusion was that although section 237 fulfils a valuable role, its use was “rightly limited” in private developments.
5. Potential issues with the proposed reforms
(1) Regarding the proposal to abolish prescription, the Prescription Act 1832 requires 20 years’ use “next before some suit or action” in which the right is established.
If the new law is enacted in say, 2016, the question arises whether a dominant owner who has already achieved 20 years enjoyment, but has not brought an action, would have to take proceedings in 2016 in order to establish a right? Otherwise, would it be lost or would it remain in existence as an inchoate right until an action is brought?
(2) Regarding the NPO procedure:
• The Law Commission envisage this will be used as a last resort following extensive negotiations that have failed to result in agreement, but the NPO procedure itself is a lengthy one.
• What information should be given in an NPO? It must clearly be sufficient to allow the dominant owner to reach an informed decision. Should it be accompanied by the developer’s right of light report?
• Will time limits be of the essence?
• Money will presumably be discussed during the negotiation period, albeit on a without prejudice basis. How would this be regarded by the courts if the dominant owner then sought an injunction? It is generally accepted that evidence that a dominant owner is interested in compensation, rather than protecting the light, will be fatal to an injunction. Even if the negotiations are without prejudice, it will be fairly obvious that the topic of those negotiations was money.
(3) The Lands Chamber procedures relating to restrictive covenants are perceived as slow. Consultees may consider that its procedures should be expedited to give the reform real “teeth”.
What next?
As always, the Law Commission invites responses within the consultation period of three months. In addition to comments on specific proposals, the Law Commission needs more practical examples and evidence of the effect of rights of light claims on funding, delays or alterations to developments and the costs involved.
This will be important in the context of the impact assessment to be published with the final report for consideration by the government when deciding the fate of the Law Commission’s final recommendations. Having got this far, it is unlikely that the property industry will be slow in coming forward and expressing its views. The Law Commission’s inbox is open.
Comment from law commissioner, Professor Elizabeth Cooke
It was clear to us even before the start of the project that there is some disquiet – particularly within the development industry – with certain aspects of the law of rights to light. Of course, this is only one side of the story. We approached the project by asking: does the law strike an appropriate balance between the interests of those who hold rights to light and those who wish to develop land?
With that in mind, we have looked at the lifespan of rights to light: how they are created; how the law protects them; and how they can be brought to an end. The legal protection offered to rights to light is a crucial issue and we have addressed it in two ways: by a proposal that would clarify the law on when damages can be awarded instead of an injunction, and by a proposal for a procedure that would enable developers to bring negotiations to a head by requiring a neighbour to commit to seeking an injunction if that is what is wanted.
The procedure does not take anything from the neighbour. The right to light remains intact, and the owner is not obliged to do anything more than would have been necessary in any event, ultimately, to obtain an injunction. It is just that a clock is set running and a limit placed on uncertainty.
The provisional proposals in the consultation are designed to be fair, balanced and sensitive to the needs of all parties. They are also realistic; a procedure that is open to abuse or risks unfairly depriving property-owners of their rights will not become law.
The chances of reform depend on stakeholder engagement and we want to hear your views.
propertyandtrust@lawcommission.gsi.gov.uk
Anne Waltham is a partner and head of real estate litigation at Wragge & Co LLP
