Key Points
• Section 227 of the Town & Country Planning Act 1990 (“the Act”) gives a local authority power to acquire land by agreement if acquired for a development or planning purpose
• Section 237 of the Act allows the carrying out of erection, construction or building work on land acquired by a local authority for planning purposes, notwithstanding that it involves the interference with any easement liberty privilege right or advantage annexed to the land
• Compensation is payable to the beneficiary of these interests but it is based on “injurious affection”, that is diminution in the value of the land which is much lower than damages given in lieu of an injunction
• These powers can be used in development schemes to circumvent rights of light problems that might otherwise scupper the schemes. Care has to be taken in the exercise of the powers to avoid challenge by way of judicial review or under the Human Rights Act 1998
The 2010 case of HXRUK II (CHC) Ltd v Heaney [2010] 3 EGLR 15 has a lot to answer for. Heaney led to the conclusion, whether accurate or not, that in case of infringement of rights of light, an injunction would be preferred over damages.
As a result, developers have had to completely rethink their development strategy insofar as it relates to rights of light.
The Heaney effect
Heaney was a dispute concerning the infringement by a commercial development in Leeds city centre of the rights of light enjoyed by a neighbouring Grade II listed former bank building owned by Mr Heaney. He had objected to the proposed construction at the planning stage.
The developer had attempted to negotiate over a significant period of time, yet Mr Heaney had refused to engage. He instead continued to object to the development but took no formal action even as the new structure was constructed.
Unusually, it was not the affected owner that eventually commenced legal action, but rather the developer, who had suffered an abortive letting because of the unresolved rights of light problem. The developer, having already finished construction, sought a declaration that Mr Heaney was not entitled to an injunction.
Against expectations, the court ordered a mandatory injunction requiring the developer to demolish the top two floors of the new development. This seemed disproportionate given that the book value of the infringement was, at worst £80,000, compared to the cut-back costs and losses of £2.5m.
Before Heaney, the trend – in non-residential cases, at least – had been to assume that the courts would award damages in lieu of an injunction.
The perceived rights of light risk post-Heaney, however, was shifted firmly back on to developers which, faced with potential claims from neighbouring owners that were not resolved prior to construction, risked their developments being cut back or stopped altogether.
The result has been to change the way that developments have moved forward, with developers looking to eliminate the rights of light risk prior to commencement of the development.
To a great extent, this has been forced by funders that began to require the resolution of rights of light problems before any draw-down of funds was permitted – increasing the leverage of the owners of buildings benefiting from rights of light.
Compulsory purchase powers
One way to deal with this issue proactively is to invite the participation of local authorities in the delivery of the development. By the use of compulsory purchase powers under the Town and Country Planning Act 1990 (“the Act”), local authorities are able to prevent owners of neighbouring buildings using rights of light as a ransom tool to stop development or to extract large compensation payments in exchange for their co-operation.
A number of local authorities have become increasingly comfortable using these powers over recent years. The City of London Corporation is one such proponent, most recently being asked to agree to their use to push through the Goldman Sachs development of the old Fleet Place building.
Although compensation packages had been agreed with 11 owners of the surrounding buildings whose rights of light were adversely affected, two owners held out. The report by the planning officer to the planning committee shows that the compensation figure for the two properties was calculated to be about £1.2m.
The developer had offered less, the owners had asked for more, and this sum was the mediated figure put forward by the City of London as an appropriate compromise figure.
Having failed to reach agreement, officers put forward a recommendation to the members of the planning committee that the City utilise its powers under the Act in order to allow the development to proceed. This was challenged by the neighbouring owners and when the recommendation went to the planning committee, the decision was deferred.
Agreements were subsequently reached with the neighbours in open negotiation before the City had to make a resolution to use the powers. However, the possibility that these powers could be used helped conclude the negotiation.
Use of section 237
A local authority can use powers under section 237 of the Act to facilitate a development if it is required for the promotion of a planning purpose. In doing so, the right to claim an injunction if rights of light are infringed is converted into a compensation claim. If equitable damages are awarded by a court instead of an injunction, they can be significant.
The court uses two basic methods to calculate equitable damages – the “multiplier” and the “profit-share” methods. If the profit-share method is used, this can be anything up to one-third of the profit made by the developer from the offending part of the development. By contrast, if section 237 is utilised, compensation is calculated using compulsory purchase compensation rules. This is based on the diminution of the land value, and so is much smaller, sometimes even nil. Compensation claims under section 237 are decided by the Upper Tribunal (Lands Chamber), not the courts.
Section 227 of the Act provides a local authority with the power to acquire an interest in land by agreement for a planning purpose – that is, if it will facilitate the carrying out of a development, redevelopment or improvement and, in doing so, it will contribute to the promotion or improvement of the economic, social or environmental wellbeing of the area.
Section 237 of the Act provides that where the land has been acquired for that purpose, then erection, construction or carrying out of maintenance of any building or work on the land with planning consent can be undertaken, notwithstanding that it involves interference with an easement.
As with all compulsory purchase powers, they have to be used with care and are vulnerable to challenge both by way of judicial review and under the Human Rights Act 1998. With the courts receptive to Human Rights Act claims, the risk increases that challenges to the use of section 237 will succeed.
The difference between section 237 powers and other planning powers is that a local authority is assisting a private developer to defeat private law rights.
The local authority has to acquire an interest in the affected land – by way of a freehold transfer or the grant of a long leasehold interest – which is temporary and usually reversed on the acquisition of the interest.
However, a well-advised local authority can avoid challenge to its use of these powers by a careful assessment of the proposed scheme and its planning merits. In considering the human rights aspect of the case, it has to be satisfied that the public benefits of the development are proportionate to the interference with private rights.
Any developer wanting assistance from the local authority has to undertake to indemnify the council against all the costs it incurs in exercising these powers, which are considered to be a last resort when all negotiation fails. Their use is therefore not a quick or cheap fix.
An evolving picture
More help for developers is at hand, however. In the same way as Heaney marked a shift to a more creative way of resolving rights of light disputes, last year’s Supreme Court decision in Lawrence and another v Coventry (t/a RDC Promotions) [2014] UKSC 13; [2014] 1 EGLR 147 may mark a move back to a less frequent use of these section 237 powers. Coventry has turned the focus back by indicating that damages, rather than an injunction, should be the norm.
This case has already been followed in the rights of light arena in Scott v Aimiuwu (unreported, Central London County Court, February 2015). A residential extension interfered substantially with the light of the neighbouring house. The Aimiuwus had proceeded with the works, notwithstanding the objections of their neighbours. The court refused to grant an injunction and awarded damages instead.
Section 237 remains a useful tool to circumvent rights of light problems. It eliminates the injunction risk and results ultimately in a smaller damages claim to the affected party.
It is not a straightforward or quick fix, however. It requires the support of the local authority. This takes time because the local authority has to ensure it uses its powers correctly. It can also be costly as the local authority will require an indemnity for all its costs.
Therefore, the section 237 route is only of real use in larger development projects. It is an effective tool to prevent developments being held to ransom.
Caroline DeLaney is head of real estate disputes at Rosenblatt and Alistair Redler is senior partner at Delva Patman Redler Chartered Surveyors
